The IMO 2020 Sulphur transition is now largely behind us: compliance levels for bunker sulphur content have been above 99% since April 2020. Now, shipping enters its third propulsion revolution. Sails were replaced by steam, which in turn was replaced by diesel; now we need to transition to new zero carbon emission fuels. Diesel engines will still play a role in consuming the new zero carbon fuels, and in a twist of symmetry, we will see the return of sails to augment the mechanical propulsion systems. However, whilst the first two revolutions were catalysed by technological developments that unlocked new economic opportunities; this time regulation will drive the change by addressing the market failure, and providing the economic impetus required for the development of the new technologies and energy sources.
More work, less fuel
At their recent Marine Environmental Protection Committee meeting (MEPC75), IMO agreed on short term-measures to reduce the carbon intensity of shipping, comprising of a requirement for existing ships to be essentially meet the same technical efficiency requirements as applied to new ships (EEXI Energy Efficiency Existing Ship Index), and a requirement for operational Carbon Intensity Indicator reduction (CII). Both regulations have commercial and operational implications for commodity traders and charterers. EEXI comes first in late 2022/2023, and whilst its aggregate impact on markets is expected to be limited, it may have more significant implications for individual (less efficient) ships. After EEXI comes CII: this will put increasing pressure on fleets between 2023 and 2030 as the requirements will progressively tighten each year, putting ultimately a use-by-date on each ship. The impact on less efficient ships will be greater; the commercial performance of a ship will be more sensitive to its technical attributes than in the past; and compliance will no longer be black or white - it will be shades of green.
More evidence, less talk
Recent IMO meetings included debates on the level of ambition of future regulations, and the need to accelerate work on market-based measures to incentivise the transition to alternative, low and zero carbon fuels. However, currently the IMO has very little information about the availability and costs of these new fuels; the technology to store and consume them onboard; and the ultimate impacts on markets. The Lloyd’s Register Maritime Decarbonisation Hub, established for this purpose, aims to accelerate decarbonisation by undertaking collaborative projects that produce the evidence and data needed by IMO, and the wider industry, to move from talk, to action.
IMO 2020 Sulphur highlighted the importance of involving all stakeholders in the shipping value chain within the development of regulations. All eyes may be on the regulators, waiting to see what comes next: however, unless we provide them with the right information, and impetus, it will be difficult for the IMO to make the bold, timely decisions that are needed to decarbonise shipping, or to guarantee the certainty that markets need.
