OPINION: KiwiRail chief executive Peter Reidy was one of 14 New Zealand chief executives who came together last year to look at what they could do about climate change. Along with 59 others, he has signed the CEO Climate Change Statement, aimed at reducing carbon emissions in New Zealand. Here, he explains why:
One of the KiwiRail values that you’ll hear our people talk about around our yards, track and in lunchrooms up and down the country, is “care and protect”.
When you’re a 155-year-old business protecting not only our people in some of the most difficult workplaces in the country, but also the public who travel with us, living up to that value is critical.
But we also see ourselves as caring for and protecting one of New Zealand’s most valuable assets – our land and environment.
It is for this reason that this week I joined with 59 other New Zealand’s major business leaders to sign up to the Climate Leaders Coalition.
We are in a race to protect New Zealand from the harshest effects of climate change and committing to a low-emissions economy is a big step that business can take to help us win this race.
While transport accounts for 17 per cent of New Zealand’s carbon emissions, rail generates just 1 per cent of that total.
For KiwiRail that means doing all we can to move as much freight and as many people possible on to rail. Every tonne of freight carried by KiwiRail means a 66 per cent carbon emissions saving over heavy road freight.
When New Zealanders use rail they help reduce emissions by taking trucks and cars off the road, easing congestion and saving taxpayers money on road maintenance while making our roads safer.
While transport accounts for 17 per cent of New Zealand’s carbon emissions, rail generates just 1 per cent of that total.
Even so, when you move 25 per cent of the country’s exports, you are still using a lot of fuel.
KiwiRail takes that responsibility seriously – we have already cut our fuel consumption, and we are committed to cutting it further. We are serious about solutions and we are already dedicating very real resources, expertise and money to planning and projects that will allow us to further reduce our energy consumption and emissions.
The Locomotive Fuel Savings project has already shown significant success, delivering fuel savings of 16 million litres, or $11 million, since 2015 through the ground-breaking Driver Advisory System (DAS) and other energy initiatives on our rail freight services. DAS is our new in-cab technology system that advises drivers when to brake, coast and accelerate depending on terrain and freight loads, achieving significant fuel savings.
Now, with the help of the Energy Efficiency and Conservation Authority (EECA), we are looking to make savings on our ferry operations through a similar approach, monitoring fuel usage and sailing performance.
There will be those who say KiwiRail has no right to lead a discussion on climate change given we are replacing nine ageing electric locomotives on a section of the central North Island Main Trunk line. This tiny, orphan fleet is not helping us to get more freight onto rail through simplifying our operations and standardising our assets.
But there is a bigger, longer-term picture that we are working on for our busiest routes between Auckland, Hamilton and Tauranga. The energy for that may come from electricity, if we invest in the infrastructure required, or it may come from a whole new fuel source for rail – hydrogen.
Signing today’s statement cements KiwiRail’s commitment to a low emissions economy and to exploring all ways to get there. It is urgent that New Zealand increases the pace of its transition and today shows that our business leaders believe that.
This is our time to make the best difference we can for the New Zealand of the future.
The international shipping sector is doing its part to contribute to global climate change efforts, writes Violeta Bulc.
Photo credit: The Parliament Magazine/Bea Uhart
In April, more than 100 countries agreed on an initial strategy to reduce greenhouse gas (GHG) emissions from shipping at the International Maritime Organisation (IMO).
This was a significant achievement for the EU and its member states, which played an instrumental role in brokering and securing the agreement with international partners.
The agreement is another example of the EU becoming a stronger global actor to spur substantive and credible climate action. By defining an objective of at least 50 per cent GHG reductions by 2050, compared with 2008 levels, international shipping has become the first industry sector to agree globally on an absolute emission reduction aim.
The agreement also comes with a comprehensive list of potential reduction measures, including short-term measures. Undoubtedly, the IMO and the shipping sector were indispensable in setting this precedent. Yet reaching this agreement was no easy feat.
I had the opportunity to be part of the discussions and to interact with some of the key parties during the first day of the negotiations that led to this remarkable outcome. I met with EU member states representatives, who, despite some initial divergence on negotiating tactics back in Brussels, entered the discussions on solid and ambitious grounds.
I am proud to say that, following EU coordination and throughout the negotiations, the member states remained united and played a pivotal role in gathering the required political support during the negotiations.
Four MEPs – José Ignacio Faria , Dubravka Šuica, Jytte Guteland and Bas Eickhout – who engaged in many side meetings at the IMO, also supported the EU delegation.
“The International Maritime Organisation (IMO) agreement is another example of the EU becoming a stronger global actor to spur substantive and credible climate action”
The outcome was also aided by good cooperation of many EU member states with other like-minded partners including several Pacific Islands States, Canada, New Zealand, Australia and Mexico. The Marshall Islands for instance – one of the world’s biggest flag states and a remote small island state – are heavily impacted by climate change.
Their population is facing increasing difficulties in growing crops and drilling for drinking water, as increased floods increase salinity. Bridging the gap between positions on key issues such as emission reduction objectives and guiding principles of the strategy required a negotiation effort.
Several major flag states questioned whether it was appropriate to set a number for the emission reduction objective before data on fuel consumption and emissions become available. Their reticence was dispelled by the industry representatives, who publicly voiced the sector’s readiness to accept numbers as indicative targets for reductions in the future.
Many developing countries expressed concerns over the possible impacts of new emission reduction measures, for example, on their trade. To address such concerns, the Commission, the EU member states and MEPs present reaffirmed, in their outreach meetings that the EU is willing to consider further capacity building and technical cooperation to assist implementing future measures.
“I am proud to say that, following EU coordination and throughout the negotiations, the member states remained united and played a pivotal role in gathering the required political support during the negotiations”
Therefore I am pleased to see that the EU-funded, IMO-managed project which led to the establishment of the maritime technologies cooperation centres network was expressly acknowledged in the strategy as a capacity building project.
This is an example to others, including international financial institutions. Crucial factors in brokering the deal were the tireless efforts of IMO Secretary General, Kitack Lim, in encouraging inclusiveness and consensus in the discussions.
With this support in the background, the resolute chairmanships of Sveinung Oftedal of Norway, the Chair of the working group on reduction of GHG emissions from ships, along with Hideaki Saito, the Chair of the marine environment protection committee, made it possible to draw a line and build upon the support of the overwhelming majority of the IMO States present.
Not everyone was fully on board with the text of the adopted IMO strategy. The US, following on their recently announced plans to withdraw from the Paris agreement, and Saudi Arabia, given what the prospect of decarbonisation may mean for their main export product. Both expressed formal reservations to the adoption of the IMO strategy.
While the strenuous negotiations at MEPC 72 delivered a result that kept the IMO in the driving seat for defining an emissions agenda for international shipping, the real work, developing and adopting reduction measures, starts only now.
The full cooperation of both the EU and also all IMO member states is needed to agree on short-term measures with immediate emission reduction effects before 2023. Preparations on longer term actions should also begin.
I am optimistic that shipping is delivering its share to the global climate change efforts under the Paris agreement and the EU institutions are determined to strive for ambitious objectives, and continue the effective cooperation with our partners.
About the author
Violeta Bulc is European mobility and transport Commissioner
While the world is struggling to live up to its commitment to limit climate emissions, new data indicate that climate change may be more severe and occur more rapidly than anticipated earlier. The IMO is looking for ways to make shipping climate-neutral over the next decades. DNV GL gives an overview of the status of the discussion and potential future measures.
When the Paris Agreement was adopted in 2015 in response to the increasing signs of global climate change, shipping and aviation were not included. Instead, the IMO and ICAO were asked to come up with greenhouse gas (GHG) emission reduction schemes of their own. At MEPC 72 the IMO has now adopted a strategy to reduce emissions from shipping. This aims to reduce total emissions from shipping by at least 50 per cent by 2050, and to reduce the average carbon intensity by at least 40 per cent by 2030 while aiming for 70 per cent in 2050, all figures compared to 2008. The ultimate vision of the IMO is to phase out greenhouse gas emissions entirely at the earliest time possible within this century. This initial strategy will be reviewed in 2023 based on information gathered from the IMO Data Collection System (DCS) as well as a fourth IMO GHG study to be undertaken in 2019.
As it must be assumed that the global shipping activity will continue to grow towards 2050, the 50 per cent emission reduction target is quite ambitious and will most likely require widespread uptake of zero-carbon fuels in addition to other energy efficiency measures. However, there are no zero-carbon fuels available today. A concerted research and development effort is needed not only to develop such fuels but also to make them available in the required volumes..
To implement its ambitious strategy the IMO must develop new policy measures and regulations. The strategy contains a long list of options, such as strengthening the EEDI, applying operational indicators, reducing speeds, rolling out market-based measures, or developing zerocarbon fuels. Work on an action plan to kick-start the development of appropriate measures will start this fall.
While limited immediate impact on ships is to be expected, the efforts required to reach the long-term goals will have to build over the coming years, with a real impact starting to materialize in the 2020s. In a long-term perspective, DNV GL expects this strategy to fundamentally change the way ships are designed and operated.
CO2 data collection in the EU and at the IMO
In the EU, regulations for monitoring, reporting and verification (MRV) of CO2 emissions have entered into force, requiring all ships above 5,000 GT sailing to or from European ports to report CO2 emissions, cargo data and average energy efficiency. 2018 is the first year of reporting, with data being published annually by the EU as of mid-2019.
One purpose behind the EU MRV regulations was to encourage the IMO to work on a similar mechanism with global coverage. The EU regulation itself contains a provision for a review aimed at alignment with a future international system, if in place. It is therefore significant that the IMO has adopted a global mechanism for mandatory monitoring, reporting and verification of fuel consumption data for all ships 5,000 GT and above. The scheme, known as the IMO Data Collection System (DCS) on fuel consumption, will have 2019 as its first year of operation.
The IMO DCS differs from the EU MRV in several important aspects, including the confidentiality of data, the calculation of efficiency metrics, and the requirements for data verification. While these are all issues where the EU has a strong preference for the requirements of its own system, the European Commission has nevertheless initiated a formal review process aimed at aligning the EU MRV with the IMO DCS. There are encouraging signs of a legislative proposal to be published in May 2018, though it is expected to be challenging and likely time-consuming for the commission, the parliament and the council to come to an agreement. DNV GL believes that full alignment is unlikely, and that the industry may have to cater to both reporting regimes for the foreseeable future.
IMO has agreed that the 0.5% global sulphur cap will be implemented from 1 January 2020. The decision is final and will not be subject to renegotiation, which gives certainty to the maritime and bunker industries. There were intense discussions on both the practicalities of implementation and on how to ensure robust enforcement and a level playing field. IMO is continuing to discuss implementation and supporting measures on a priority basis and is holding an intersessional meeting dedicated to the topic in July. The meeting is expected to provide robust guidelines for industry and authorities; these will be finalized at MEPC 73 in October and then circulated.
Ship operators will have to choose their preferred compliance strategy, a decision with far-reaching operational and financial implications. There is no one-size-fits-all solution on the table; scrubbers, LNG, and “hybrid” fuels are all realistic options, but most vessels are expected to default to using 0.5% marine gas oil (MGO) and blends, at least initially. Local availability issues and price volatility are expected to result from the dramatic change of the fuel demand situation as of 1 January 2020, and the number of non-compliance cases, especially because of insufficient tank cleaning at bunker facilities and on board ships, is likely to be rather high during a transitional period.
Enforcement remains a critical concern, especially on the high seas. Contrary to emission control areas (ECAs), where enforcement is up to the respective port state, monitoring of operations on the high seas is the responsibility of the flag state. Legitimate questions are being asked about the readiness of all flag states to provide uniform and robust enforcement to ensure a level playing field around the globe. To alleviate the enforcement issue to some extent, the IMO at MEPC 72 agreed to establish a ban on carriage of non-compliant fuels for all ships without scrubbers. This ban is likely to be adopted at MEPC 73 and will then take effect in March 2020. Ships without scrubbers will still be allowed to carry noncompliant fuel as cargo.
Moving to regional and domestic matters, it should be noted that in the EU the Water Framework Directive is imposing restrictions on the discharge of scrubber water. Belgium and Germany have prohibited the discharge of scrubber water in most areas, thereby limiting the operability of open-loop scrubbers. Similar restrictions apply in some US coastal waters, e.g. off Connecticut.
In Asia China’s regulations for domestic SECA-like requirements are being rolled out in the sea areas outside Hong Kong/ Guangzhou and Shanghai as well as in the Bohai Sea. China is taking a staged approach, initially requiring a 0.5% maximum sulphur content in fuel burned in key ports in these areas, gradually expanding the coverage to finally apply fully to all fuels used in these sea areas from 2019 onwards. Conceivably the allowable sulphur content will be tightened to 0.1% by 2020, and China may eventually submit a formal ECA application to the IMO. In our view there is a real possibility of these zones being extended to include further Chinese sea areas.
The NOX tier III requirements have entered into force in the North American ECAs for ships constructed on or after 1 January 2016. Anyone constructing a ship today needs to consider whether operation in the North American ECAs will be part of the operational pattern, whether upon delivery or at any time in the future. If so, NOX control technology will be required on board. When choosing an NOX control technology operators should consider how they intend to ensure compliance with the 2020 sulphur cap to avoid system integration issues.
With respect to upcoming regulations, IMO has agreed to apply NOX Tier III requirements to ships constructed on or after 1 January 2021 when operating in the North Sea and Baltic Sea ECAs. There are presently no indications of plans for additional NOX Tier III areas.
Ballast water management
The Ballast Water Management (BWM) Convention entered into force on 8 September 2017, more than 27 years after the start of negotiations, and 13 years after its adoption in 2004. The implementation schedules was revised at MEPC 71 in July 2017. Briefly put, every ship in international trade will be obliged to comply at some point between 8 September 2017 and 8 September 2024. For ships from 400 GT upwards, the compliance date is linked to the renewal of the International Oil Pollution Prevention certificate, while ships below 400 GT must comply by 8 September 2024. By that date the entire world fleet must be in compliance.
In the US, the domestic ballast water management regulations entered into force in 2013. New ships must comply upon delivery, while existing ships must comply by the first scheduled dry-docking after 1 January 2014 or 2016, depending on ballast water capacity. USCG type approval is required for ballast water treatment systems; six such approvals have been granted so far, with eleven more in the approval pipeline. The USCG’s previously liberal extension policy granting deferred installation dates to more than 12,500 ships due to the unavailability of approved systems has changed since the first type approvals were issued. Presently the USCG is very restrictive on granting extensions and this policy is likely to tighten further. In practical terms, operators should now plan their installation dates based on the compliance dates in the regulation and not gamble on receiving an extension.
There are a number of new environmental regulations under consideration at the IMO as well as in various countries. They cover a broad range of topics, such as plastic pollution from ships, the impact of noise on cetaceans, particle emissions, hull biofouling, and a ban on heavy fuel oil in the Arctic. The discussions are at various stages; New Zealand, for example, has introduced biofouling regulations in May this year. The noise issue is primarily a concern of a few isolated stakeholders, while plastics and an Arctic HFO ban are under consideration at the IMO. Nevertheless, most if not all of these topics are likely to be the subject of further domestic or international regulations sooner or later during the next decade.
Source: DNV GL, Bulk Carrier Update
The New Zealand Transport Agency has begun thinking about how it may need to prepare for the arrival of autonomous vehicles such as this Volkswagen driverless concept car.
The transport revolutions of the past – railways, petrol cars and air travel – have shaped our cities and driven some of the most sudden and dramatic changes in society.
So it’s probably no wonder that transport is one of the first things we consider when we think about future technology.
In a few short years, people have gone from debating about whether electric cars will take off at all, to arguing about whether and when they will be self-driving.
Meanwhile, the leading edge of transport research and development has skipped ahead a mile.
Last month, Uber began laying the groundwork for a fleet of autonomous electronic helicopters or drones that would ferry commuters between the rooftops of skyscrapers, so they could bypass congested city streets.
The company aims to have a commercial service operating in Dallas and Dubai by 2023.
One vehicle that could perhaps do the job is being trialled in – who would have guessed it – New Zealand.
United States company Kitty Hawk, funded by Google co-founder Larry Page, has been testing a self-driving “flying car” called Cora, which can take off and land vertically, in Canterbury since October.
Spokeswoman Anna Kominik said it had settled on New Zealand for the trials after a global search for a jurisdiction that was “safe, had aviation experience and was a good place to do business”.
Kitty Hawk is headed by former Google X scientist Sebastian Thrun, who led the development of Google’s self-driving car and its Google Glass augmented-reality spectacles.
Its website explains Cora “rises like a helicopter and flies like a plane, eliminating the need for a runway and creating the possibility of taking off from places like rooftops”.
Kitty Hawk assumes Cora will be used for an Uber-like “ride-sharing” flying-electric-car service, rather than being a modern take on the exclusive corporate helicopter.
The Cora won’t be available for sale to individuals, it says, and is instead “about giving everyone a fast and easy way to get around that doesn’t come at the expense of the planet”.
However, Kitty Hawk is also trialling a one-person vertical take-off “personal aircraft” called the Flyer that is designed to fly up to 10 kilometres on a single electric charge.
The Flyer is designed to travel for up to 20 minutes at 20 miles per hour, though it’s currently limited to flying over water at an altitude of only 10 feet.
Coming back down to earth – but not with a bump – Telsa founder Elon Musk envisages a network of “hyperloops” that would smoothly whisk people between cities at up to 1200kmh, which is just under the speed of sound.
The incredibly high speeds touted by hyperloop researchers are conceivable because people would travel in pressurised “pods” that would glide on magnets, pushed by magnetic pulses through tubes that were kept at a near-vacuum to reduce air resistance.
One of the huge (some think insurmountable) engineering challenges is creating and maintaining something close to a vacuum in tubes that could stretch hundreds of miles.
Without the near vacuum, hyperloops just become a bit like a Maglev train in a tube.
Virgin founder Sir Richard Branson has signed a “preliminary agreement” to build a hyperloop that would transport people 160 kilometres between the Indian cities of Pune and Mumbai in 25 minutes, implying a less whizzy average speed of about 350kmh.
Its tubes would be depressurised to about 100Pa (pascals), equivalent to the very thin air pressure that exists 60km above the ground.
Branson, who has come off the bench to personally chair his Virgin Hyperloop 1 venture, told the BBC he believed it could transport people in Britain “far quicker, in far greater numbers, with far greater convenience than any other train network in the UK”.
If ever built in New Zealand, a hyperloop could cut the land-travel time between Auckland and Wellington to under an hour, and the commute time between Hamilton and Auckland to less than 10 minutes.
KiwiRail general manager of planning David Gordon says KiwiRail “has not formally looked at hyperloop technology for New Zealand and has not formed any view on it”.
Compared with drone taxis and hyperloops, self-driving cars might sound positively pedestrian.
But Christchurch consultant Roger Dennis is one of a growing number of professional future-watchers who argue they are an advance we can definitely count on.
Dennis forecasts self-driving trucks and cars will first prove their safety in the confines of mines, university campuses, ports and hospitals before being gradually allowed onto public roads by regulators.
Tragedies such as the death in March of a pedestrian in Arizona, who was hit by an Uber vehicle travelling in autonomous mode, will prove only an unfortunate “blip”, he believes.
“Driverless trucks have been used in mines for a number of years and, when they remove the human driver, accidents go down and productivity goes up. Human-driven cars kill more people every year than autonomous cars ever will.”
Self-driving cars may not be given licence to roam all of New Zealand’s eclectic mix of public roads in one swoop. Regulators may instead open up the road network in phases, he says.
“A logical approach would be to say, ‘We think these roads are suitable for autonomous vehicles and there’s another set of roads where it won’t work’. Then, as artificial intelligence improves, you will see more and more roads become certified.”
The New Zealand Transport Agency is starting to prepare for the arrival of autonomous vehicles (AVs), says one of its managers, Martin McMullan.
Virgin is one of the companies pioneering hyperloop systems, which could let people travel on land at up to 1200 kilometres an hour.
Trans-Tasman body Austroads, on which the agency has a board seat, produced a report last year on changes that might be required to the road network.
It stressed the benefits of making intersection designs and machine-readable signs “consistent”, so they could be reliably interpreted by software.
“Feedback suggests that many AVs will be designed to operate on our road networks as they currently are”, but existing infrastructure was “problematic” for some manufacturers, the report concluded.
“Roadworks are a key aspect noted to be of particular concern to AV manufacturers and system suppliers. It is necessary to ensure that roadworks become well planned events.”
Colin Gavaghan, director of the New Zealand Law Foundation Centre for Law and Policy in Emerging Technologies at Otago University, says it’s only “human” for AV accidents to weigh heavily on our minds.
“I’d wager that one pedestrian death from a driverless car would stand out in people’s minds more than all of the 300-odd road deaths in New Zealand last year combined.”
People imagine they are safer when they are in control of a vehicle, and “no amount of actuarial data can budge that belief”, he says.
“That said, I’m not sure that we should be settling for ‘a bit better than the status quo’ if it’s reasonable to expect driverless cars to be much safer.
“I have a vision of a future where car deaths are as rare as air traffic deaths today, and we should be demanding that level of safety.”
Research firm Bloomberg argues the world is unlikely to run out of lithium before the electric vehicle (EV) revolution is complete, even if it remains an essential ingredient in batteries.
Although not super-abundant, lithium is not a “rare earth” metal, with discovered global recoverable reserves estimated at somewhere between 10 million and 40m tonnes and rising – potentially enough to power more than 10 billion electric cars, according to Bloomberg.
Neither would New Zealand be likely to run out of electricity, according to Electricity Authority chief executive Carl Hansen.
“Electrifying all light vehicles would increase electricity demand by approximately 15 per cent, but this will likely occur over several decades,” Hansen says.
“We’re confident that the industry can cope with building generation in a timely way to meet the demand increases.”
Electricity prices might not even need to go up. “Over this time period there’s a high chance that electricity prices will decline in real terms due to the declining costs of technology such as small-scale solar generation.”
The same is true for transmission costs, he says. “It is possible the average cost of delivering electricity to consumers could decline due to higher use of existing network assets, especially during off-peak hours.
“Electric vehicles offer a fantastic opportunity for New Zealand to reduce its transport-related carbon emissions.”
Tony Seba believes petrol cars will go the way of the “horse and cart” far faster than most planners expect.
There is less agreement on when EVs and AVs may take over.
Right now, the switch to conventional self-driven electric vehicles has only just begun.
At the end of May, there were 5984 EVs registered in New Zealand, not including plug-in hybrids, according to the Transport Ministry.
That’s up from just 735 two years before and 2444 a year ago, but still a drop in the ocean among the total fleet of 3.6 million light vehicles.
Stanford University economist Tony Seba turned heads at an Apec conference in Wellington in November when he forecast no petrol vehicles would be built after 2025.
He believes that, by 2030, most journeys in the US will be taken “Uber-style” in fleets of self-driving cars that will pick people up and drop them off.
In the US “200m cars are going to be stranded – useless”, said Seba, who is known for his bold forecasts.
At the conservative end of the spectrum, the Transport Ministry forecasts EVs will still only make up 40 per cent of the fleet by 2040, even though it believes the typical lifetime cost of owning an EV will fall below that of a petrol car equivalent by about 2025.
The ministry is not making any forecasts about self-driving cars. But McMullan says if AVs follow the pattern of other vehicle technologies they will take between 10 and 30 years to dominate vehicle sales, and then at least a further 20 years to squeeze out the existing fleet.
Dennis – noticing a Tesla electric car pass by his window as he speaks – says the “safe money” is on it being eight to 15 years before AVs become noticeable on the roads.
“The two big barriers will be that the last 20 per cent of the technology challenge will be difficult, and regulation and public policy.”
The obvious roadblock for drone transport and electrically powered flight in general comes in inventing the battery technology that could provide the necessary power-to-weight ratios.
British vacuum cleaning inventor James Dyson announced Dyson’s move into the electric-vehicle business last year and is among those betting big on new solid-state batteries that would have a solid electrolyte instead of the conventional liquid one.
Last month, carmakers Toyota, Nissan and Honda and battery manufacturers Panasonic and GS Yuasa received a US$14m grant from the Japanese government to team up on solid-state battery research.
These could at least double power-to-weight ratios at the same time as slashing recharge times by a factor of six, according to some researchers.
Dennis says there is “always interesting stuff in the labs”, but cautions battery technology has not been a fast-moving field, at least up to now.
A “10-year timeframe” would be realistic for any breakthroughs, he believes.
“I think everybody finds it really difficult to think long term, and the classic example of this is the rebuilding of Christchurch, New Zealand’s largest infrastructure project costing more than $40b.
“There are at least four new car parking buildings in the CBD, yet if you look at Oslo in Norway, their CBD is going to be car-free by 2020. These are multi-storey buildings whose usage will probably start to tail off in 10 to 15 years – maybe sooner.”
With its fleet of ageing ferries, age-expired locomotives and the need for replacement wagons, KiwiRail is building its case for a large taxpayer investment. David Williams reports.
It was in 2008, an election year, that Helen Clark’s Labour-led government bought back the country’s rail assets under the KiwiRail banner.
Finance Minister Michael Cullen said at the time that during negotiations with the previous owner, Toll, it become clear that buying the rail operating business, including the inter-island ferries, was the best way to increase investment in the industry. Running a commercially viable business would prove extremely difficult without government support, he said, adding: “In the months ahead, I will explore options for significant investments in new, modern rolling stock.”
Instead, Labour lost that election and the global financial crisis kicked in, leading to years of public sector belt-tightening under Prime Minister John Key. Yet, despite all the rhetoric about roads – especially those of national importance – the National government pumped billions into rail. According to The Listener, the previous government spent about $2.1 billion on network maintenance and upgrades, and $1.4 billion for commuter rail upgrades in Auckland and Wellington.
But it’s never been enough. While its freight and tourism businesses manage to make a small operating profit, the company traditionally needs more than $200 million a year to maintain its network. That network includes 3500 kilometres of track, 1322 bridges and 98 tunnels, as well as maintaining its “above-rail” assets.
KiwiRail’s latest half-year report said more than half of the company’s active locomotives in the South Island were bought before 1975. That reflects, KiwiRail chairman Trevor Janes wrote, “decades of underinvestment which has contributed to recent challenges” – including the 2016 Kaikoura earthquakes.
“A rail company cannot live from pay cheque to pay cheque, you need a longer-term focus.” – David Gordon
It’s in this context that KiwiRail started a review. In last year’s Budget, the National-led Government pledged $450 million over two years, on the proviso there was a probe into its operating structure and longer-term capital requirements. “The Government wants to put the rail network on a longer-term sustainable footing,” then Transport Minister Simon Bridges said, in the hope National could suddenly achieve what it had failed to do for years.
The focus of that review changed when Labour, New Zealand First and the Greens formed a Government. (Pre-election, Labour promised to build light rail from Auckland’s CBD to the airport and a passenger service between Auckland, Hamilton and Tauranga.)
KiwiRail’s group general manager of investment, planning and risk David Gordon tells Newsroom there’s now a greater focus on “What do you want rail to do?”, as opposed to simply how much will it cost. “A rail company cannot live from pay cheque to pay cheque, you need a longer-term focus. I think everyone understands that. The question is, what is the mechanism by which that’s done and then, obviously, what is the amount.”
One mechanism, announced in April, was a surprise petrol tax hike, something Newsroom Pro’s Bernard Hickey called the Government’s “politically riskiest move since its formation”.
In its policy statement on land transport, which sets transport priorities, the new Government sent a message by adding rail to the list of transport classes that can bid for money from a pot called the national land transport fund. (Auckland is set to get a $2.8 billion increase from the fund, to help pay for a $28 billion transport wishlist over the next decade.)
However, the policy statement said scope for rail funding is “very tight”, and limited to improving struggling urban rail services and contributing to new and existing “interregional” commuter services.
‘Rust never sleeps’
KiwiRail’s review is scheduled to run through the rest of this year. But Gordon says for the biggest-ticket items, which will cost the largest dollops of money, it wants to bring these to the Government’s attention earlier. Those include its locomotives and ferries, which are at “end of life”, and money spent in its freight business “just to remain relevant”. KiwiRail would also like to standardise its equipment and link its IT systems more closely to that of its customers.
The problem is, and always has been, how much money KiwiRail needs just to maintain its network. Two weekends ago, a big chunk of the Auckland network and almost all of Wellington’s network was closed for replacement works. In greater Wellington, five bridges are in various stages of replacement involving 70,000 railway sleepers.
“It goes on all the time,” Gordon says. “Rust never sleeps.”
KiwiRail has also become very good at sweating its big ticket items like locomotives and ferries. But you can only sweat them so much.
Off the back of a record summer season, KiwiRail’s general manager of strategic projects Walter Rushbrook says its existing ferries are at capacity at peak periods. It is considering whether it should buy or lease bigger ships to cope. That’s triggered wider conversations about transport links with the likes including port companies, regional councils and NZ Transport Agency, especially about the future of existing ferry terminals in Wellington and Picton. As Rushbrook says: “Bigger ships mean you need bigger wharves.”
KiwiRail’s Interislander ferries – Kaitaki and Aratere, which it owns, and the leased Kaiarahi – are not expected to have cataclysmic failures as they age, he says. But they might become more unreliable. “The team works really hard to keep it going but it’s like an old car – it’s going to need increased amounts of love as it gets into its twilight years.”
Meanwhile, Gordon says about half of KiwiRail’s 100 locomotives are “age-expired”. New locos cost about $5 million. “You could do the maths there.” Wagons also need replacing – he didn’t hint at how many – standard flat-top wagons cost about $150,000-a-pop.
“So, yes, it’s in the hundreds of millions, absolutely.”
Surely that number could reach $1 billion, over time? Gordon says that as a stand-alone commercial proposition, rail in New Zealand has never been in a position to fund its underlying capital, of about $200-odd-million a year.
“On an ongoing basis, rail will require capital. You do the years long enough it’ll get to be a very big number.”
Asked when big chunks of Crown investment might be needed in KiwiRail’s ageing infrastructure, Gordon and Rushbrook both arrive on a rough timeframe of five years.
Turnaround comes to a screeching halt
Labour would do well to focus on the non-financial benefits of rail – such as carbon emission savings and easing congestion – if National’s record is anything to go by.
In 2010, it enacted a $750 million “turnaround plan” in the hope of making KiwiRail self-sustaining by 2021. The plan was shelved in 2013. A Treasury review found KiwiRail had made substantial progress but the plan had been based on overly optimistic revenue assumptions, inadequate progress in some areas and unexpected factors, like the global recession.
Hundreds of millions of Crown dollars continued to flow into the rail company. A commercial review started in 2014 found that New Zealand’s freight business would never be big enough for KiwiRail to be self-sustaining. By 2016, six years after the turnaround plan started, freight volumes had increased 14 percent, and KiwiRail’s share of import and export volumes had leaped 69 percent. Another 48 locomotives and 1300 wagons were bought.
So much was achieved. And then the Kaikoura quakes hit in November 2016.
In latest KiwiRail accounts, for the half-year, the company notes its insurance only covers loss and damage up to $350 million. The previous Government promised to meet any shortfall, including, in that last six-month period, a $40 million injection, while the company’s accounts took a charge of $134.1 million on its assets “for the capital cost of reinstatement incurred”.
Gordon says if Crown money is invested properly it can deliver on Government policy objectives. He points to Government investment in Auckland’s commuter rail network. In 2003, when Britomart station opened, patronage was about two-and-a-half million trips a year. Last August, the rail network celebrated recording 20 million trips in a single year.
Gordon: “I can’t see any reason to suspect that, post the City Rail Link and other things, that could be up in the 50s.”
Peters versus English
A question which seems more relevant in the last 24 hours is, what are the Government’s objectives? Yesterday Labour’s Justice Minister Andrew Little announced he was backing off repealing the controversial Three Strikes law because New Zealand First wouldn’t support it.
In terms of KiwiRail’s future, it’s worth repeating an exchange in Parliament in February 2015.
Bill English, the Finance Minister at the time, found himself defending his Government’s investment in KiwiRail – more than $1 billion over four or five years – under questioning from Finance and Expenditure Committee member Winston Peters.
Plugging capital investment gaps of between $150 million to $350 million a year was a concern, English agreed.
Peters asked English if he’d had any discussions about privatising the ferry service or putting in foreign ships or crews. No, English replied, adding: “This is a business where it’s a real challenge to get it to a sustainable basis, and we are now, I think, on about our third round of having a harder, deeper look at what drives KiwiRail costs and revenue.”
Peters, unsatisfied, pressed further, asking if any Treasury boffins had ever asked about the financial “disaster” happening at KiwiRail, the “almost daily stoppages” and whether it needed to go through the business with a fine-tooth comb. “Surely somebody said: ‘Look, alarm bells should be ringing here. What are we going to do about it?’”
Newsroom asked Peters, the Minister of State Owned Enterprises and soon to be acting prime minister, for his current view of KiwiRail’s operations and the likelihood of further Crown investment. His office didn’t respond.
Instead of OPEC, Iran or even Venezuela, the most prominent driver of oil prices over the next two years is likely to come in the shape of a shipping revolution, analysts have warned.
New rules coming into force in approximately 18 months’ time are seen as a source of great concern for some of the world’s biggest oil producers. That’s because global energy and shipping industries are thought to be ill-prepared for the looming sea change.
On January 1, 2020, the International Maritime Organization (IMO) will enforce new emissions standards designed to significantly curb pollution produced by the world’s ships.
“It’s the biggest (change) in the history of the market,” Amrita Sen, chief oil analyst at Energy Aspects, told CNBC’s “Squawk Box Europe” this week.
Why are the changes being enforced?
Amid a broader push towards cleaner energy markets, the IMO’s changes will specifically look to cut back sulfur emissions. The pollutant is a component of acid rain, which harms vegetation and wildlife, and is blamed for some respiratory illnesses.
The forthcoming measures are widely expected to create an oversupply of high-sulfur fuel oil while sparking demand for IMO-compliant products — thus ratcheting up the pressure on the refining industry to produce substantially more of the latter fuels.
“That is very important because Middle Eastern producers lose out heavily from that because their crude tends to be very high sulfur,” Sen said.
Ali Mohammadi/Bloomberg via Getty Images
A support vessel flying an Iranian national flag sails alongside the oil tanker ‘Devon’ as it prepares to transport crude oil to export markets in Bandar Abbas, Iran, on Friday, March 23, 2018.
In contrast to some of the world’s leading oil producers in the Middle East, including OPEC kingpin Saudi Arabia, the U.S. is expected to be better-placed to cope with the IMO’s measures due to their reputation for producing lighter crude.
What does this mean for oil prices?
Global benchmark Brent crude will climb to $90 a barrel by 2020 as new international shipping laws overhaul the types of fuels produced by refiners, Morgan Stanley analysts predicted in a research note published last week.
To be sure, the IMO’s rules will ban ships using fuel with a sulfur content higher than 0.5 percent, compared to 3.5 percent at present, unless ships are fitted with equipment to clean up its sulfur emissions.
Right now, few ships have invested in equipment to scrub pollutants from engines that burn high-sulfur fuel, so many external observers believe the majority of shipping companies are investing in capacity to make low-sulfur fuel.
The International Chamber of Shipping (ICS) fears ‘chaos and confusion’ unless the UN International Maritime Organization (IMO) urgently resolves some serious issues concerning the successful implementation of the 0.5 percent sulphur in marine fuel cap, which is scheduled to come into effect globally overnight on 1 January 2020.
Such chaos would have serious consequences for the movement of the world’s energy, raw materials and manufactured products – about 90 percent of global trade being carried by sea.
This was the principal conclusion of the Annual General Meeting of ICS’s member national shipowner associations which met in Hong Kong last week.
Esben Poulsson, ICS Chairman
Speaking from Hong Kong, ICS Chairman Esben Poulsson said:
‘The shipping industry fully supports the IMO global sulphur cap and the positive environmental benefits it will bring, and is ready to accept the significant increase in fuel costs that will result. But unless a number of serious issues are satisfactorily addressed by governments within the next few months, the smooth flow of maritime trade could be dangerously impeded. It is still far from certain that sufficient quantities of compliant fuels will be available in every port worldwide by 1 January 2020. And in the absence of global standards for many of the new blended fuels that oil refiners have promised, there are some potentially serious safety issues due to the use of incompatible bunkers.’
Mr Poulsson added:
‘Governments, oil refiners and charterers of ships responsible for meeting the cost of bunkers all need to understand that ships will need to start purchasing compliant fuels several months in advance of 1 January 2020. But at the moment no one knows what types of fuel will be available or at what price, specification or in what quantity. Unless everyone gets to grips with this quickly we could be faced with an unholy mess with ships and cargo being stuck in port.’
ICS emphasises that governments will need to make significant progress on these issues at a critical IMO meeting in July about the impending global sulphur cap, to which ICS – in cooperation with other international industry associations – will be making a number of detailed technical submissions to assist successful implementation of what ICS describes as a regulatory game changer.
European Commission Needs to Respect IMO CO2 Reduction Strategy
The ICS AGM in Hong Kong endorsed its support for the historic UN IMO agreement adopted in April 2018 on a comprehensive strategy to phase out international shipping’s CO2 emissions completely. This includes targets to improve the sector’s CO2 efficiency by at least 40 percent by 2030 and 70 percent by 2050, and a very ambitious goal to cut the sector’s total GHG emissions by at least 50 percent by 2050 regardless of growth in demand for maritime transport.
ICS member national associations agreed to contribute constructively to the immediate development of additional IMO regulations that will start to have a direct impact on further reducing international shipping’s CO2 emissions before 2023, in line with the new IMO strategy. They agreed that ICS should come forward with detailed proposals before the next round of IMO discussions in October on reducing GHG emissions from shipping.
However, ICS members expressed serious disappointment at the apparent intention of the European Union to press on with the implementation of a regional CO2 reporting system at variance to the global system already agreed by IMO, despite having given an undertaking to align the MRV regulation with the global regime.
‘We are still waiting to see the final recommendations from the European Commission following a recent consultation’ said ICS Chairman Esben Poulsson. ‘But the industry has made clear its total opposition to the publication of data about individual ships using abstract operational efficiency metrics that bear no relation to CO2 emissions in real life and which will be used to penalise shipowners unfairly.’
Mr Poulsson added:
‘Anything less than a full alignment with the IMO CO2 data collection system will be seen as a sign of bad faith by many non-EU nations who recently agreed to the IMO GHG reduction strategy, precisely to discourage such unilateral measures which risk seriously distorting maritime trade and global shipping markets.’
Esben Poulsson Re-elected
The ICS AGM, which was hosted by the Hong Kong Shipowners Association, re-elected Esben Poulsson (Singapore) as ICS Chairman for a further two year term.
Source: International Chamber of Shipping
Following a lengthy process, the International Maritime Organization’s (IMO) member states finally agreed in April to require international shipping to decarbonize and at least halve its greenhouse gas emissions by 2050.
The agreement includes strengthening design requirements for each ship type, a relative reduction of 40 percent in CO2 emissions by 2030, and at least 50 percent reduction by 2050, and subsequently a path toward a complete phase-out.
Although the members agreed on the goals, concerns were raised over the lack of any clear plan of action to deliver the emissions reductions.
Kirsi Tikka, Executive Vice President, Senior Maritime Advisor, at the American Bureau of Shipping (ABS), in an interview with World Maritime News said that collaboration by all stakeholders as well as sufficient investment in technology development are needed.
“To meet the targets established in the initial IMO strategy for GHG reduction will require considerable development time and financial investment that may not deliver returns in the short term.”
Since the experiences of early adopters of technology in complying with environmental regulations have not always been positive, the industry “is unlikely to adopt new GHG reduction technologies until there is a full proof of functionality and ideally a cost/benefit analysis.”
Tikka continued that financing the R&D needed to deliver on the schedule established by the IMO strategy “will be a challenge for the industry – something of which the IMO is well aware.”
WMN: Would you agree that the compromise on the 50 percent reduction was the best the IMO could do for the moment?
Tikka: Given the apparently high degree of disagreement on strategy between member states going into the meeting it was a very positive result for the IMO, the industry and potentially, the environment. By agreeing to establish a global target for CO2 emissions reductions, the IMO has produced a result in line with the Paris Accords and has sent a clear message that eliminates the need for regional target setting.
Shipowners will start to collect emissions data according to the IMO Data Collection System in January 2019 and this data will provide the foundation for IMO discussions on the final shape of the GHG strategy from 2023, Tikka continued.
Despite the headlines concerning 50% reductions of 2008 levels by 2050, the targets for the greenhouse gas reduction “are not finalized and IMO will use the output from the IMO DCS and the fourth IMO Greenhouse Gas Study (in 2020) to further refine the targets.”
In the meantime, shipowners are probably more focussed on the implications of 2020 in terms of fuel strategy and operational profile, Tikka said.
“The IMO GHG agreement raises a lot of questions, to which there are for the moment, few answers: what kind of technology will be available? What fuel strategy – conventional or alternative – should they choose and what propulsion system will offer the best option?”
WMN: What is your take on the available solutions on the market? What is the way forward: alternative fuels, scrubbers or maybe innovative ship designs?
Tikka: I agree that there is a need for significant system and service development to transfer some of today’s promising technology into solutions that can be implemented and applied. These include fuel cell and battery technology, wind and solar power assistance and new fuels such as Gas-To-Liquids, methanol from biomass and other biofuels, but few are ready to go on the kind of scale needed to meet the GHG targets.
Vessel designs have already been optimized for economic efficiency in recent years and a step change in efficiency would require a radically different approach to design and/or use of materials. Since it is not feasible to replace the world fleet by 2030, we will need other fuel and operational measures such as optimizing speed for on-time arrival at port, to supplement any advances in design.
Speaking on the impact of CO2 reduction decision on ship speeds, Tikka informed that vessel speed has “a significant impact on required power and therefore on fuel consumption and CO2 emissions.”
As a result, ships in sectors that typically operate at higher speed “are likely to work at lower operational speeds in future. And maybe more importantly these speeds will need to be optimized for the most efficient utilization of the vessel in the logistics chain rather than the traditional approach of specifying the speed in the charter party.”
Tikka said that addressing the CO2 requirements “will certainly take a holistic approach across the industry.”
The leveraging of more real-time and accurate vessel performance data will form an integral aspect of achieving these improved efficiencies. Digital technology and improved connectivity will offer tools not only for reporting and improving vessel performance but also for optimizing the wider logistics chain, Tikka concluded.
Costa Rica’s new president has announced a plan to ban fossil fuels and become the first fully decarbonised country in the world.
Carlos Alvarado, a 38-year-old former journalist, made the announcement to a crowd of thousands during his inauguration on Wednesday.
“Decarbonisation is the great task of our generation and Costa Rica must be one of the first countries in the world to accomplish it, if not the first,” Mr Alvarado said.
“We have the titanic and beautiful task of abolishing the use of fossil fuels in our economy to make way for the use of clean and renewable energies.”
Symbolically, the president arrived at the ceremony in San Jose aboard a hydrogen-fuelled bus.
Last month, Mr Alvarado said the Central American country would begin to implement a plan to end fossil fuel use in transport by 2021 – the 200th year of Costa Rican independence.
“When we reach 200 years of independent life we will take Costa Rica forward and celebrate … that we’ve removed gasoline and diesel from our transportation,” he promised during a victory speech.
Costa Rica already generates more than 99 per cent of its electricity using renewable energy sources, but achieving zero carbon transport quickly – even in a country well-known for its environmental commitment – will be a significant challenge, experts say.
Jose Daniel Lara, a Costa Rican energy researcher at the University of California-Berkeley, said completely eliminating fossil fuels within just a few years is probably unrealistic – though the plan will lay the groundwork for faster action towards that goal.
“A proposal like this one must be seen by its rhetoric value and not by its technical precision,” Mr Lara said.
Oscar Echeverría, president of the Vehicle and Machinery Importers Association, said the transition away from fossil fuels in transport cannot be rushed as the clean transport market is so far undeveloped.
“If there’s no previous infrastructure, competence, affordable prices and waste management we’d be leading this process to failure. We need to be careful,” Mr Echeverría said.
But economist Monica Araya, a Costa Rican sustainability expert and director of Costa Rica Limpia, which promotes renewable energy and electric transport, said that in a country already rapidly weaning itself off fossil fuels, focusing on transport – one of the last major challenges – could send a powerful message to the world.
“Getting rid of fossil fuels is a big idea coming from a small country. This is an idea that’s starting to gain international support with the rise of new technologies,” she said.
Costa Rica’s push towards clean energy faces no large-scale backlash, in part because the country has no significant oil or gas industry.
But demand for cars is rising, as is use of other transport systems, and that may prove one of the biggest challenges in meeting the new goal, Mr Lara said.
According to data by the National Registry – the country’s records agency – there were twice as many cars registered as babies born in 2016.
Transport is today the country’s main source of climate changing emissions. According to the country’s National Meteorological Institute, 64 per cent of Costa Rica’s emissions come from energy use, and more than two thirds of that is from transport.
According to data from the State of the Region report, put together by a council of Costa Rica’s university leaders, public transport has struggled to meet the transport needs of the country.
As a result, demand for private vehicles has risen dramatically, with the car industry growing 25 per cent in 2015 alone, making Costa Rica one of the fastest growing auto markets in Latin America, according to the report.
The centre-left Mr Alvarado beat his Christian conservative rival and namesake Fabricio Alvarado, whose campaign had largely centred on his opposition to same sex marriage, with 60 per cent of the vote in second-round elections, and took office on 8 May.
Ports play an important role in reducing the global carbon footprint of maritime shipping, says a new report by the International Transport Forum.
Greenhouse gas emissions from shipping currently represent around 2.6% of total global emissions. Without reduction measures, this share could more than triple by 2050.
The International Maritime Organization (IMO) last week set a target of reducing shipping CO2 emissions by “at least” 50% by 2050 compared to 2008 levels. To achieve this, stringent measures now need to be put into place.
While the focus is naturally on the ships themselves, portside measures can significantly add to the environmental performance of shipping and the decarbonisation of maritime transport, the ITF report says.
Today, 28 of the 100 world’s largest ports (in terms of total cargo volume handled) offer incentives for environmentally-friendly ships:
• Some US ports offer reductions for ships reducing speed when approaching the port.
• The Panama Canal Authority provides priority slot allocation to greener ships.
• Spain includes environmental incentives in the tender and license criteria for the towage services provided in ports.
• Shanghai has an emission-trading scheme that includes ports and domestic shipping.
However, green incentives typically apply to than 5% of the ships calling at a port with an incentive scheme. Only five ports use CO2 emissions a substantial criterion for incentives.
Thus any incentives that ship-owners currently have to order more efficient ships with lower emissions can only to a very small extent be a result of port-based incentives.
The report thus recommends to:
• acknowledge the important role of ports in mitigating shipping emissions
• expand port-based incentives for low-emission ships;
• Link port-based incentives to actual greenhouse gas emissions; and
• move to a more harmonised application of green port fees.
“Ports clearly play a hugely important role in helping the shipping sector to manage the transition to clean shipping”, said Olaf Merk, ports and shipping expert at ITF. “Port-based incentives for greenhouse emission mitigation could provide an important supporting role.”
The work for the report was carried out with support from the Environmental Defense Fund Europe.