Shipping companies 'alone' in IMO's regulatory drive to decarbonize bunker fuels

Shipping companies are struggling to meet international regulations on greenhouse gas emissions without support from cargo owners, infrastructure developers and financiers, several maritime executives said June 2, highlighting industry challenges in shifting to alternative fuels.

In April, the International Maritime Organization voted for global GHG standards on marine energy in its pursuit of net-zero shipping towards 2050, hailed by some as the first regulatory piece to impose a cost on sector-wide emissions globally.

However, several executives from some of the world's largest shipping companies said high costs and low availability of low-carbon alternatives to conventional, oil-based fuels could prevent the energy transition despite the regulatory push, which has put shipping on the decarbonization front while some other industries face green backlashes.

"The challenge is that we are basically doing this alone," chemical tanker operator Odfjell CEO Harald Fotland said at a Capital Link forum during Nor-Shipping. "There is a limit for how much a shipowner can do alone without support from the total value chain."

While container lines have managed to pass on some of the incremental costs associated with the low-carbon transition to their customers, tanker and dry bulk operators are having a more difficult time in finding charterers willing to shoulder such green premiums.

"There is almost zero interest among our customers to pay for the [eco] solutions," Fotland added.

April's average bunker price for very low sulfur fuel oil was $493.62/mt in Singapore, the world's largest bunker port, compared with $1,886.55/mtVLSFOe for 100% sustainable methanol, according to the Platts global bunker cost calculator.

Weng Yew Hor, chair of Singapore Maritime Foundation, said shipping companies' difficulties lie in finding sufficient green fuel supplies, with IMO regulations imposed on shipping firms rather than fuel producers and bunker logistic service providers -- a development that leads to slow investment.

"The crux is availability or lack of infrastructure for alternative fuels and secondly, a lack of confidence in a scalable alternative fuel supply chain," Hor said. "We see a lot of movements in the regulatory front ... [but] there's no parallel certainty when it comes to viable, globally available [sustainable] bunker fuel."

Regulatory design

The IMO fuel standards, due to come into force from 2028 if adopted this October, comprise two sets of lifecycle GHG intensity thresholds with different penalties plus a carbon trading mechanism.

While the regulation will be applied globally and is thus better than regional regulations in creating a level playing field, its complexity could confuse industry stakeholders when making a decarbonization investment decision, according to some industry participants.

"It's so complicated, and there was nobody in the room from the shipping industry that put these regulations in place," said Carl Hagman, head of European operations for Japanese shipping conglomerate NYK.

"I certainly don't understand how we're going to be able to implement it."

The IMO will also introduce a reward scheme to subsidize shipping companies using low-carbon fuels, but the UN agency's member states will only finalize detailed rules in March 2027.

"Green transition is not only a technical challenge, it's also a financial challenge," said Semiramis Paliou, CEO of Diana Shipping. "We have found it very difficult to find financial support for these investments."

Some of the top 35 ship financiers globally had signed the Poseidon Principles with an aim of achieving net-zero GHG from their portfolios by 2050, but a UCL Energy Institute study last year found they failed to provide more favorable financing terms to fund low-carbon ships.

"Commercial stakeholders tend to be very vocal about the fact that they want to decarbonize and they want to be part of this green transition," Paliou said.

"In reality, they are not there to support any of these investments."

Saif al-Mheiri, CEO of Abu Dhabi Maritime, said the industry is on track to miss the 2050 target as the pace of decarbonization has yet to pick up.

Industry estimates suggest at least $1 trillion-2 trillion is required to decarbonize the global fleet, and Mheiri said he hopes there would be intensive research spendings in the coming years to develop new technologies.

That could make the net-zero goal achievable in "the second half of the 2050s" as decarbonization becomes "more feasible" and "industries...start going toward a faster track," he added.

IMO's two-tier standards requiring cuts in GHG intensity

Reference value: 93.3 gCO2e/Mj in 2008