Japan To Finance Decarbonization Of Shipping

ESG makes headway in the shipping industry thanks to Japan.

In an effort to speed up the decarbonization of the shipping industry, the Development Bank of Japan (DBJ) and ClassNK combined forces to establish a zero-emissions acceleration and ship financing program.

Under the program, ClassNK will evaluate ships based on a comprehensive scoring model jointly developed with the DBJ. ClassNK, or Nippon Kaiji Kyokai, is an independent, non-profit association that provides ship classification and related services. When assessing a ship under the program, ClassNK considers three main criteria: decarbonization efforts; environmentally friendly performance; and zero-emissions-related innovation. The DBJ, meanwhile, will provide transition financing that allows shipping companies to purchase vessels that have been assessed and meet the criteria under the program.

The DBJ and ClassNK’s program comes at a time when momentum is gathering for decarbonization efforts across industries—a period of transition that is expected to increase costs for companies, including ship operators.

“This shift [to decarbonization] could be costly, since the price gap between alternative fuels and fossil fuels is particularly evident in the shipping sector,” a January 2022 report by McKinsey & Company notes.

“And because ships are long-lived capital assets (the average age of a merchant vessel is just over 20 years),” the report continues, “shipping companies have little incentive to replace relatively young assets with lower-emissions models.”

The DBJ’s loans are intended to provide that incentive, making the transition to decarbonization smoother for ship operators. Indeed, the first project under the DBJ-ClassNK joint program came to fruition earlier this summer.

ClassNK evaluated the Crystal Oasis, a liquefied petroleum gas (LPG) dual-fueled carrier owned by Kumai Navigation, a Japanese shipping firm based in Singapore. The DBJ financed Kumai Navigation’s acquisition of the ship in June.

The Crystal Oasis is a state-of-the-art ship largely powered by LPG, a clean fuel that “reduces sulphur oxide, carbon dioxide, nitrogen oxide, and particulate matter when compared to fuel oil,” according to industry research. Crystal Oasis received ClassNK’s S rating, the highest rank in the joint program.