KCC links freight earnings to carbon reduction in shipping contract
KCC Chartering AS, a subsidiary of Klaveness Combination Carriers ASA and South32 Marketing Pte, a subsidiary of mining and metals company South32, have agreed to include a carbon pricing mechanism in their existing contract of affreightment (COA).
In the six-year COA between KCCC and South32, announced in January 2022, the parties agreed on a sustainability framework to reduce carbon dioxide emissions from KCC’s fleet, including the fleet used for shipping South32’s caustic soda to Australia.
As part of this framework, in 2022 KCCC and South32 jointly developed a mechanism whereby freight paid under the COA is linked to the carbon dioxide emissions of KCCC’s vessels, relative to an agreed baseline.
In the agreed mechanism, implemented from 2023, KCCC will receive higher freight if actual carbon dioxide emissions are below the baseline and lower freight in the event of underperformance relative to the baseline. Additional freight paid by South32 through this agreement will be dedicated to investments in energy efficiency measures in KCCC’s fleet.
“The shipping industry needs a price on carbon emissions to incentivize efficiency improvements and to start the transition to new fuels. In the absence of effective regulations, we are grateful for the support and partnership with front-runners South32 in developing and introducing the first carbon pricing mechanism in the dry bulk and tanker industries,” Engebret Dahm, KCC Chief Executive Officer, said.
South32 Vice President Sustainability Strategy and Community Holly Buschman said that South32 produces commodities that are critical for a low-carbon future.
“We recognise that we have a critical role to play in contributing to the decarbonisation of the value chain, in partnership with our customers and suppliers. This agreement with Klaveness Combination Carriers ASA is an important step towards our goal of net zero Scope 3 greenhouse gas emissions by 2050,” he added.
Klaveness Combination Carriers is planning to introduce its first zero-emission vessel within 2030.
The move is part of the company’s updated environmental strategy which is targeting a 45% reduction in energy efficiency operational indicator (EEOI) by 2030 when compared to 2018 and net-zero emissions by 2050.
In the next three years, KCC will work on optimizing trading efficiency with sustainability-linked contracts, perfecting voyage efficiency, and improving the energy efficiency of its fleet.
To achieve its medium-term target, KCC plans to expand the use of sustainable biofuels, with an estimated 15% share of biofuels in the company’s fuel mix in 2030.
The shipowner is also planning to phase in zero-emission fuels and vessels as part of its fleet renewal strategy, ushering in its first zero-emission vessel by the need of the decade.