CARNIVAL CORPORATION: Cruising To A Cleaner Planet

Carnival Corporation, a major player in the cruise industry, has responded to critics in a meaningful way by redesigning operations to minimize impact on the environment.

In recent years, the cruise industry has come under increased scrutiny for its detrimental impact on the environment. Specifically, government and non-profit agencies have targeted cruise operators for their contribution to greenhouse gas emissions. Given that annual passenger growth is expected to increase over the coming years, the effect will only continue to compound [1]. In response to growing public concern, the International Maritime Organization (IMO) introduced a new regulation in 2015 that requires cruise lines to use 0.1% low sulfur fuel while traveling through the Emissions Control Area (ECA) along North American coastlines [2]. The IMO initiative, intended to reduce Sulfur Oxide (SOx) and Particulate Matter (PM) emissions by 85%, could simultaneously increase fuel costs by 140% [2,3].

For some cruise operators, the added fuel expense may be enough to dissuade them from docking at ports within the North American ECA in favor of rerouting to zones with less stringent regulation. In order to comply with regulations within the ECA, cruise operators must incur the expense of switching to low sulfur fuel or alternatively, they may opt to install cleaning devices known as ‘scrubbers’ that extract sulfur from their ships’ exhaust. Carnival Corporation, the parent company of 10 major cruise line brands that account for nearly half of all global cruise passengers, chose to do both [4,5].

In early 2017, Carnival Corporation announced that it had invested $400M to date to develop original technology and install scrubbers on nearly 60% of its 100-ship fleet, with plans to achieve 85% by 2020 [6]. Once installed, the scrubbers effectively remove 99% of SOx emissions and 50% of PM emissions while allowing Carnival Corporation to continue using diesel fuel [4]. Additionally, to support long-term improvement, Carnival Corporation has ordered the construction of 7 ships that will run solely on Liquefied Natural Gas, both within the ECA and out at sea. The new vessels are designed to eliminate 100% of SOx emissions, reduce PM emissions by 95-100% and cut carbon emissions by 25% [4]. With recent diesel vessels costing more than $800M to build and natural gas vessels expected to require a 30% premium, this decision represents a substantial commitment to sustainability [7,8].

While Carnival Corporation has taken extensive measures to comply with Federal regulations around greenhouse gas emissions, the company has dedicated significantly fewer resources to improving the unregulated components of operation. Namely, the corporation’s targets for water and waste efficiency are paltry in comparison. Over the 10 years beginning in 2010, Carnival Corporation planned to reduce waste and increase water efficiency by only 5%, respectively [4]. Although waste and water management have received less scrutiny and overall attention from regulators, both aspects represent critical factors in the larger climate change ecosystem and should be addressed with the same level of urgency.

Several competitors, including Disney Cruise Line (DCL), have surpassed Carnival Corporation in this regard. For example, DCL has developed a process to convert cooking oil to fuel for cars and to harness excess heat from generators to make seawater drinkable [9]. By implementing more demanding efficiency goals across their fleet in the short-term, Carnival Corporation could effectively incentivize engineers to develop an innovative long-term solution for onboard operations.

Though climate change has certainly created obstacles upstream for Carnival Corporation, there may be an opportunity to realize benefits downstream. Due to rising global temperatures, areas of the world that had previously been frozen are now accessible via recently thawed waterways. For example, in 2016 the Crystal Serenity was the first cruise line to traverse the Northwest Passage, selling staterooms onboard for as much as $120,000 [10]. As a result, cruise operators have the opportunity to recover some of the expenses caused by climate change by taking advantage of newly available, more lucrative routes.

Thus, the paradox of climate change as it applies to the cruise industry is such that cruise operators must bear the burden of increased regulation to minimize impact, but simultaneously are positioned to reap the reward of impact to date. The ability to balance these priorities, while communicating a compelling consumer narrative, will be the major challenge for Carnival Corporation as the conversation around climate change continues to evolve.

 

Questions for Consideration:

  1. Do consumers consider measures taken to combat climate change when selecting a cruise operator? If improvements do not create a competitive advantage, will cruise operators continue to innovate?
  2. Has the EPA done enough to regulate cruise operators? If not, what other regulations should be imposed?
  3. Is it unethical for cruise operators to take advantage of lucrative new routes that are the result of climate change?

 

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End Notes

[1] Castillo, Sarina. “How Much Carbon Does Cruise Ship Tourism Emit?” Griffith University, Griffith Institute for Tourism Insights, 11 July 2017, blogs.griffith.edu.au/institute-for-tourism/how-much-carbon-does-cruise-ship-tourism-emit/.

[2] United States, Congress, Office of Transportation and Air Quality. “Designation of North American Emission Control Area to Reduce Emissions from Ships.”

[3] Kramer, Gina. “ECA and the Cruise Industry: What Cruisers Need To Know” Cruise Critic, 21 September 2017, https://www.cruisecritic.com/articles.cfm?ID=1700.

[4] “FY2016 Sustainability Report.” Sustainability From Ship To Shore, carnivalsustainability.com/download-files/2016-carnival-sustainability-full.pdf.

[5] “Cruise Lines International Association Releases Official 2015 Global Passenger Numbers and Increases 2016 Projections.” 2 June 2016, www.cruising.org/about-the-industry/press-room/press-releases/cruise-lines-international-association-releases-official-2015-global-passenger-numbers-and-increases-2016-projections.

[6] “Carnival Corporation’s Exhaust Gas Cleaning Technology Installed on 60 Percent of Fleet.” Cision PR Newswire, 27 Feb. 2017, www.prnewswire.com/news-releases/carnival-corporations-exhaust-gas-cleaning-technology-installed-on-60-percent-of-fleet-300413964.html.

[7] “The Most Expensive Cruise Ships of All Time.” The Telegraph, 19 January 2017, http://www.telegraph.co.uk/travel/cruises/galleries/the-most-expensive-cruise-ships-of-all-time/.

[8] Bauer, Lorenz. “Ocean Going Vessels Going Green.” Biofuels Digest, 22 November 2016, http://www.biofuelsdigest.com/bdigest/2016/11/22/ocean-going-vessels-going-green/.

[9] “Disney Cruise Line Environmental Overview.” Disney Cruise Line, http://dclnews.com/wp-content/uploads/sites/4/2014/07/DCL_Env_Fact_2014.pdf?ts=1406230908.

[10] “In Warmer Climate, A Luxury Cruise Sets Sail Through Northwest Passage.” Weekend Edition Saturday, www.npr.org/2016/08/27/491337521/in-warmer-climate-a-luxury-cruise-sets-sail-through-northwest-passage.

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5 thoughts on “CARNIVAL CORPORATION: Cruising To A Cleaner Planet

  1. Great article! The last cruise I went on had an interesting presentation on the effects of climate change. I thought it was strange that they would present such a topic at the time (and that there wasn’t any mention of climate change in the title or the description of the event). Still, they presented a lot on climate change’s negative impact on reef life and made no pains to hide that there was an economic benefit for the cruise industry to some extent–no reef life, no excursions to see the reef life.

  2. An important factor dictating responsiveness to Carnival’s measures to combat climate change is the composition of its passengers. As of 2014, 40% of Carnival’s adult passengers were millennials.[1] This percentage is not only higher than that of other cruise operators, but is indicative of the fact that “the cruise industry has long been moving away from its history as a grandparents’ getaway.”[1] Climate change is a salient issue for millennials evidenced by the fact that, in the most recent US election, climate change was considered “one of the very few issues that most millennials can get behind.”[2] As a result, I believe that consumers will increasingly consider measures taken to combat climate change when selecting a cruise operator.

    Regarding the ethics of taking advantage of lucrative new routes, I see no issue given that consumers have fully visibility into the routes/itineraries they are selecting prior to paying for a cruise. Given that millennials have “a greater desire than any other generation to visit every state and continent,”doing so presents a new opportunity for these and other passengers who are keen to visit destinations that were previously not offered.[1]

    [1] http://www.miamiherald.com/news/business/article1978062.html
    [2] https://www.usnews.com/news/national-news/articles/2016-11-07/can-climate-be-a-galvanizing-voting-issue-for-millennials

  3. The ethical considerations of leveraging the new routes made available by climate change, given Carnival’s contributions to it, are particularly intriguing. One potential argument in favor of Carnival using these routes is the ability to drive additional profits that could subsequently be invested into the efforts required to reduce the company’s environmental impacts going forward. At the same time, the utilization of these routes could provide new opportunities for travelers to experience areas obviously and visibly impacted by climate change first-hand. These offerings could serve as an inherently powerful educational tool if messaged to customers properly by Carnival. For these reasons, the ethical dilemma can be viewed through the lens of Carnival’s intentions in leveraging these new routes, and whether the company plans to use the opportunity to lessen its future environmental impact, rather than to sustain or even increase it in pursuit of profit.

  4. This is such a great article!

    I am really happy to learn that government and non-profit agencies are targeting cruise lines and pressuring them to care more about reducing their greenhouse gas (GHG) emissions. While fuel is probably a big driver of profit margin in the cruise industry, I would imagine that food and entertainment costs are larger drivers. This differs from airlines where fuel is the number one driver of profit margin.

    For companies like cruise lines that do not have to worry about fuel being the number one driver of profit margins, tension can arise from the misalignment of a cruise line’s profitability goals and environment sustainability requirements. This tension is further exacerbated when the only way to reduce a cruise line’s GHG emissions is to either buy more expensive low sulfur fuel or install expensive scrubbers on ships.

    This brings up a point that, for most companies, if a profit can’t be realized due to adapting a more sustainable practice, the company is unlikely to adopt these practices without government regulation.

    Perhaps another way to look at this issue is questioning: How can we change customer behaviors such that the cruise line that has a better sustainability focus is more profitable? Is there a way to educate customers through marketing and have them select the cruise line (and be willing to pay a premium) that has better sustainability practices? This might be another way to further the sustainability practices of cruise lines without necessitating more government and non-profit regulation.

  5. For the question about federal regulations, I’m not sure how much more will realistically be done. While it certainly would be ideal for the government to do so and enact regulations on the amount of water they use, there are already enough concerns about whether the government will enact more regulations on buildings/companies actually based in the US, let alone ships that simply dock in the US.

    Given that these cruise ships are constantly exposed to sun and wind, I wonder if there is a way for them to increase their investments in renewable technologies on the ships themselves in order to help cover some of their smaller costs. Even if it doesn’t make a ton of economic sense, I think it would help as a way to attract the more eco-conscious among their potential customers to choose them over brands.

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