With over 80% of worldwide trade being carried out by sea, the maritime sector undisputedly plays an integral role in the global logistics chain. However, the spotlight has been cast upon the sector’s environmental impact, with its emissions accounting for a staggering 3% of global greenhouse gas emissions.
If current trends continue and proactive measures aren’t undertaken, maritime transport pollution could see a sharp rise, accounting for 17% of global emissions by 2050. This pressing concern has catapulted the sector to the forefront of the fight against the climate crisis.
Addressing this very issue, the minister of economy, (LSAP), showcased a novel strategy in a on Wednesday 16 August 2023. Rooted in the concept of “green shipping,” two significant government measures were introduced aimed at implementing sustainability on a national scale.
Firstly, in alignment with the “polluter pays” principle, there’s an initiative to adapt registration fees for “green” ships. Ships that embark on the path of reducing their greenhouse gas emissions, especially those powered by biofuel or gas, stand to benefit from progressive reductions in their registration fees. In a remarkable move, ships that champion zero-emission technologies such as electric or hydrogen propulsion could see reductions of up to 80%.
Secondly, amplifying the sustainable momentum, the government is pushing for an increased tax credit for investments in “green” ships. This tax credit, which currently stands at 12%, will now cover investments made by Luxembourg companies in the arena of ecological and energy transition. The reform could even see an enhancement of this credit to 14%.
Minister Fayot encapsulated the sentiment of the announcement, stating: “The measures aim to encourage shipowners to invest in modern and more environmentally friendly technologies and to surpass European and international environmental standards with their ships. By introducing the ‘green shipping’ principle at the national level, we are laying the groundwork to ensure the future of the Luxembourg maritime sector and contributing to positioning the grand duchy as a responsible environmental actor on the international maritime stage, aiming for carbon neutrality by mid-century.”
Adding to this wave of sustainability, the Luxembourg Stock Exchange has been making strides in the realm of sustainable finance. Notably, the Luxembourg Green Exchange (LGX), established in 2016, has emerged as a global leader in sustainable bonds. , a member of the executive committee of the Luxembourg Stock Exchange, expressed his endorsement of the “green shipping” initiative during the press conference.
“Admittedly, the transition plans of the shipping industry are in their infancy due to the current technology the regulatory and financial challenges,” said Delestienne, adding: “Most of the funding comes from banks. Given the enormous size of the required investments, banks will not be in positions to provide the necessary capital. Therefore, capital markets will play a complementary role.”
It was in 2020, Delestienne explained, that the LGX introduced sustainability-linked bonds aimed at industries for which the green transition is more challenging, such as shipping. The return of the bonds is linked to a commitment by the issuer, as part of a group, to a specific green transition plan. It’s also worth mentioning that the sustainability-linked bonds differ from green bonds, which target a specific project.
The issuer is therefore subject to key intermediary goals to ensure a smooth transition as per the plan. Penalties would apply in terms of higher rates to be paid to investors when missing targets. “The approach has already been tested and adopted by other industries,” observed Delestienne.
Since the late 1980s, Luxembourg has showcased its commitment to the maritime sector, establishing a robust reputation, especially among landlocked countries. Over the years, the fleet under the Luxembourg flag has grown from 54 ships in 1993 to 204 in 2023.