The global maritime industry is intensifying efforts to curb its carbon footprint, but the journey has just begun. Preparations, thus far, have borne some fruit, but challenges lurk, making the energy transition a daunting task.
Shipping accounts for about 2.9% of global greenhouse gas emissions, according to the International Maritime Organization. Without mitigation, emissions could grow by as much as 130% from 2008 levels by 2050, rendering a sense of urgency to fast-track decarbonization, despite the unprecedented associated expenses as well as related operational and technological complexities.
Martin Stopford, a shipping economist, said it could cost the maritime industry around $3.4 trillion worth of investments to meet IMO-mandated climate goals over the next 30 years. This is significant for an industry that has had to transition not too long ago to the IMO's global sulfur mandate for marine fuels. In addition, it has had to navigate through a compendium of near-term complications amid COVID-19 — global lockdowns, crew change challenges, hindrances of bunker-only calls, logistical bottlenecks, oil price fluctuations, amid a general dent in demand for commodities.
In April 2018, the IMO laid out its strategy for the shipping industry to reduce its total greenhouse gas emissions by at least 50% from 2008 levels in 2050.
More recently in June, at a key UN IMO meeting — the MEPC 76 — members adopted crucial mandatory measures to reduce ships' carbon intensity while also establishing a ship rating system.
The new measures will require all ships to calculate their Energy Efficiency Existing Ship Index following technical means to improve their energy efficiency and to establish annual operational carbon intensity indicators and CII ratings.
But the committee did not act adequately on funding proposals and incentivizing research into low-carbon fuels, leaving many industry stalwarts urging the IMO to expedite work on an IMO-supervised $5 billion fund program as prevailing R&D efforts are insufficient.
Until then, bulk of the research continues to be carried out in silos although a coordinated approach is needed to galvanize the decarbonization momentum.
Japanese shipper K Line was in the spotlight recently, for testing the world's first onboard CO2 capture plant on one of its coal carriers.
While this has set the stage for the development of technology and systems to capture CO2 from the exhaust of marine equipment and ships, the industry's technological advancements still have a long way to go.
No clear winner in the marine fuels debate
Given the gamut of potential zero-carbon fuel options being explored, from the likes of ammonia, hydrogen, methanol, biofuels, LPG to even wind power, shipowners need to assess the merits of each, and many are already doing so.
Last year, BW LPG retrofitted three very large gas carriers — BW Gemini, BW Leo and BW Orion — to become the world's first Very Large Gas Carriers to be LPG-propelled. These were the first of BW LPG's over $130 million commitment to retrofit about 15 VLGCs with LPG dual-fuel propulsion technology, part of its zero-carbon aim.
Global integrated container logistics company A.P. Moller - Maersk, in August said that in the first quarter of 2024, it will introduce the first in a groundbreaking series of 8 large ocean-going container vessels capable of being operated on carbon neutral methanol, while Proman Stena Bulk, a joint venture between shipowner Stena Bulk and methanol producer Proman, is on track to build about six tankers equipped with methanol dual-fuel engines for delivery by 2023.
In early April, global resources company BHP, together with German shipper Oldendorff Carriers and Dutch biofuel firm GoodFuels, with the support of the Maritime and Port Authority of Singapore, conducted the first marine biofuel trial involving an ocean-going vessel bunkered in Singapore.
The advanced biofuel reduces CO2 emissions by 80%-90% well-to-exhaust compared with heavy fuel oil/very low sulfur fuel oil, and uses sustainable waste and residue streams as feedstock, BHP said in April.
According to S&P Global Platts Analytics, there have been nearly a dozen vessel trials on marine biofuels, or bio-bunkers, in 2019, in the run-up to the IMO's global low sulfur mandate.
The Port of Rotterdam has been the epicenter of these tests primarily due to the presence of GoodFuels, that produces both biofuel oil MR1-100 and bio-distillate MD1-100.
In the first quarter of 2021, biofuel oil and bio-distillates accounted for around 2% and 0.13% of bunker sales, respectively, in Rotterdam.
Platts Analytics has forecast these volumes to increase as other producers such as Shell, ExxonMobil, and TFG Marine look to supply their respective marine biofuels to shippers seeking low sulfur fuels.
Meanwhile, the International Energy Agency in a May report said that ammonia and hydrogen were set to be the main marine fuels if the net-zero aim is achieved in 2050, accounting for about 60% of the market, with ammonia set to power 45% of ships in a net-zero 2050.
Although 2050 is still some years away, inaction will entail great risks.
Furthermore, choosing a winner from among the various emerging alternative fuels is not an easy task as each comes with its own advantages and limitations.
Ammonia, for one, is a global commodity available at hundreds of ports, but it may be hazardous. Its immediate adoption is hampered by its source and the future cost of green ammonia.
Fuel flexibility is also key, particularly for newbuilds. It is advantageous for ships to have dual-fuel solutions so as to minimize the possibility of being stranded in the distant future.
A significant amount of work is also required to develop the right infrastructure and supply capability to ensure that these zero-carbon fuels are safe, efficient, scalable, and commercially viable.
While companies are eager to use low carbon fuels when they become available for sustainable shipping, the scrubber technology remains a key component to meeting the 2030 milestone, Platts Analytics said in August.
The current scrubber fleet stands at about 4,500, but should clean, alternative fuels fail to achieve adequate penetration by 2030, this number could jump to close to 7,000, it estimated.
Harnessing LNG as a marine fuel
Hapag Lloyd and CMA CGM are among global shipping companies championing the use of LNG as a marine fuel by putting in orders for LNG-powered ships. In Asia, AET, a subsidiary of MISC Berhad, remains committed to using LNG as a marine fuel, while Japan's Mitsui O.S.K. Lines also plans to launch 90 LNG-fueled ships by 2030.
"Shipowners are already moving and will continue to move from the current fossil natural gas to first Bio and then synthetic LNG," Peter Keller, chairman of SEA-LNG told Platts.
But many in the industry continue to consider LNG as a transition, or a bridging fuel, for shipping's decarbonization. However, it is unclear how long this transition will last, thereby risking the possibility of underestimating the importance of a solution that is currently able to provide significant emission reductions.
Although LNG has been criticized for its contribution to methane slips, engines are being developed to address this issue. LNG's viability is proven on a well-to-wake basis, and depending on the technology employed, is capable of reducing GHG emissions by about 23% compared with standard conventional fuels, an independent study commissioned by industry coalitions, SEA-LNG and SGMF, stated.
This bolsters LNG's promise for bunkering despite a recent World Bank report, which noted that the Initial IMO GHG Strategy and the IMO's climate targets are not consistent with large-scale use of LNG as a bunker fuel in the long term.
Carbon tax, offsets - Are they enough?
Some industry players have proposed a carbon tax on ship fuel of at least $450/mt fuel, or $150/mt CO2, to bridge the gap between fossil fuels and costly green alternatives.
Earlier this year, shipping bodies such as BIMCO submitted a proposal to the IMO, calling to bring forward discussions on carbon tax by several years.
However, for a pricing signal to work, there must be viable alternatives to fossil fuels, which does not exist as yet for large ships.
As such, submissions on market-based measures have been invited at MEPC 77 after inconclusive discussions on a bunker fuel carbon tax at MEPC 76.
As far as carbon offsets are concerned, Minerva Bunkering has already introduced such offsets, which have been certified by international standard bodies. In July, KPI OceanConnect, another prominent bunker player, said it had successfully completed its first carbon offset transaction with a seismic research shipowner, and was advancing plans to advise other clients on how to obtain carbon-neutral fuel supplies.
Vitol Bunkers is also offering carbon offsets to its customers and there are many similar undertakings as the pace of international climate legislation picks up.
"I believe that in order to reach ambitious targets, you need to consider ambitious tools and take ambitious measures," Carsten Ladekjaer, CEO Glander International Bunkering told Platts.
A carbon credit offset system could play its part in such measures, but it will not lead to full decarbonization, he added.
Moreover, not all carbon pricing measures are equal, cautioned Gilles Dufranse, policy officer at Carbon Market Watch, a not-for-profit association registered in Belgium, with expertise in carbon pricing.
Offsets, by definition, seek to set the lowest possible carbon price because they allow an industry to pay for cheap reductions elsewhere, instead of addressing their own emissions.
In a sector where there are existing abatement options — lowering speed of ships, adopting alternative fuels — relying on offsets to decarbonize is not enough. A union between legislation and market-based measures, which are clearly and consistently defined, is required to achieve concerted results.
A global cooperation between various maritime stakeholders — shipowners, shipyards, engine manufacturers, fuel producers and distributors, classification societies, charterers, port authorities — is also imperative.
In Asia, Singapore, the world's largest bunkering port, is promoting cleaner fuel initiatives with the establishment of a Global Centre for Maritime Decarbonization, the latest feather in its cap. The center set up with a S$120 million ($88.7 million) fund from the Maritime and Port Authority of Singapore, along with six founding partners, will spearhead the maritime industry's energy transition journey.
Other Asian ports such as Japan, China and South Korea are also boosting cleaner fuel options, including LNG.
Also critical to this transition are banks and financiers. The Poseidon Principles, meant to enable financial institutions to align their financial portfolios with responsible environmental behavior, and the Sea Cargo Charter, a framework for assessing and disclosing the climate alignment of ship chartering activities around the globe, are welcome developments. However, their benefits will take some time to unravel fully, especially since they are voluntary initiatives.
The maritime industry has usually responded well to incremental changes rather than a cataclysmic one. But given the urgency to decarbonize, the industry will have to step up its sustainability game.
Hopes for a future roadmap to tackle climate change are pinned on the UNFCCC COP 26 meeting scheduled from Oct. 31-Nov. 12. Shipping will likely receive due attention, while seeking clarity as to its role in stemming climate change, ahead of the approach of the storm of regulations.
Further reading: Platts COP26 news and analysis
A storm can unleash a force so strong as to push us forward when calm seas are wont to do so, and the successful implementation of IMO 2020 is a testament to that.
But time is of utmost essence in shipping's decarbonization journey because change will not transpire overnight.
As William Shakespeare had once said: "Better three hours too soon than a minute too late."