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Pay-As-You-Save for energy efficiency retrofits

Published on

14 February 2024

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First published on BIMCO

Click to watch Shane Balani’s Pay-As-You-Save webinar!

Meeting the IMO’s new 2030 targets for a 20-30% emissions reduction demands a significant improvement in the energy efficiency of ships. However, the slow and patchy implementation of both operational and technological efficiency measures pose challenges to meeting IMO’s goal.

Two key hurdles stand in the way. First, the variable operating conditions of ships lead to data variability and uncertainty, making it difficult to assess the true impact of energy efficient technologies. Second, shipowners often bear the upfront costs of implementing efficiency measures, while the fuel savings and economic benefits flow to charterers, creating a split incentive problem that discourages widespread adoption.

The Global Centre for Maritime Decarbonisation (GCMD) will explore through a series of pilots the potential effectiveness of a Pay-As-You-Save (PAYS) scheme, a financing model proven to be effective in other sectors. PAYS leverages transparent data sharing, allowing stakeholders to verify fuel savings and attribute them to specific technologies. This link between performance and financing unlocks further investments, and promises to propel the industry forward to meet the IMO’s ambitious targets.

  • Energy efficiency uptake is not on track to meet the 2030 IMO targets
  • Inherently variable operational conditions make it hard to quantify fuel savings, and a commercial split incentive between owners and charterers prevents further uptake
  • A Pay-As-You-Save approach has encouraged broad adoption of efficiency measures in other sectors
  • GCMD is developing an equivalent approach with a pilot to acquire high quality data to quantify performance and leverage 3rd party financing to encourage mass uptake

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