Firm Steer Needed for Shipping Transition
Green fuels seen as lifeline, as CEOs call on regulator to accelerate reforms at COP28.
The shipping industry’s green transition will be stuck in the slow lane without incentives and rules to drive more private investment to diverse innovations, COP28 heard yesterday.
Government officials and sector experts said increased investment was necessary in alternative fuels but also ships, ports and related infrastructure.
“In order to make an investment for the future, there must be certainty that there will be a return on investment,” said Sveinung Oftedal, Chair of the International Maritime Organization’s (IMO) Intersessional Working Group on Reduction of GHG Emissions from Ships, and Chief Negotiator on Green Shipping at the Norwegian Ministry of Climate and Environment, speaking in a panel discussion at COP28.
Also on the panel, Morten Bo Christiansen, Head of the Energy Transition at Danish shipping and logistics company Maersk, said that “without green fuels, there will be no green ships”.
However, Isabelle Ryckbost, Secretary General of the European Sea Ports Organisation, highlighted the importance of “the whole greening of shipping”, including transitioning ports.
It is just as important to invest in retrofitting existing shipping fleets to be “more energy efficient”, added Alexander Feindt, Chairman of the Renewable and Low Carbon Fuels Value Chain Industrial Alliance.
The transition depends on “a combination of solutions”, Ryckbost said. “We cannot only open one door; we have to help different solutions at the same time”.
Also in Dubai, CEOs of some of the largest global shipping lines signed a joint declaration calling for an end date for fossil-only powered newbuilds. They urged their global regulator, the IMO, to create conditions to accelerate the transition to green fuels.
An effective carbon pricing mechanism is needed to make green fuel more competitive with fossil fuels during the transition phase when both are used, the declaration said.
As part of the commitment, green hydrogen producers agreed to produce 11 million tonnes of low-emissions fuel for use by the shipping sector by 2030.
The CEOs further called for local and national governments to put in place incentives to rapidly advance and scale green shipping corridors that include the infrastructure and workforce required to use zero-emission fuels and support the pre-2030 operation of vessels on zero-emission fuels.
Previously at COP27, shipping companies signed a joint statement committing to the “rapid and ambitious” production and use of low-carbon fuels based on green hydrogen. Governments also announced plans to collaborate on green shipping corridors, including Singapore and Australia, the US and UK, and Portugal and Brazil.
The 2023 Annual Progress Report on Green Shipping Corridors, prepared by the Global Maritime Forum and unveiled at COP28 noted that the number of green corridor initiatives around the world has doubled from 21 to 44 in the past 12 months, the report said, although it noted that most are focused on the Global North.
A number of countries have since announced plans to establish more green shipping corridors in the Global South.
A future priority must be determining a priority alternative and sustainable fuel, the progress report said.
Shipping currently accounts for around 3% of global emissions, with decarbonisation of the industry expected to cost around US$1 trillion by 2050.
“Fuel-agnostic”
Investors and experts believe the most urgent need is for further support for upscaling viable alternative sustainable fuels – such as biofuels, hydrogen, green ammonia and methanol – that can replace industry dependencies on fossil fuels.
There is currently a “a lack of availability of green fuels for shipping, and that’s where [the transition] really starts”, Philipp Niesing, Head of Marine Decarbonisation Solutions at independent asset and investment manager MPC, told ESG Investor.
“We need more of a regulatory push to make green fuels available,” he said, noting that different fuels will be suited to different use-cases.
“For short shipping, we may need batteries or green hydrogen, whereas green ammonia and methanol are better for longer legs.”
Due to the variety of options, MPC Capital remains “fuel-agnostic”, Niesing said, adding that many in the industry take a “dual fuel” approach so that they can always fall back on conventional fuels to mitigate risk.
“Investors need to look at optionality and not place all their bets on one fuel. They need to be flexible,” he said.
A research paper published this month explored the role ship financiers can play in the industry’s transition to zero-emission fuels. It noted the small but growing role of institutional investors putting pressure on incumbent shipowners and contributing to the de-risking of technologies and alternative fuels.
Strategy to fuel change
In July, the IMO’s Marine Environment Protection Committee (MEPC) endorsed the 2023 IMO Strategy on Reduction of GHG Emissions from Ships.
As the sector’s international regulator, armed with the support of 175 member states, Maersk’s Bo Christiansen said the IMO’s updated strategy is “a historic moment” that can “properly solve” climate transition challenges for the shipping sector.
In a bid to achieve net zero by or around 2050, the new strategy introduces a 20-30% reduction in emissions from international shipping by 2030, and a minimum 70% reduction in emissions by 2040, relative to 2008 levels. Its 2040 target will require a 90-95% reduction in an average ship’s GHG intensity.
Additionally, the IMO has determined that zero or near-zero GHG emission technologies, fuels and/or energy sources must represent at least 5% of the energy used by international shipping by 2030.
The IMO has also confirmed it will develop a global GHG fuel standard to ensure a phase-out of unsustainable fuels, as well as phasing in a pricing mechanism for emissions. Both measures are due to be finalised in 2025 and come into force from 2027.
During the COP28 panel discussion, Bruno Carvalho Arruda, Deputy Head for Climate Action at the Ministry of Foreign Affairs of Brazil, confirmed that a great deal of the IMO’s focus is now on “incentivising alternative fuels that we envisage [will make a difference]”.
“We want to push the transition to green fuels and incentivise new technologies, but we don’t want to create such an impossible situation that will lead to a negative impact for international trade – we don’t want to close any doors.”
“Shipping involves so many conflicting interests,” Carvalho Arruda added.
“We are talking about ship builders, fuel producers, trade and transportation in general. Whatever measures are adopted may have different effects and so striking the right balance between ambition and what’s possible without disrupting all those elements is the task at hand.”
“The IMO wants to provide proper incentives for this transition to happen and for [green] business to become more viable,” he said.
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