Q&A: Peter Soles on challenges and solutions for U.S. harbor craft

Peter Soles, Glosten.

Sponsored Content: Marine Log sits down with Glosten’s Peter Soles on navigating the roadblocks to decarbonization, especially in the U.S. harbor craft industry.

Marine Log (ML): In your recent Op-Ed with Marine Log, you discuss that the push to decarbonize is creating unintended consequences—essentially, creating an environment where operators are more inclined to do nothing than proceed down a risky and uncharted path. What do you see as the main challenges driving this perceived stagnation in the decarbonization of US commercial harbor craft market?

Peter Soles (PS): First, it’s important to note that when referencing commercial harbor craft (CHC), I’m talking about private, for-profit operations. As for the challenges, I see a few significant reasons why US CHC operators aren’t full-ahead on decarbonization right now. Firstly, we are experiencing a period of comparatively high construction and financing costs, which makes it difficult for operators to invest in new vessels, period, let alone novel ones with new and untried technologies onboard. Secondly, there’s a lot of regulatory uncertainty around local air emission and safety standards right now. This uncertainty is compounded by shifting policy priorities at the federal level—while one administration may push aggressive emissions regulations, the next may roll them back, making long-term planning incredibly difficult for vessel owners and operators.

On top of that, many of the decarbonization technologies that are available are still immature, meaning they haven’t been fully marinized or approved by regulatory bodies and, as such, they come with some very real operational risks. Finally, there’s a lack of usable funding and incentive programs for commercial harbor craft operators to support the change to low- and zero-emission vessels. Grants and incentives, which could help offset some of the costs, are often not accessible for private applicants.  When they are, qualifying projects are limited to the retrofitting of existing vessels, as opposed to funding new design and construction. Stack these challenges all on top of one another and it doesn’t exactly give you warm and fuzzies if you’re an operator considering a move toward low- and zero-emission vessels.

ML: How does regulatory uncertainty, particularly around the U.S. Coast Guard’s approval process for alternative fuels, affect the adoption of low- and zero-emission technologies in the CHC market?

PS: Regulatory uncertainty is a huge barrier for CHC operators trying to adopt low- and zero-emission technologies. For instance, when trying to utilize alternative fuels like hydrogen or methanol, owners will have to initiate a Design Basis Agreement process with USCG, which is generally long, onerous, and, frankly, a gamble. There’s no guarantee of a positive outcome, nor is there clarity on what safety standards the owner will ultimately end up having to meet. Most operators just aren’t willing to take this risk, especially with so much money on the line.

ML: Are financial incentives, such as government subsidies or tax incentives, crucial for the widespread adoption of decarbonization technologies in U.S. commercial vessels?

PS: It goes without saying that financial incentives are a critical component to the adoption of decarbonization technologies in the US CHC market. Without these incentives, CHC operators are less likely to make the investments needed to [rapidly] transition to alternative fuels or low-emission technologies because the financial risks are just too great. These incentives would help reduce the burden on operators by offsetting some of the initial costs of adopting new technology and, thereby, help make low and zero emission vessels more commercially viable. Without such programs, the upfront investment required to “make the transition” is simply too much for most businesses to bear, especially when many of the technologies are still untested in marine applications.

ML: In what ways do the barriers faced by private CHC operators differ from those faced by publicly funded and operated vessels, according to the op-ed?

PS: The challenges that private CHC operators face are vastly different from those encountered by public operators. Private CHC operators have to stay competitive and profitable or they’re out of business. They face obstacles like competition, market shifts, and economic downturns that publicly operators are largely insulated from. 

ML: As we wait for more incentives or regulations to drive decarbonization, do you think operators will continue to adopt retrofitting and leasing strategies, or will there be a tipping point where new vessel construction picks up again?

PS: For now, my sense is that operators will keep leaning on retrofitting and leasing. The cost of building new vessels is high right now, and with all the uncertainty around air emissions standards and other regulation, it feels like a risky move. Retrofitting can allow operators to extend the life of existing assets, or even expand their fleet, without breaking the bank. Leasing gives operators a way to get their hands on newer and more modern boats without the massive capital outlay of new construction. Leasing also insulates operators, to some extent, from market volatility and new regulatory impositions because they’re not stuck holding a 30-year asset. Lessees pay a premium, of course, but it’s a tradeoff many are willing to make.

That said, things could change if we start seeing some funding programs that support new vessel design and construction and are accessible for private, for-profit applicants. For now, though, I think it’s safe to say most are going to try to just wait things out.

ML: You note that some early adopter projects have shown promising results, such as the Crowley e-Wolf and the Amogy ammonia tug conversion. What key lessons can be drawn from these projects to make future green vessel initiatives more commercially viable?

PS: These demonstrator projects showcase the technical feasibility of alternative propulsion systems on marine vessels. The biggest lesson here is that while these alternative technologies can work, the costs and risks are still a huge roadblock for your average, for-profit CHC operator. It’s clear that if we want to see more of these vessels in the future, we need an established and stable regulatory environment. Right now, on the West Coast, new air emissions policy is emerging state-by-state (not good),while in Washington, the current administration is not supportive of federally sponsored green initiatives. All this keeps operators from jumping in with both feet.

We also need to think about the infrastructure that’ll support these new technologies—like alternative fuel supply chains, electrical charging infrastructure, and service/support networks. And of course, business economics is the single biggest diver. Until the day comes when there’s a real business incentive, whether it’s better grant programs, legislation that applies across the board, or some extremely aggressive competition, the transition to a working waterfront populated largely with low- and zero-emission harbor craft is going to be slow.