Accelerating the decarbonisation of the shipping sector
Accelerating the decarbonisation of the shipping sector
Nikol Hearn, one of the three winners of the Future Maritime Leaders essay competition, argues that the shipping sector can be made climate friendly and presents challenges as well as opportunities that lie in shipping’s decarbonisation.
- Nikol Hearn
- Winner of Future Maritime Leaders essay competition
"The regulators must create an environment of certainty where future green technology is not determined by the 'survival of the fittest.'”
September 30 2020
According to the International Maritime Organisation (IMO), the shipping industry’s governing body, the sector is responsible for 2.2% of global emissions. Without any intervention and if the current trajectory continues, shipping emissions are expected to grow by 50-250% by 2050. Carbon Dioxide (CO2) is the largest source of greenhouse gas emissions in shipping, but as a means of transportation shipping is the most CO2 efficient, as it releases the least CO2 per ton travelled in comparison to air, road and rail. Because of this, it remains the preferred method of transportation, carrying more than 80% of the world’s goods. As a large emitter in aggregate, there is therefore a key role for shipping to play in reducing the global carbon footprint and thereby achieving the sustainable development goal of climate action.
To limit climate change and decarbonise shipping, there are both challenges and opportunities for the sector. There is currently much uncertainty on the way that shipping will become a net zero emitter, in terms of both fuel usage and future technology design. This uncertainty in the way forward is limiting current investment and is creating a setback to achieving the greening of vessels and fuel. Added to this, capital flows into shipping assets have already been on a declining trend. As a result, there is a growing need for financing fleet renewal and fleet growth by $3.1 trillion and $2.1 trillion respectively within the next five years, excluding the financing which will be required for the decarbonisation technology. There is the further complication in that the benefit of the decarbonisation technology is currently enjoyed by the charterer, not the investor, i.e. the owner of the vessel who pays for the decarbonisation technology is not financially rewarded for the investment.
Most ship owners will indicate that the uncertainty of future regulation and technology is hindering their fleet development, strategic decisions and decarbonisation efforts. Funds are not flowing to where they are needed as investors do not commit capital where the payoff of future benefits is not clear, compounding the lack of a decarbonisation agenda. Therefore, the industry egulators have a big part to play in directing the future of shipping by addressing these hinderances. The regulators must create an environment of certainty where future green technology is not determined by the “survival of the fittest” but creates incentives for capital inflows where cost and benefit can be borne simultaneously.
Directing capital inflows is of paramount importance and one solution would be to create incentives for investment by the pension funds. Through tax breaks on these corporates or by reducing capital gains tax directly when funds are channelled to impact investing and green finance, capital can be redirected to the decarbonisation projects. Additionally, by improving education and awareness about shipping investments to the asset management and pension fund community, as capital providers, resources can be unlocked, as many traditional funds have never been exposed to marine investment vehicles. Furthermore, a solution would be to create platformsin which capital can easily access green projects and decarbonisation funds in the same way that multi-management platforms create ease of access and transparency in their reporting standards. These few changes would unlock and redirect the capital that is very much needed for fleet growth and renewal, and the additional expense of decarbonisation technology.
The more complicated issue in shipping decarbonisation is in determining the future fuel source and the decarbonisation technology. There is a need for the regulators to propel the adoption of this, rather than allowing market mechanisms to come up with the solution. Assuming adoption of the technology by all ship owners is not necessarily feasible, given as aforementioned the conflict of the owner bearing the cost versusthe charterer and society at large reaping the rewards. Despite these challenges, there are a variety of fuels and technologies that show promise in being both practical on vessels and in fact green.
Odfjell recently reported on some alternative fuels³. Despite some promise for the more widely known fuels such as LPG and LNG, their reduction of emissions is marginal and therefore they are more likely to be used as interim “greener” fuels rather than the final solution, even with the use of scrubbing technology. Hydrogen and Ammonia have been flagged as superior as they are zero emission fuels and remain practical to use at sea. However, Hydrogen has the drawback of extensive volume density requirements. Amonia fares as the strongest potential future fuel, but it remains very much in its infancy. There is certainly room, though, for regulators to spur on the investigation into the use of Ammonia and to partner up with corporates and supranational bodies to fund these developments.
By ensuring that shipping is increasingly regulated by one global body, rather than by various national regulators, uniform legal requirements can be a simple yet effective means by which to direct the outcome. One such example could be to legalise an additional cost to the chartering party for the use of the decarbonisation technology, thereby ensuring a more equitable distribution of financial reward.
In conclusion, it is clear that the shipping sector can be made climate friendly. The need to address the decarbonisation issues that the industry faces can be achieved by redirecting incentives. Through the above-mentioned, the capital to fund the growing financing and decarbonisation needs of the shipping industry can be attained. With the aid of regulation, Ammonia could be a future fuel source if the coordination of industry bodies were to further its development and implementation. Notably, by creating increased uniformity for the shipping industry, equitable solutions can be ensured so that the party providing the funds also receives the benefits. This all means that there are certainly positive ways that the shipping industry can assist in reducing the impact of climate change on the planet.
Nikol Hearn is a 29-year-old South African working as Analyst at Marine Capital.
Read the other winners of the Future Maritime Leaders essay competition:
Learn more about the Future Maritime Leaders essay competition here.