Tradewinds – OECD delays negotiations on ‘Green Ship’ financing

(Written by Adam Corbett)

12 December 2012 - Governments have put on the back-burner a raft of financial incentives aimed at encouraging the construction of super fuel-efficient vessels.

The Organisation for Economic Co-operation and Development (OECD) Working Group (WG) 6 on shipbuilding subsidies has agreed to delay talks on introducing advantageous state-backed financing terms for super fuel-efficient vessels.

As reported last week, shipowners represented by the International Chamber of Shipping (ICS) urged caution over a move to come up with a definition of Green Ships. It was suggested that such a move might encourage governments to introduce financial incentives, resulting in unwanted newbuildings.

Japan’s proposal was that ships with a performance exceeding the Energy Efficiency Design Index (EEDI) by 20% should be rewarded with improved financing terms under the internationally-binding agreement on export credit for ships.

Efficiency incentive

The idea is that such terms would act as an incentive to encourage ship-efficiency research and development (R&D).

It is similar to a separate initiative under development at the OECD, called “Green Car” to introduce financial incentives to promote R&D into environmentally-friendly cars in the automobile industry.

Japan said it would like to see export finance increased from 80% of the newbuilding contract value to 85% and repayment terms increased from 12 years to 18 years for so-called Green Ships.

However, both South Korea and Norway suggested it would be better to wait and monitor the efficiency performance of ships built under the EEDI before committing to a new agreement.

The EEDI will come into effect in 2013 and, as the initial efficiency standards are quite low, it is expected that many ships will pass with ease and some may even be able reach the initial 20% improvement without taking exceptional measures.

It was also argued that reduced fuel consumption should be a sufficient incentive on its own to promote fuel-efficient ships. However, Japan’s case is that the long-term financial returns are not enough to encourage the immediate funds required to develop Green Ships.

‘Green Ship’ definition

The OECD must also first come up with a definition of a Green Ship that may qualify for beneficial financing. That definition may go beyond fuel efficiency and also include elements such as nitrogen and sulphur dioxide (SO2) emission levels and also compliance with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (Hong Kong Convention).