Efficiencies can unlock up to 25% emissions savings
The Annual Summit 2022 in New York hosted more than 200 maritime leaders, exploring ideas for action on shipping’s major long-term challenges and opportunities. Participants in one working group explored short-term actions that the maritime industry can take to reduce emissions already today.
December 07 2022
Short-term actions that improve the technical and operational efficiency of existing vessels will play a critical role in reducing emissions today. They will also make the long-term transition to more expensive zero-emission fuels and new zero-emission vessels more manageable.
Operational and technical efficiency are key to achieving 2030 and 2050 greenhouse gas emissions reduction targets in line with the Paris Agreement. Up to 25% in fuel savings can be unlocked by changing how vessels are operated today. The failure to optimize speed is often driven by pressure from customers and contractual chartering arrangements, where a cost for one party becomes a profit opportunity for the other. However, research suggests that optimizing operational efficiency has the potential to reduce annual emissions by more than 200m tons of CO2 and reduce annual fuel costs by US$50 billion at today’s prices.
This working group debated the role of operational and technical efficiency in curbing emissions from the maritime shipping sector in the near term. Participants discussed how shipping stakeholders can work together to unlock this potential and set out a plan for what needs to happen during 2023 to shift shipping decarbonization into the next gear.
“We have to start making people aware of the opportunities. [A] 20-25% savings – that is 200 million tons of CO2 that we can save.”
— Hugo De Stoop, CEO, Euronav
Cross-industry collaboration requires trust and accountability
Participants pointed out that emission reduction, fuel savings and cost savings represent a powerful trifecta of opportunities, which is currently inhibited by a lack of communication between stakeholders. Enhanced data transparency and availability to all supply chain members will lead to increased trust, a requisite for collaborative action. However, data collection and sharing may need to go beyond the transport segment of the value chain to include trading and commodity markets. Standardized data protocols, some of which are under development, also require cross-industry collaboration.
Additionally, there is a need for accountability – for example, through the establishment of the correct indicators – which will drive change and eventually enable the tracking of goals.
Addressing split incentives with innovative contracts
To cut emissions, the shipping sector needs a new contractual architecture to tackle the practice of “Sail Fast, Then Wait” and allow speed adjustments and sea passage optimization. The contracts could also include optimization clauses with incentives or even mandate performance-enhancing programmes by the shipowner.
To address the issue of split incentives between shipping stakeholders, participants proposed contractual agreements for benefit sharing. However, designing such “shared incentives” requires a good understanding of each party’s drivers. When one shipowner expressed doubts about whether solutions to the split-incentive issue between shipowners and charterers could apply to a time charter, several charterers and shipowners offered examples of benefit-sharing contracts already successfully used in practice. This difference of views demonstrates the need to increase awareness of existing solutions and to bring more actors into the conversation.
Leadership commitment is key for internal alignment
Participants suggested that companies seeking internal alignment around short-term actions could benefit from implementing carbon policies into their business plans, with carbon trading commonly seen as a potential game changer.
The working group specifically addressed the importance of leadership commitment to decarbonization goals and encouraged all shipping stakeholders to collaborate to achieve the best potential emission-saving outcome.
“Let’s be accountable for what we communicate and what we commit to. Start having the difficult conversations. That means that we set the goals, we set the KPIs, but we also track against them.”
— Eman Abdalla, Global Operations & Supply Chain Director, Cargill Ocean Transportation
- Improve cross-sector data transparency and availability to encourage trust, collaboration and accountability
- Review contracts to promote fuel and emission savings, including benefit-sharing clauses
- Create conditions for efficiency measures by aligning across departments, internal KPIs, and corporate policy.