The shipping industry is entering a critical decade of tectonic shifts for decarbonised technologies, logistic chains and market structure. While the world contends with the COVID-19 pandemic, climate change continues to pose increasing threats that we must address equally vigorously. And just as the pandemic requires enhanced public/private cooperation at a global level, so too does the effort to drive decarbonisation in shipping, in order to yield concrete results.
According to the latest International Maritime Organization’s (IMO) greenhouse gas (GHG) study published in 2020, GHG emissions from shipping (expressed in CO2-equivalent) have increased from 977 million tons in 2012 to 1076 million tons in 2018, and are expected to further increase by 50% (over 2018 levels) by 2050 despite efficiency gains, which are completely offset by the continuous growth in seaborne transportation activity (1). In this context, emission reduction targets set by the IMO (to reduce carbon intensity by at least 40% by 2030 compared to 2018, and total annual GHG emissions by at least 50% by 2050 compared to 2008 (2)) might seem unattainable, unless drastic actions are taken now. Although it has legitimately been acclaimed as the least environmentally damaging means of transportation, shipping has heeded the call for more radical change and made positive strides through collaborative emission-reduction initiatives, and some private operators are now even calling for a more ambitious horizon of zero-carbon-shipping. And yet, today the sector is struggling to identify a clear way forward.
Start with low hanging fruits
The theory of change teaches us to observe and act first upon our sphere of control and influence. With this in mind, ship operators have the opportunity to reduce the fuel consumption and emissions of the ships they charter from ship-owners, by maximising technical and operational efficiencies during voyages. Technical efficiency mainly stems from a ship’s hydrodynamic design: hull shape, propeller, anti-fouling paints, energy saving devices (wind propulsion rotors or sails and air lubrication systems under the hull to reduce friction). Some of these devices and appendages can be retrofitted during a vessel’s lifetime and can constitute a transition to 2030 targets for ageing conventional ships. Other fuel efficiency gains relate to the day-to-day operations of a ship: optimal weather routing, adjusting speed to sea conditions and navigating based on a better understanding of currents. What do these endeavours have in common? Cooperation between operators and ship-owners and greater use of digitalisation through sensor-based measurements and computer modelling.
Collaboration is key
Today’s green transition calls for a holistic, cross-industry effort, admittedly with a strong impulse from cargo-owners, shippers, charterers and operators, whose full value chain emissions footprint is under scrutiny and whose strong balance sheets attract green bonds and other sources of financing. Why? Because ships are already an asset class that requires cross-ownership between stakeholders through the asset lifecycle. The need for cooperation must also engage seafarers, whose well-being and training are conditions for safe and sustainable shipping operations - even more so with the crew change crisis in the context of the ongoing pandemic, as alerted in the industry-wide Neptune Declaration.
The harmonised global emissions reporting called for under the Sea Cargo Charter encourages transparency and accountability for decarbonisation. It is also an opportunity for each charterer to work on causes, determine ship consumption patterns and improve its emissions footprint through iterative engine performance enhancements. However, while short-term efficiency gains are necessary, they cannot improve emissions profiles by more than 15-20% combined, and are therefore insufficient to tackle the real transition from fossil-fuels to decarbonisation. Every transition has costs and requires visibility, which are considerations that an equitable carbon-pricing mechanism and globally enforceable regulations must address.
Close the low-carbon competitiveness gap
Studies (ETC) (3) suggest that achieving full shipping decarbonisation by 2050 would require an estimated USD 1,4 to 1,9 trillion. For years, the shipping industry has witnessed low returns on capital invested and yet is expected to fully transform its fuel, designs and land-based infrastructures: a challenge to say the least! Industry fragmentation also complicates the articulation of an industry-wide action plan for the move toward zero carbon fuels. With this in mind, closing the competitive gap of non-fossil fuels requires a concerted global carbon levy scheme to fund research and development (R&D), raise the entry barrier to a higher playing field and support the communities most impacted by climate change.
Price carbon globally
IMO reforms are being challenged by a swifter European Parliament, which already approved the inclusion of emissions from ships in the EU Emissions Trading System from January 2022 (4). Regionalisation of carbon levies will not create optimal conditions for the harmonisation of good practices according to global standards, and raises risks of loopholes and a two-tier market structure. In 2019, the International Chamber of Shipping proposed (5) a carbon levy scheme based on the contribution by shipping companies worldwide of USD 2 per ton of marine fuel consumed (estimated at around 300 to 350 million tons per year for all ships combined). This levy would fund an R&D programme overseen by IMO Member States. Although the idea of a globally mandatory carbon levy is pertinent, a more significant levy on carbon-intensive fuels should be considered to drive the radical change needed to achieve decarbonisation. The recent proposal put forward for a self-financing “feebate” programme is particularly noteworthy. “Feebates” are generally considered the best system to shift the cost of negative externalities, in this case by charging a fee to carbon-intensive fuel users while subsidizing vessels with CO2e emissions below an agreed benchmark level, which should reflect (if not exceed) the IMO’s required CO2 trajectory. According to the study by Texas A&M University sponsored by Trafigura (6), a carbon levy in the range of USD 250-300 per ton of CO2e would be required to ensure a scalable and cost-competitive decarbonisation transition throughout the entire marine fuel supply chain, from well (extraction/production) to propeller (combustion).
IMO’s central role
Ensuring that the feebate funds R&D efforts while supporting communities vulnerable to climate change is a task for the IMO, which is in a position to organise and enforce a truly global approach. A year ago, the successful transition into sulphur cap fuel oil regulations demonstrated the importance of collective efforts and underlined the IMO’s central role for alignment and enforceability of solutions in tackling global climate challenges – and all the more so with today’s manifold and increasingly urgent challenges.
Switzerland: the new influential impulse at IMO?
“Home” to some of the world’s largest private operators and charterers, Switzerland has grown into a hub and force for innovation in shipping. Several Switzerland-based companies, often members of the STSA, instigated, drove or supported a number of recent global sustainable shipping initiatives, such as the Sea Cargo Charter, the Poseidon Principles, the Neptune Declaration, the ISC’s carbon levy proposal, the partial feebate proposal and the Sustainable Shipping Initiative’s Ship Recycling Transparency Initiative. The Swiss shipping community could further spearhead a global decarbonisation coalition with the support of the STSA and Swiss Maritime Navigation Office, urging the IMO to turn it into a global legal obligation. With growing scrutiny over climate issues from the public, financiers and governments themselves, who are setting bold new targets (notably 2060 carbon neutral China, itself the leading maritime powerhouse), aligning on a concrete carbon levy program and obtaining decisive diplomatic support at the IMO remains an urgent priority for the coming months.
History is accelerating. We must embrace collective transformation before we are compelled to change. Along the path toward a sustainable future, business opportunities will exist on the condition that we create an ordered, fair and ambitious global framework for the decarbonisation of shipping.
(1) imoarcticsummit.org/wp-content/uploads/2020/09/MEPC-75-7-15-Fourth-IMO-GHG-Study-2020-Final-report-Secretariat.pdf.
(2) www.imo.org/en/MediaCentre/PressBriefings/Pages/06GHGinitialstrategy.aspx
(3) www.globalmaritimeforum.org/content/2020/01/Getting-to-Zero-Coalition_Insight-brief_Scale-of-investment.pdf
(4) www.europarl.europa.eu/news/en/pressroom/20200910IPR86825/parliamentsays-shipping-industry-must-contribute-to-climate-neutrality
(5) www.ics-shipping.org/press-release/shipping-sector-proposes-usd-5-billion-rd-board-to-cut-emissions/
(6) www.trafigura.com/brochure/a-proposal-for-an-imo-led-globalshipping-industry-decarbonisation-programme
