The State’s role in facilitating financing of climate-friendly ships

The Swedish government’s climate action plan states that greenhouse gas emissions from domestic transport must be close to zero by 2045 for Sweden to meet its long‑term climate targets.

Maritime transport plays a crucial role in moving both passengers and goods, and the Swedish government has therefore tasked the Swedish Energy Agency (Energimyndigheten) with analysing the need for support measures to accelerate the sector’s transition to fossil‑free operations and proposing how such measures could be designed.

Against this background, the Swedish Energy Agency has commissioned Copenhagen Economics to prepare a report mapping existing forms of financing and potential government measures to ease the financing for investment in climate-friendly ships.

In the report, we provide an overview of available financing instruments for green vessels, a review of possible government measures to promote financing of green vessels, and last, provide our recommendations on how the state can facilitate financing of such solutions without introducing direct subsidies.

Main conclusions of our report

We draw the following main conclusions in our report:

• Ship investments are highly capital-intensive with long investment horizons, and are financed through a mix of equity and debt instruments.

• Financing alternatives varies with size of the shipping company, where smaller shipping companies rely on risk-sharing solutions from public actors to a larger extent.

• The main challenges with financing are uncertain profitability and limited customer willingness to pay for green shipping solutions, which means that investments in fuel efficiency and/or low-carbon fuels are primarily driven by national, EU, and industry regulation.

• State financial institutions, such as specialised ship lenders and export credit agencies, significantly improve access to financing for Swedish shipping companies. Hence, access to financing is not the main barrier for investments in more climate-friendly ships.

• Existing state financial institutions already provide adequate conditions for funding green vessels, and current “green” financial products are used to a limited extent. The main reason is that improved financing terms do not offset underlying risks related to profitability, regulatory development and access to fuel.

• As state-owned financial institutions have a central role in enabling fleet renewal, we propose to review whether financing incentives can be sharpened to reward high-ambition, innovative green solutions that go beyond (minimum) regulatory requirements.

• Further analysis is warranted to assess financing challenges related to fuel production and related infrastructure, as well as the role of direct support for innovations beyond current standards.

Find the publication (in Swedish) below.