A few years ago I wrote a letter to President Trump objecting to the United States withdrawing from the Paris Agreement in June of 2017:
I object to your plans to remove the USA from the Paris Accords. Your explanation for leaving the accords includes false science and dubious reasoning, and thus I object to your statements and explanation too. I object to your lack of faith in the American people’s ability to reduce carbon releases into the atmosphere while reducing the total cost. Sir, I have found that America wins by innovating and fails when staying with out-dating technologies. By trying to leave the Paris Accords, you are on the wrong side of history and history will find you guilty of trying to prevent changes that will make it a better world and even add jobs to the economy, new good paying and safe jobs.
Mr. President your lack of faith in the American people is shocking. Nobody wants coal smoke to breath, oily water to drink, and poisoned lands to live on. The American people and I will make the Paris Accords work without you.
I was surprised to receive a response back from the President a few months later:
Yes, it is likely a bit of a form letter and probably not actually hand signed by President Trump, but not often do I get to report the official response. The President has personally committed to me to “pursue technology and innovation that protect the environment.” I also exchanged Christmas cards. I may be the only Democrat and Hillary voter to be so treated!
But this is just a start into my story. It is my belief, as it also appears to be the President’s belief that innovation will bring us what we need. This brings us to IMO 2020.
The Internation Maritime Organization (IMO) is the regulatory body that sets the standards for shipping. Try not to nod off or move to a more exciting blog–this is important. All of those niceties that come from China and Vietnam and so on usually come by boat and the IMO decides what is OK and what is not OK. The cost of international trade, both the price we all pay for stuff and the cost of the carbon and pollution and human costs of working on container ships, is regulated and decided by IMO.
So IMO 2020 is the regulation to limit the sulfur released by ships into the air from burning bunker fuel. Next year the fuel for a vessel must be reduced in sulfur or the ship must have scrubbers installed, or the vessel burns liquified natural gas instead. From what I read on various shipping information websites, the regulation was ignored by the oil industry and shipping as neither wanted to make investments if the other would not and if they both did not then maybe some, like our President, might delay the implementation. This was described in the press as the form of the Prisoner’s Dilemma. The date is now less than a year away, and the IMO has not delayed the IMO 2020!
A funny happened, big oil discovered that bunker fuel–the fuel for most container ships–could be a money maker. This fuel is the sticky remains of refining crude oil to get gasoline and other more volatile products from raw petroleum, and it is full of sulfur because it is dregs. It is cheap, and there is lots of it. According to reports that I read, the oil refineries can remix the dregs and refine the gunk a bit more, and charge more, and pop they are green, and their mark-up is so much better! All over the world, there was talk about a crisis as there would not be enough low-sulfur fuel and this would cause an increase in prices. This could double fuel prices! Panick! President Trump demanded an extension and refinery stock prices tanked (ok, that is a bit of a cheap pun).
Now, prices will likely be about 50% higher for the low sulfur fuel next year according to the reports I read on the Internet. President Trump has backed away from his demands after a discussion with petroleum industry experts and executives. The stocks of refining companies went back up in price. Apparently, there have been billions of dollars invested in producing this better lower sulfur and higher margin product in the vast amounts needed to fuel the world’s cargo ships.
I also read that ships that are inefficient and do not have scrubbers are being scrapped. The ships will not be missed and the steel recovered is cheaper to recycle than to make steel from raw materials. Funny, the reduced cost of recycled steel now coming on the market will likely make the steel trade-war less critical. It is excellent and cheap and likely headed into our value chain for manufacturing. And would you not be surprised to learn that IMO has now sent a standard for ship recycling (see Ship Recycling)! There are still folks cheating, but we are getting somewhere now.
Next, ships that have scrubbers or are getting scrubbers for sulfur in the next six months will be able to use the much cheaper old-style gunk. I read that the scrubbers installation cost will be paid for in reduced fuel costs, reported at twenty million a ship, in a year or so. The shipyards are fully booked now installing scrubbers.
So I agree with the President, we can make green work. Not exactly the way either of us imagined when we wrote our letters, I think.
Finally, I invested in Global Ship Leasing (GSL) preferred stock. So I am not just someone who sits on the sidelines. I make money, 10% + yield, and will continue to watch and image a better world.