Incentive schemes that promote green shipping

The Port of Los Angeles uses the ESI scheme to incentivise shippers Photo: Port of Los Angeles
The Port of Los Angeles uses the ESI scheme to incentivise shippers Photo: Port of Los Angeles
The GHG Emission Rating focuses exclusively on carbon emissions based on the relative energy efficiency of a ship’s design
The GHG Emission Rating focuses exclusively on carbon emissions based on the relative energy efficiency of a ship’s design
In 2017, the ESI scheme had 47 participating ports ranging from large sea ports such as Rotterdam, Busan and Los Angeles, to small inland ports
In 2017, the ESI scheme had 47 participating ports ranging from large sea ports such as Rotterdam, Busan and Los Angeles, to small inland ports

An increasing number of ports in Europe, North-America and parts of Asia have in recent years introduced or adopted incentive programmes to encourage ships to use cleaner marine fuels or reduce air emissions while in port, writes Renilde Becqué, independent emissions consultant

With the introduction of and gradual tightening of emission limits for Emission Control Areas (ECA), which regulate sulphur and/or nitrogen emissions in the Baltic Sea, North Sea, North America and the US Caribbean – and with China currently introducing three Domestic ECAs (DECA) – these air emissions have in part become less of a concern for ports located in an ECA (or DECA) zone.

Nonetheless, the number of ports having incentive programmes in place is still on the rise, with ports handing out discounts from 5% to as much as 47% on harbour dues for eligible ships. These ports are keen to encourage enhanced performance from vessels calling at their quays beyond the ECA mandated permissible emission levels, as well as for air emissions not effectively covered by the ECA, such as particulate matter and carbon.

Ports can therewith make a strong case towards their primary stakeholders, such as port cities and local governments, that incentivising cleaner ships makes good sense due to the direct local health benefits associated with reduced air pollution – a relationship that’s often less clear when it comes to discounts aimed at lowering carbon emissions.

This is one of the reasons why carbon doesn’t receive equal attention under every incentive scheme, although (as an exception) the GHG Emission Rating focuses exclusively on carbon emissions based on the relative energy efficiency of a ship’s design.

Industry lead

Many of the well-known incentive schemes have been developed by industry itself, rather than by government. Some specifically tailored towards ports and others mainly as a rating scheme to support shippers and charterers in their ship procurement processes, although with various ports ‘repurposing’ this to provide discounts to eligible ships instead.

Recent developments however have fueled great interest from government and inter-governmental parties, as well in the potential role incentives provided by ports can play in curbing carbon emissions. Reasons range from shipping not being included in the 2015 Paris Accord to curb global warming; relative inertia on the side of IMO to more rapidly start addressing carbon emissions from shipping; and parties such as the European Union and the OECD looking for ways to slash carbon in the absence of near-future action by IMO.

If left unaddressed, the sector’s carbon emissions could shoot up as much as 250% by 2050 as the world’s population grows and economies expand. As the primary connection between ships and land-based suppliers and buyers of goods, ports fulfill a critical role in the supply chain and may be able to leverage that position to reward cleaner ships.

Funding hurdle

This doesn’t take away that funding can be a hurdle ports face in introducing incentive schemes. Some ports design their incentive schemes to be cost-neutral, slightly raising the harbour dues for non-qualifying ships to offset the costs of providing discounts to qualifying, cleaner ships, therewith not drawing on and having to justify using public money to pay for the scheme – but this is not a feasibly option for all.

Another challenge is to attract ships to join an incentive scheme. A programme initiated by only one port city offers limited financial benefits for shipowners and operators, as eligibility criteria and reporting processes will vary at different ports, resulting in extra administrative costs and efforts for ships, as well as the ports. Thereby reducing the incentive for ships to go beyond existing regulatory requirements.

In recognition of this, harmonised incentive programmes have been developed in which multiple ports along major shipping routes or in the same country collaborate. The Environmental Ship Index (ESI) and Green Award for instance are adopted by an increasing number of ports around the world. Meanwhile Swedish ports have from January 2018 started using the Clean Shipping Index (CSI) to better reward more efficient vessels.

Practical application

This still hasn’t answered the question how these schemes are actually being applied in practice to reward qualifying ships. For this purpose, we can take a quick look at the ESI, a well-known industry scheme, as well as at two ports in Canada, using blended incentive schemes.

In 2017, the ESI scheme had 47 participating ports ranging from large sea ports such as Rotterdam, Busan and Los Angeles, to small inland ports. Participating ports provide a reduction on fees based on a vessel’s total ESI score, which ranges between 0 and 100 (best) with the aggregated score made up of a SOX, NOX and CO2 emission component, plus an additional bonus for on-shore power systems.

Ships self-register at the ESI website, with higher scores attracting greater scrutiny from the scheme’s administrators. Ports demand a minimum number of points, such as 21, 31 or 40, for ships to be eligible for a discount. The ESI’s administrative costs are mostly funded by the International Association of Ports and Harbors (IAPH). By the end of 2017, the scheme had about 7000 registered ocean-going ships.

The ports of Vancouver and of Prince Rupert, both in western Canada, use blended incentive schemes instead, recognising five industry-initiated incentive schemes, as well as a few other pathways such as a ship’s EEDI (Energy Efficiency Design Index) score, in order to increase the pool of vessels calling at their port that could be eligible for discounts.

These ports both apply three tiers of increasing discounts, with the use of a matrix that defines for each incentive scheme which score falls within which tier. Discounts cannot be aggregated across schemes. To use the ESI example again, to receive the highest discount a ship would need to have 40 ESI points or over at Port of Vancouver and over 50 points at Prince Rupert. Every few years the ports raise the bar to create a continued incentive for beyond-compliance environmental performance in the industry.

Providing clarity

With multiple schemes operating in the market, it’s quite easy to become confused as to the purpose, workings, and differences between these programmes.

To provide both ports and shipowners/ operators with better insight in the main schemes used by ports to reward cleaner ships - with information ranging from which data are required for a ship to qualify, to how a port can become an incentive provider - NRDC recently published a discussion paper on Incentive Schemes to Promote Green Shipping

The paper covers four industry-initiated programmes, being the Environmental Ship Index (ESI), Clean Shipping Index (CSI), GHG Emissions Rating and Green Award; three country-wide incentive programmes, adopted by Norway, Sweden and Singapore; plus, the mentioned two examples of ‘blended’ incentive programmes.

The authors herewith hope to make a valuable contribution to the discussion and increased interest around the use and usability of port incentive schemes in order to set shipping on a cleaner trajectory.

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