By Prasad Ashok Thakur, CIMO scholar and Labanya Prakash Jena, CFA
The shipping industry directly propels the global economy’s growth. An International Maritime Organization (IMO) report estimates that about 90 per cent of goods traded globally use maritime shipping. By 2050, it expects the industry to grow by 50-250 per cent. IMO’s 2020 OHO study stated that global shipping accounted for about 2.9 per cent of the total anthropogenic emissions and 10 per cent of the total emissions attributed to the transportation sector. It then proposes that the sector aims to achieve full-scale decarbonization by the mid-century while achieving a 20 per cent emissions reduction by 2030 and a 70 per cent reduction by 2040. Thus, the sector is at the cusp of a once-in-a-century energy-based turnaround as it aims to cut its carbon intensity through a portfolio of opportunities offered by efficiency-improving solutions, electrification, and low/zero-carbon fuels.
Maritime shipping is considered a hard-to-decarbonize industry.
Maritime shipping is considered the lifeblood of global trade. It consists of an intricate network of sea routes, ships, ports, and cargo-handling equipment on the hard infrastructure side. Other assets include several varieties of vessels like trawlers, tugboats, and ferries that are frequently used to navigate inland and coastal waterways. On the intangible side, a coherent and internationally accepted framework of navigation laws, financing mechanisms, insurance products, digital services, and skilled workforce makes it a highly sophisticated ecosystem. This enables the mass movement of goods globally, and hence, deploys some of the largest machines on the planet, powered by equally large engines. With the rapid development of seamless multi modal supply chain frameworks, marine assets are expected to interface with land and air based transportation modes without losing efficiency. The industry also subsumes large numbers of recreational boats. Due to the inherent diversity and global distribution of the above-mentioned energy-guzzling assets and stakeholders, shipping is considered a hard-to-decarbonize sector.
Reconciling lower emissions and higher growth
It is estimated that between 2012-23, the carbon footprint of global maritime shipping grew by approx. 15 per cent to reach -710 MtC02.ln. The shipping industry has reached a once-in-a-century inflection point in the ongoing global green energy transition. Innovations around digital-led operations, low-emission fuels, and engine efficiency improvements are tugging it on the decarbonization pathway. On the regulatory front, a barrage of progressive decarbonization mandates has primed clean technologies to be rapidly developed, piloted, and deployed. As with any innovation, their initial price points may seem higher than the extant technologies/products. This may be reflected in a short-term increase in the prices one must pay for seaborne transport. However, as these innovations scale up, they become more cost-competitive, and costs get redistributed across the value chain to the responsible company. With this framework, ships conducting trade in the European Union (EU) are expected to comply with the EU Emissions Trading Scheme (ETS) starting this year. This will enable timebound cargo deliveries to hitherto unserved locations at a cost-competitive price point without adversely impacting the environment.
Near team interventions for decarbonization
It is well that decarbonization measures introduced in the industry should not compromise its cost-competitiveness and allow for full compliance with various regulatory requirements, especially when it comes to safety. The carbon footprint at the fleet level should be cut through operational and technological interventions. A DNV report suggests that by the early 2030s, the demand for carbon-neutral fuels can spike up to 45 million tonnes of oil equivalent in the most optimum scenario. However, until low/zero-carbon fuels become widely acceptable, energy efficiency approaches will drive operational profits over the next decade while cutting down emissions. Empirical evidence shows that adopting such measures brings significant fuel savings.
Other approaches being considered include ‘pooled’ compliance with emission reduction targets. This essentially means that carbon intensity reduction targets can be appropriately distributed across a fleet of several ships that may or may not belong to the same company. Thus, each ship does not necessarily need to achieve these targets, while the targets are achieved at the fleet level. It is estimated that such an approach can reduce decarbonization costs by 5 per cent. Using zero-emissions renewable energy while the ships are docked at the port can potentially cater to up to 7 per cent of their energy requirements. Thus, stakeholders from the power sector, shipbuilding industry, port development and operations, fuel suppliers, carbon capture & storage solution providers, etc., must work together to lock in mutually beneficial business models.
Cruising to achieve net zero
Apart from fully switching to zero-carbon fuels, cutting the carbon footprint to achieve net zero entails installing recovery systems for waste heat, onboard carbon capture and storage units, wind and wave augmented propulsion systems, digitally smart onboard equipment for performance tracking and verification, etc. It is important to note that no single fuel or technology solution is expected to dominate the industry’s decarbonization journey. Hence, diverse options like LPG, LNG, biofuels, green hydrogen/ methanol/ammonia, and nuclear propulsion will carve out their niche applications.
Public-private partnerships should be leveraged to mobilize finance and talent to accelerate the R&D of novel fuels and propulsion technologies. Policy interventions to qualify maritime vessels as eligible assets for loans and loan guarantees for installing decarbonization technologies should be sped up. Learnings can also be drawn from commercial financing models that support innovative technologies in clean energy projects for eliminating, reducing, or sequestering GHG emissions in the maritime sector. To achieve cost-competitiveness and rapid global acceptance of new sustainable fuels and associated technologies, the involvement of local communities in developing these value chains is important.
Due to the scale, geographic spread, and complexity of global shipping, more than 90 per cent of the fleet is still powered by conventional fossil fuels. It is also well-noted that the sector’s complete decarbonization is a multi-decade endeavor. Thus, smart policy and investment decisions must be made now to reduce uncertainties and accelerate the green transition in the maritime sector.
