22 July 2017
An EIB Perspective on the European Commission Directive "Clean Power for Transport"

"Clean Power for Transport" and its Implications for Shipping

By Mark Clintworth, Head of Shipping, European Investment Bank
Spring 2015


1. INTRODUCTION
In line with EU transport policy the European Investment Bank (EIB) provides financial support to the EU Maritime sector including for the purposes of this article, EU commercial shipping. The Bank gives particular attention to projects that better assist the sector in dealing with environmental challenges and encourage, in line with EU legislation, the development of clean technology and increased fuel efficiency1. EU Institutional financial support not only benefits EU ship owners and shipbuilders but also supports the multitude of SME's and midcap equipment suppliers involved in the EU's maritime knowledge economy. In 20122, the EU shipping industry is estimated to have directly contributed €56 billion to EU GDP, employed 590,000 people, and generated tax revenues of €6 billion.

2. CLEAN POWER FOR TRANSPORT
The European Commission's (EC) "Clean Power for Transport" Directive aims to establish an infrastructure of alternative fuel stations for electricity, hydrogen and natural gas with common standards of design and use across Europe. This Directive is a package of the "Commission' Transport 2050 Strategy" which aims to break EU transport's dependence on oil and sets a target of 60% greenhouse gas (GHG) emission reductions by 2050. This strategy includes all modes of transport.

The Clean Power for Transport Directive provides a comprehensive EU framework on LNG for shipping. The Action Plan for the development of Liquefied Natural Gas (LNG) in shipping aims to ensure publicly accessible LNG refuelling points according to the technical specifications set out (applicable for LNG stations from 2015) for maritime and inland waterway transport in all maritime ports of the Trans-European Transport (TEN-T) Core Network by 31 December 2020. The same is suggested for inland waterway transport for all inland ports in this area by 31 December 2025. The 83 maritime ports within the TEN-T Core Network are the prime locations for use of LNG in shipping. In addition, inland waterways and road transport corridors shall also be equipped with sufficient LNG and CNG (for vehicles) stations. A vital part of the proposal is the adoption and implementation of safety regulations with respect to storage, transport and the refuelling process of LNG, as well as the technical specifications for interoperability between ships and boats and refuelling points for the LNG in maritime and inland waterway transport.

3. IMPLICATIONS OF THE DIRECTIVE OF LNG IN SHIPPING
The European shipbuilding industry is still a global leader in innovative technologies but is suffering from lack of demand, as ship owners are waiting for clear indications as to the development of a future network for cleaner fuels. Shipbuilders on the other hand, lack resources for research, development and innovation (RDI) especially in the LNG technology. Many initiatives, as for example, Horizon 2020, the North European LNG Infrastructure Project, the Clean North Sea Shipping (CNSS) project and the marine engine project HELIOS, aim to prioritise research, demonstration or market-oriented projects for alternative fuels.

It is expected that the focus and development of LNG technology will create opportunities for European shipyards and the equipment manufacturers, considering that approximately 10,000 ships are currently mainly used for European Short Sea Shipping and 5000 of these vessels spend 50% of their time in SECA's, (Sulphur Emission Controlled Areas) thus having to use mainly low sulphur marine gasoil (1% until 2015, 0.1% from 2015 – Directive 2012/33/EU of the European Parliament and of the Council of 21 November 2012). LNG is the most promising shipping fuel alternative for vessels to meet these requirements. In addition, the amendments to MARPOL Annex VI – Regulations for the prevention of air pollution from ships, which came into force 1 January 2013, add a new chapter 4 to Annex VI on Regulations on energy efficiency for ships (CO2 emission reductions) making the Energy Efficiency Design Index (EEDI) mandatory for new ships and the Ship Energy Efficiency Management Plan (SEEMP) mandatory for all ships in operation.

4. OPPORTUNITIES
4.1 Environment

LNG is the most promising alternative shipping fuel short to medium term for Short Sea Shipping but also for maritime activities outside transport. The experience gained in over a decade of a small number of LNG ships has proven reliable technology.

  • LNG reduces sulphur contents to nearly 0% thus fulfilling existing and future sulphur emission limits in sulphur emission controlled areas (SECA's) in the EU.
  • LNG fuelled ships emit nearly no particulate matters, 90% less NOx and 20-25% less CO2 than formal fuel bunker
  • In the long run, the CO2 emission needs to be complemented with more energy efficient engines and vessels, in order to comply with the EEDI.
  • Japan's transport ministry stated the adoption of LNG fuel in maritime sector in November 2011. And €6.2 million budget plan for 2012 aims to promote the development of safety measures for marine renewable energy. European RDI needs to maintain its global leadership.
  • The enforcement of the ECAS (Emission Controlled Areas for ships) zones in several European will additionally "push" LNG as an alternative fuel. Furthermore, there are concrete plans to introduce SECA's are emerging from China, Japan, South Korea, Singapore and the US. The impact of the worldwide fuel sulphur reduction to 0.5% in 2020 (or 2025) may have a significantly bigger impact on the shipbuilding sector than the NOx regulations, as all ships sailing worldwide will need to significantly reduce their SOx emissions.
  • Both specific LNG and dual fuel engines reduce NOx emissions. A pure LNG four stroke engine can reduce NOx emissions up to 80%. (Futureship 2011).

4.2 Economic
Apart from the environmental benefits that a switch from heavy fuel oil will introduce there are a number of strong economic benefits to be realised, amongst which are:

  • Despite current bunker prices being below 400 USD per tonne, they can easily rebound above 600 USD per tonne. Ships are long-term investments compared to oil.
  • The LNG market will mature further and prices are expected to decrease once Australia and US are in full production.
  • Wider spread use of LNG would help decouple shipping costs in those areas where oil prices are rising and could be expected to reduce operational costs -> increasing perspectives for long-term sustainability of EU shipping operations.
  • RDI in the LNG technology will also influence the price.
  • The North European LNG infrastructure project; final report May 2012 concludes that LNG modifications (retrofits) and new builds have a payback time of 2 – 4 years.
  • Norway, supported by the state-driven introduction of a national LNG bunkering network, has set a positive example for the success of LNG. Total market potential following from the US NOx ECA is estimated at € 7-9 billion for the period until 2030. If a European NOx ECA were to be in place in the Baltic, North Sea and Mediterranean, an estimated market potential of € 9-12 billion would be created. This potential only applies to new ships, not to retrofit.

4.3 Shipbuilding Industry & Marine Equipment Suppliers

  • The adoption of LNG fuelled vessels in Europe will adapt according to the IMO & EU policy measures taken. If the policy measures taken are appropriate, 20-30 new LNG fuelled vessels could be expected per year.
  • Today, more than ever, Europe's shipbuilding industry prospects rely on its ability to maintain its competitive advantage and to further move into new high value – high complexity activities.
  • Europe has a 77% market share in building passenger vessels (including both cruise ships as well as ferries) and a 17% share in the construction of non-cargo vessels. These segments make up a relatively small share of the world order book (in CGT). However, in value they represent a much higher share due to their relatively sophisticated characteristics.

Several marine equipment suppliers are active in ship technologies and in land technologies such as the road and/or rail industry which allows for a transfer of knowledge and technology to the shipbuilding domain from another economic sector, or vice versa.

  • European engine makers are leading in the LNG market in terms of their share. MAN and Wärtsila main engine manufacturers in Europe.
  • However especially Korean companies have started entering the LNG market with Hyundai and Daewoo being the biggest competitors.
  • Several marine equipment suppliers are active in ship technologies and in land technologies such as the road and/or rail industry which allows for a transfer of knowledge and technology to the shipbuilding domain from another economic sector, or vice versa.

Both specific LNG and dual fuel engines reduce NOx emissions. A pure LNG four stroke engine can reduce NOx emissions up to 80%. (Futureship (2011).

  • European engine makers are leading in the LNG market in terms of their share. MAN and Wärtsila main engine manufacturers in Europe.
  • However especially Korean companies have started entering the LNG market with Hyundai and Daewoo being the biggest competitors.

LNG could also be used for compliance, as it contains hardly any sulphur, and as prices tend to be relatively lower than low sulphur diesel oil.

  • LNG as a fuel is a specific possibility because of its low sulphur content and its attractive price relative to other low sulphur fuels.
  • For both LNG and scrubber technologies, EU manufacturers have developed the required systems and they are considered 'best in class' worldwide in these fields. There are however a number of suppliers elsewhere as well.

4.4 Research Development and Innovation

  • RDI in the area of shipping fuels (bio-LNG, methanol, hybrid propulsion and hydrogen) is being supported amongst others by the HORIZON 2020 Programme (2014 – 2020) which funds are dedicated to boost research, innovation and competitiveness in Europe with a budget of € 80 billion -> LNG ship tanks are twice the size of equivalent oil tanks.
  • The European shipbuilding and maritime industry need investments and incentives in order to maintain their global leadership.
  • Already many European maritime equipment companies have subsidiaries close to Asian shipyards with the aim of keeping up to date and promoting their knowledge worldwide.

5. EIB-EC FINANCING OF LNG TECHNOLOGY IN SHIPPING
The EIB is already active in the Maritime industry (EIB Shipping Projects: http://www.eib.org/infocentre/publications/all/shipping.htm) and financing of shipping is part of the core business of the Bank's overall long term transport lending. As mentioned above, particular attention is given to projects that better assist the sector to cope with the environmental challenges and encourage, in line with EU legislation, the development of clean technology. This includes project relating to retrofitting abatement technology such as scrubbers or LNG duel fuelled engines or new build projects incorporating alternative clean power sources. The two most recent recent projects the Bank has been involved with include the construction of two LNG powered ferries for Fjord Lines and a fleet retrofitting project for the retrofitting of scrubber technology for DFDS.

A number of financial instruments are also available to support the introduction of LNG bunkering Infrastructure, such as the Work Programme for the development of Motorways of the Sea (MoS) within the Trans-European Transport Network (TEN-T) which will continue to finance projects addressing environmental issues and promoting the development of related green infrastructure and facilities. There are also other EU funds promoting R&D programmes as there is financing of LNG Bunkering stations according to the Guidelines on National Regional Aid for 2007-2014.

The Horizon 2020 Programme (€ 80 billion) is a package of measures proposed by the Commission in November 2011 to boost research, innovation and competitiveness in Europe. It will run between 2014 and 2020 with focus on three key objectives. It will support the EU's position as a world leader in science with a dedicated budget of € 24.6 billion, including an increase in funding of 77% for the very successful European Research Council (ERC). It will help secure industrial leadership in innovation with a budget of € 17.9 billion. This includes a major investment of € 13.7 billion in key technologies, as well as greater access to capital and support for SMEs. Finally, € 31.7 billion will go towards addressing major concerns shared by all Europeans, across six key themes: Health, demographic change and well-being; Food security, sustainable agriculture, marine and maritime research and the bio-economy; Secure, clean and efficient energy; Smart, green and integrated transport; Climate action, resource efficiency and raw materials; and Inclusive, innovative and secure societies.


1 The EIB Transport Lending Policy states that lending for inland waterway, port, logistics and maritime projects are also prioritized in support of sustainable transport solutions.
2 Oxford Economics Report, 2014, commissioned by the European Community Ship Owners Association.


References
http://www.eib.org/infocentre/publications/all/shipping.htm
http://ec.europa.eu/transport/themes/urban/cpt/doc/com(2013)17-communication_en.pdf
http://ec.europa.eu/transport/themes/urban/cpt/doc/com(2013)18-2-directive_en.pdf
http://ec.europa.eu/transport/themes/urban/cpt/doc/swd(2013)6-2-executive-summary-impact-assessment_en.pdf
http://ec.europa.eu/transport/themes/urban/cpt/doc/swd(2013)4-lng-action-plan.pdf
http://ec.europa.eu/transport/themes/urban/studies/doc/2012-08-cts-implementation-study.pdf