GREEN PORT INCENTIVES

GREEN PORT INCENTIVES Prof. Dr. Michele Acciaro, Kühne Logistics University, Hamburg at the Workshop Measurement of regional economic effects caused by cruise tourism, Riga Riga / Latvia, April 25 th -26 th 2018

GREEN PORT INCENTIVES PROF.DR. MICHELE ACCIARO KÜHNE LOGISTICS UNIVERSITY HAMBURG MICHELE.ACCIARO@THE-KLU.ORG RIGA 25-26 APRIL 2018 1

A FEW WORDS ABOUT ME Work Associate Professor of Maritime Logistics at the KLU in Hamburg Previously: Senior Researcher Green Shipping at the Research and Innovation department of Det Norske Veritas AS (now DNV GL) in Høvik, near Oslo Deputy Director/Research Associate at Erasmus University Rotterdam, Center for Maritime Economics and Logistics (MEL) Education BSc and a MSc (cum Laude) in Statistics; a MSc in Maritime Economics and Logistics from Erasmus University (hons); and a PhD in Logistics also from Erasmus University Rotterdam Contacts: michele.acciaro@the-klu.org

PORT ENVIRONMENTAL INCENTIVES First port to develop such system of incentives: Stockholm (1991) But many ports followed in the last decade globally 3

CURRENT STATE OF KNOWLEDGE Desk research, partial review of publicly available information So far not all ports make use of environmental charges ITF suggests about 20% but they do not consider small ports Substantial differences in uptake among regions Different structure of schemes among ports Most common scheme is a reduction on tonnage tax based on global standards: Green award (e.g. Klaipeda) Environmental ship index (ESI) (e.g. Rostock, Rotterdam) Clean shipping index (CSI) (e.g. Gothenburg) Blue angel (e.g. Hamburg) Rightship (e.g. Port of Vancouver) Green Marine (e.g. Port of Vancouver) Other or no index (e.g. Las Palmas) Multiple indexes are also used The standards are applied along or in combination with other standards General reductions are between a few percentage points up to 20% (with extreme cases up to 50%) 4

CURRENT STATE OF KNOWELDEGE European Commission Study: Study on differentiated port infrastructure charges to promote environmentally friendly maritime transport activities and sustainable transportation (July 2017) Int. Transport Forum: Reducing Shipping Greenhouse Gas Emissions - Lessons from Port-Based Incentives (April 2018) Academic articles: Limited body of literature but growing DISCLAIMER I was involved in the EC Study as one of the consultants What I present are my ideas and in no way I represent the views of COGEA, the European Commission or any other party involved in the study This is my overview of the topic resulting for several years of independent research work and analyses 5

ITF RECOMMENDATIONS AND COMMENTS Focus: emission reduction (primarily GHG) 1. Acknowledge the important role of ports in mitigating emissions Comment: Emissions from port activities are very limited, and while the ports have a role to play, the important role is to be played by the IMO 2. Expand port-based incentives for low emission ships Comment: this expansion can only be justified in view of a IMO-wide policy 3. Link port-based incentives to actual emissions Comment: Should some port authorities subsidize the GHG emission reduction of the shipping sector? This could only be done at a global level and within the framework of an IMO-led regulation 4. Move to a more harmonized application of green port fees. Comment: Ports should retain their ability to set fees independently on the basis of their strategic objectives, their development priorities and the characteristics of the port Harmonization intended as common tariffs and reductions, would not work in such an industry and might not be desirable What is necessary is a coherent transparent system of incentives, where shipowners can clearly understand what they can claim and when A simplification of how incentives are claimed is also important 6

EC STUDY ON DIFFERENTIATED PORT INFRASTRUCTURE CHARGES TO PROMOTE ENVIRONMENTALLY FRIENDLY MARITIME TRANSPORT ACTIVITIES AND SUSTAINABLE TRANSPORTATION Recommendations: 1. Consider environmental charging as part of a broader policy to support the uptake of alternative fuels for waterborne transport (EU) 2. Consider environmental charging as a market-based measure for reducing greenhouse gas emissions from shipping (MS, PA) 3. Assess the feasibility of defining common criteria for environmental charging across the EU. (MS/PA) 4. Environmental charging schemes should (i) be simple to understand and implement, (ii) clearly state their goals, and (iii) be monitored throughout their implementation. (MS/PA) 5. Make sure to involve all the relevant actors in the decisionmaking process. (MS/PA) 6. The total costs for financing a differentiated charging scheme should be balanced with the environmental benefits yielded by it. (MS/PA) 7

EC STUDY ON DIFFERENTIATED PORT INFRASTRUCTURE CHARGES TO PROMOTE ENVIRONMENTALLY FRIENDLY MARITIME TRANSPORT ACTIVITIES AND SUSTAINABLE TRANSPORTATION Recommendations: 7. Establish a forum and a neutral platform to collect and exchange learning insights on environmental charging between ports. (EU/PA) 8. Develop a pilot project for the collection of information on actual emission production on board ships (EU/PA) 9. Further detail the concept of green ship in the revision of the Port Reception Facilities Directive (EU) 10. Further analysis should be carried out to complete the mapping of incentives to reducing emissions and waste for ports (EU/PA) 11. When negotiating concessions or service contracts, consider introducing contractual provisions by which service providers must offer differentiated charging options to users. 12. Make sure that existing certification schemes include mechanisms for inspections and/or audits. (MS/PA) 8

EC STUDY ON DIFFERENTIATED PORT INFRASTRUCTURE CHARGES TO PROMOTE ENVIRONMENTALLY FRIENDLY MARITIME TRANSPORT ACTIVITIES AND SUSTAINABLE TRANSPORTATION Main lessons Motivation for implementation: air quality and local issues primarily Size and specialisation play a somewhat lesser role than expected: great diversity Autonomy in tariff setting Environmental indexes / certifications Decision-making process Budget: budget is generally allocated yearly and it can be modified Monitoring: difficult for environmental effectiveness Incidence schemes: 1%-50% (exceptional) Percentage of eligible ships 10%-25% Percentage of calls obtaining rebate: 2%-10% Percentage of total port dues:.5% to1% All schemes are built on incentives / no port penalises ships with poor performance 9

EC STUDY ON DIFFERENTIATED PORT INFRASTRUCTURE CHARGES TO PROMOTE ENVIRONMENTALLY FRIENDLY MARITIME TRANSPORT ACTIVITIES AND SUSTAINABLE TRANSPORTATION Environmental effectiveness: In the absence of any actual data on the impact of charging schemes on the environment, an estimation has specifically been carried out for this Study. It has emerged that a discount of only 20% on port dues in all EU ports for vessels certified with an ESI score of 30 points may lead up to a 4,34% reduction of current NOx, SOx and PM emissions in the EU, if only 14% of the EU fleet were eligible for the discount. Economic analysis: Sizable rebates can only be obtained for large vessels or for a high number of calls Total benefits obtainable in Europe assuming a 7% eligibility, 10% discount, average tariff (0.20 EUR/GT) = 22 million EUR (15 million SSS) 10

EXAMPLE TANKER (INBOUND) Large (small VLCC) 120 000 GT TONNAGE CHARGE (FOR A PERIOD OF 5 DAYS) 59 928 HARBOUR PILOTAGE CHARGE 1,733.90 WASTE DISPOSAL (FOR A PERIOD OF 48 HOURS) 749.29 SHIPOWNERS CONTRIBUTIONS (optional) 394,00 Total 62 805.19 (95% tonnage charge) Medium size (AFRAMAX) 11 570 GT TONNAGE CHARGE (FOR A PERIOD OF 5 DAYS) 3629.92 HARBOUR PILOTAGE CHARGE 156.60 WASTE DISPOSAL (FOR A PERIOD OF 48 HOURS) 270.23 SHIPOWNERS CONTRIBUTIONS (optional) 101,00 Total 4 157.75 (87% tonnage charge) 11

ENVIRONMENTAL DISCOUNTS Port of Bremen/Bremerhaven introduced an environmental component as part of its tonnage charges with effect from 01.01.2012 The environmental incentive is calculated on the basis of the ESI (Environmental Ship Index), which is intended as an international standard for the comparison of ship emissions. As from now, shipowners and shipping companies can have their ships rated according to the ESI on a voluntary basis To do so, they have to enter the relevant data for their ships on a website On the basis of that data, the ships then receive a certificate which serves as the basis for the environment-based discount on the tonnage charges payable 12

ENVIRONMENTAL DISCOUNTS (BREMEN) Port of Bremen/Bremerhaven has two discounts (mutually exclusive) 1) Discount on Environmental Ship Index (ESI) A total of 25 ships with a the best ESI score 40 will receive 15% per port call per quarter, up to a maximum of 4500 Euros The discount is granted at the end of the year Applications must be submitted by the party liable for payment of the charges. The figures will be verified by the port authority. 2) LNG discount ESI SOx score >98 LNG or Methanol All ships fulfilling the requirement will be eligible for a 20% discount Large (small VLCC) 120 000 GT 1) 8 989 -> 4 500 2) 12 561 Medium size (AFRAMAX) 11 570 GT 1) 456.30 2) 831.55 13

EXAMPLE: HAMBURG ENVIRONMENTAL DISCOUNTS Discounts on port dues can be offered based on the vessels green performance Discounts of 3% and 2% are applied to certified environmental friendly ships that have been granted either Green Award and Blue Angel respectively 15% reduction called port power discount is offered to ships that use onshore power supply (OPS) at the port instead of their diesel engines while berthing. Environmental Ship Index (ESI) discount up to 10% on port dues Up to 15% to vessels that operate with LNG New Scheme based on IAPP (Int. Air Pollution prevention) certificates 30% on tier III 14

PORT OF LOS ANGELES Several types of incentives available. Vessel Speed Reduction Incentive Programme (less than12knots), aim to reduce Nox emissions from ocean-going vessels generally starting 20 nautical miles from Point Fermin Incentives based on ESI: ESI score greater than 50 -> $2500 per call ESI between 40-49 -> $750 per call OGV5: IMO Tier III elegible for a $5000 per call OGV6: Nox and PM emission reduction $750 per call Also regulation on Onshore Power Supply The scheme is adpated yearly (above the first release of ESI scheme in 2012) 15

EXAMPLE: PORT OF VANCOUVER (VANCOUVER FRASER PORT AUTHORITY) Vancouver Fraser Port Authority s harbour dues rates per gross registered tonne (GRT) in Canadian dollars, are as follows: BASIC $0.094/GT GOLD $0.050/GT (i.e. 46,8% reduction) SILVER $0.061/GT (i.e. 35.1% reduction) BRONZE $0.072/GT (i.e. 23,4% reduction) Various ways to obtain the tier 1) Using cleaner fuels LNG -> gold Other, biodiesel etc. 2) Adhering to an environmental programme Green Marine, Green Award, CSI, ESI, Rightship 3) Adopting specific vessel and engine technologies OPS, scrubbers, etc. 4) Obtaining a certification by ship classification societies 16

OVERVIEW OF ENVIRONMENTAL CHARGING ALTERNATIVES Alternative Implementation Decision Parameters Rebate Fixed amount Percentage rebate on GT Percentage rebate on GT and ship type Amount Allocation criteria Selection of index % level Selection of index % level Tier system Tiering Charge Fund (allocation at a later stage eg. NOx fund) Direct charge Direct Charge + Redistribution scheme Charging and redistribution scheme Charge determination Charge determination Redistribution scheme Charge determination Redistribution scheme 17

BASELINE DESCRIPTION Assumptions No of calls 12000 Average ships size 64,000 Average tarif per GT 0.2144 0.2144 Discount 10.00% Surcharge 1.00% Available budget 100,000 Percentage of eligible calls 1.00% Price elasticity of demand -1 Price elasticity of environmental change 0 18

ELASTICITY WHAT IF SCENARIO - REVENUE FOREGONE 2.000.000 1.000.000 0.05-0.7-1.000.000 Percentage discount Fixed discount Reallocation Reallocation (same year) Charge (malus) 1 1.5 2.2-2.000.000 6-3.000.000-4.000.000-5.000.000 Inelastic (<1) implies little responsiveness of the sector to changes in prices, elastic (>1) implies that owners have other options for loading and unloading In case of high elasticities schemes can reach budget parity. - 6.000.000 19

EXAMPLE OF CHANGES IN DIFFERENT FIXED BUDGETS Necessary Budget Discount per call New normal Green tariff tariff New average tariff Elasticity New regular calls New Eligible calls New no of calls Loss or profit % on total revenue NA NA 0.2144 0.2144 0.2144-1.0 12000 0 12,000-0.000% 10,000 83.33 0.2144 0.2131 0.2144-1.0 11880 121 12,001-61 0.000% 50,000 416.67 0.2144 0.2079 0.2143-1.0 11880 124 12,004-1,518-0.001% 100,000 833.33 0.2144 0.2014 0.2143-1.0 11880 127 12,007-6,073-0.004% 150,000 1,250.00 0.2144 0.1949 0.2142-1.0 11880 131 12,011-13,665-0.008% 200,000 1,666.67 0.2144 0.1884 0.2141-1.0 11880 135 12,015-24,293-0.015% 20

IMPACT FOR PORT AUTHORITIES Systems based on discounts - low elasticity = losses for port - high elasticity = attractiveness of greener ships - short-term impact -> ships substitute from one port to another when possible Scheme based on surcharge (not applicable in practice) - low elasticity = increase of port revenues - high elasticity = losses for the ports - short-term impact -> ships substitute from one port to another when possible Scheme based on a fixed budget - higher budget= higher loss for port? - elastic demand= increase calls 21

IMPACT FOR THE SHIPPING INDUSTRY Source: own elaboration Ship assumptions and port dues Ship type Size Destination GT EUR per GT Port dues 1 Tanker VLCC Out of Europe 120.000 0,4848 58.176 2 Tanker Suezmax Out of Europe 81.000 0,4848 39.269 3 Container 13000 TEU Out of Europe 135.000 0,2327 27.924 4 Container 7500 TEU Out of Europe 100.000 0,2327 23.270 5 Container 4000 TEU Out of Europe 46.000 0,2272 10.451 6 Container 1700 TEU Out of Europe 11.165 0,2198 2.454 7 Container 500 TEU Europe 4.000 0,0574 230 8 Container 850 TEU Europe 8.900 0,1148 1.022 9 Ro-Ro Small Europe 8.000 0,0422 338 10 Ro-Ro Large Europe 60.000 0,0476 2.856 11 Ferry Large Europe 38.000 0,1155 4.389 12 Ferry Small Europe 8.000 0,1155 924 22

IMPACT FOR THE SHIPPING INDUSTRY Comparison among cumulated rebates obtainable for multiple calls for a 30% rebate Ship type Size 1 call 4 calls 10 calls 20 calls 40 calls 1 Tanker VLCC 17.453 69.811 174.528 349.056 698.112 2 Tanker Suezmax 11.781 47.123 117.807 235.614 471.228 3 Container 13000 TEU 8.377 33.509 83.772 167.544 335.088 4 Container 7500 TEU 6.981 27.924 69.810 139.620 279.240 5 Container 4000 TEU 3.135 12.541 31.353 62.706 125.412 6 Container 1700 TEU 736 2.945 7.362 14.724 29.448 7 Container 500 TEU 69 276 690 1.380 2.760 8 Container 850 TEU 307 1.226 3.066 6.132 12.264 9 Ro-Ro Small 101 406 1.014 2.028 4.056 10 Ro-Ro Large 857 3.427 8.568 17.136 34.272 11 Ferry Large 1.317 5.267 13.167 26.334 52.668 12 Ferry Small 277 1.109 2.772 5.544 11.088 Source: own elaboration 23

Number of eligible calls IMPACT FOR THE SHIPPING INDUSTRY Potential savings for the shipping sector over a 5-year period, depending on a general discount available on eligible ships in all ports of the EU (23 countries including Turkey and Norway), assuming an average port fee of 0.20/GT, (amounts in '000), data 2014. % average discount 10% 15% 20% 25% 30,0% 35% 40% 45% 50% 2% 31.650 47.475 63.300 79.125 94.950 110.775 126.600 142.425 158.250 4% 63.300 94.950 126.600 158.250 189.901 221.551 253.201 284.851 316.501 6% 94.950 142.425 189.901 237.376 284.851 332.326 379.801 427.276 474.751 8% 126.600 189.901 253.201 316.501 379.801 443.101 506.402 569.702 633.002 10% 158.250 237.376 316.501 395.626 474.751 553.877 633.002 712.127 791.252 12% 189.901 284.851 379.801 474.751 569.702 664.652 759.602 854.553 949.503 14% 221.551 332.326 443.101 553.877 664.652 775.427 886.203 996.978 1.107.753 16% 253.201 379.801 506.402 633.002 759.602 886.203 1.012.803 1.139.404 1.266.004 18% 284.851 427.276 569.702 712.127 854.553 996.978 1.139.404 1.281.829 1.424.254 20% 316.501 474.751 633.002 791.252 949.503 1.107.753 1.266.004 1.424.254 1.582.505 25% 395.626 593.439 791.252 989.066 1.186.879 1.384.692 1.582.505 1.780.318 1.978.131 30% 474.751 712.127 949.503 1.186.879 1.424.254 1.661.630 1.899.006 2.136.382 2.373.757 35% 553.877 830.815 1.107.753 1.384.692 1.661.630 1.938.569 2.215.507 2.492.445 2.769.384 40% 633.002 949.503 1.266.004 1.582.505 1.899.006 2.215.507 2.532.008 2.848.509 3.165.010 24

IMPACT FOR THE SHIPPING INDUSTRY Main points Large vessels or high number of calls lead to more sizeable rebates (Important: investment costs for greener technologies are proportional to ship size) - More calls in the same ports = reduction in port dues -> reduced attractiveness of incentives - More calls between ports require some form of harmonization to be effective -However, with the exception of extreme cases, the impact of the incentives is relatively negligible -In the EC study, best case was reducing payback period of one year -Incentives are useful in combination with other measures -Some ports experience that owners do not claim incentives Too complicated Split incentives (owner/charterer) Uncertainty 25

GENERAL REMARKS Incentive schemes are common Short sea shipping in general has lower rates Incentives are a small portion of reductions for owners Harmonisation not necessarily the way to go Regulation a necessity to reduce emissions Coordinated effort Source of the revenue Green incentive schemes Can lead in high savings for the shipping sector (May) Reduce the pay back period of the investments Require low costs for the certification processes Should be looked at from a long tem perspective Benefit the image of ports and companies 26

MY RECOMMENDATIONS Select the sector most inelastic and charge more for the bad guys, lowering the charges substantially for the good guys Balance local requirements with smart charging practices Current schemes do not differentiate between sectors. This is a mistake. When competition, ensure to develop regional schemes for regulation (e.g. NOx, SO etc.) After all it is not the function or responsibility of PA to have to eliminate pollution. Harmonise: not necessarily. Only ensure that schemes are easy and transparent Reduce bureaucracy Need for coherent and strong position of IMO on certain environmental aspects (divergence from ITF) 27

GREEN PORT INCENTIVES PROF.DR. MICHELE ACCIARO KÜHNE LOGISTICS UNIVERSITY HAMBURG MICHELE.ACCIARO@THE-KLU.ORG RIGA 25-26 APRIL 2018 28