Carbon Chronicles: Inserts and Offsets Ship’s crew

By Barry Parker (gCaptain) –

When it comes to shipping, timing is key. Shortly after my previous article on carbon offsetting in the maritime industry earlier this week, gCaptain published an article on the use of CO2 insets. As mentioned, offsets require some fine-tuning with external markets, and the ultimate buyer of the offset (if the shipowner decides to sell them) may be entirely independent from the vessels generating the offset.

In fact, the buyer could be from a completely different industry. As such, offsets would involve the use of external verification providers (demonstrating that the investment reduces emissions by a specified amount over a specified period of time) and a monetization transaction through an often opaque over-the-counter market trading mechanism.

Insets, on the other hand, relate precisely to the supply chain in which the vessel(s) in question is/are deployed. With deployments, the idea is for a ship owner to make specific expenditures (possibly capital investments, but potentially recurring operational costs) that reduce carbon emissions, and then monetize those reductions in transactions with charterers or cargo customers.

In the simplest case of stakes, the pricing of the savings (with CO2 reductions endorsed by a class society – although many ‘sellers’ enter the fray here) could be the subject of an internal agreement between the owner and the charterer or freight interest. To put a value on the stakes (keeping in mind that every tonne of fuel saved is associated with around three tonnes less CO2 emissions), they couldn’t go further than published in ‘compliance’ markets such as those in the European Union search prices. The benefit to the charterer is reduced ‘Scope 3’ emissions (those tied to externally purchased goods or services, in this case – the cost of transporting cargo, ie their products or materials). Larger companies that are aware of ESG considerations are already voluntarily reporting them.

The deal discussed in the recent publication involves staking but is more complicated. In this case, the Danish tanker and bulk operator DS Norden, which is a big supporter of biofuels (more expensive than conventional marine fuel), can use the inset mechanism to finance the increased fuel costs. Customers, particularly large listed charterers, are striving to reduce Scope 3 emissions (in the target range of regulators on every continent). But biofuels with the potential to drastically reduce CO2 emissions are not available in all regions.

According to the announcement from Norden: “The new platform aims to connect the emission reductions achieved by NORDEN to customers who are unable to bunker low-carbon fuels due to trade routes or other restrictions, but are still trying to operate or to decarbonize their supply chains.” Deployments can shift the benefits of reduced carbon emissions to freight interests serving northern customers “…who, due to trade routes or other restrictions, are unable to bunker low-carbon fuels but still seek to decarbonize their operations or supply chains.”

Since the savings in their “tokenized form” are likely to be reported to a regulator (or can be passed on to another freight shipper), an external verifier is brought in to confirm the carbon savings. The press release mentions Verifavia, which is described as “a global verification checker specializing in transportation”. Earlier this year we saw something similar (though without the tradability potential) in a deal reported on gCaptain between freight forwarder Schenker and container ship MSC (which would refuel certain ships with biofuels). The upshot of this deal was that “customers will be able to book regular net-zero sea shipments and receive an annual certificate of their emission reduction for their carbon footprint.”

Behind the scenes of 123Carbon, the Netherlands-based overseer of the blockchain underlying the platform for DS Norden, his mission includes a role in assisting carriers in “cost recovery for fleet decarbonization” and assisting the cargo side in “ Improved control over the achievement of Net Zero targets.” 123Carbon describes itself as “The first independent one-stop-shop for carbon insetting for freight transport”.

To sum up the efforts of DS Norden and MSC, the idea that customers pay more for cleaner sea transport (and its reduced Scope 3 emissions) is fast evolving from ambitious concept to reality.

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