Shipping industry under increasing pressure to decarbonize

High costs and archaic, incompatible fleets render transition challenging
Shipping industry under increasing pressure to decarbonize
The shipping industry has to intensify decarbonization efforts.

The global shipping industry accounts for around 3 percent of greenhouse gas emissions yet it has proved much harder to decarbonize than road transportation because it cannot be electrified. International shipping accounts for 80 percent of total trade and consumes 5 percent of global oil production. It belches out an estimated 1 billion tons of carbon dioxide annually, according to the International Council on Clean Transportation.

The majority of ocean-going vessels run on marine fuels derived from crude oil, mainly diesel and heavy fuel oil. Switching to alternative fuels will be costly and take time because nearly 99 percent of ships currently run on fossil fuels.

To meet the Paris agreement’s goal of keeping temperatures below 1.5°C, the shipping industry has to intensify decarbonization efforts. Emissions from the use of fossil fuels in the maritime sector have already risen to unsustainable levels, according to various U.N. agencies.

Read more: UAE gathers experts to intensify sustainability initiatives

Shipping industry’s pathway to zero

The U.N. Conference on Trade and Development says GHG emissions from shipping have increased by 20 percent over the last decade. “Without action, emissions could reach 130 percent of their 2008 levels by 2050,” it adds.

The industry will need to adapt to new fuel specifications and emissions targets introduced by the U.N.’s International Maritime Organization. From January 2021, the IMO’s Marpol Annex VI specified that sulfur content in marine fuels should not exceed 0.5 percent. The previous proportion was 3.5 percent.

The IMO’s 2023 GHG Strategy sets out the pathway to net zero by 2050. It calls for a reduction in total annual GHG emissions from international shipping by at least 20 percent, striving for 30 percent, by 2030, and by at least 70 percent, striving for 80 percent by 2040, compared to 2008.

Challenges to overcome

There are currently few alternative sources in sufficient volumes to allow a switch to less-polluting fuels. This makes shipping one of the so-called hard-to-abate sectors. According to a report by the U.K.’s Energy Institute, green fuels such as hydrogen, ammonia and methanol are still too expensive. Moreover, they are 10-20 years away from being ready to provide  alternative, reliable and cost-effective supplies.

Green fuels account for less than 1 percent of fuel used in shipping, the International Energy Agency says in its Net Zero by 2050 September 2023 report. It sees bioenergy, hydrogen and hydrogen-based fuels ramping up to almost 15 percent in 2030 and 80 percent by 2050.

Ammonia is being touted as a potential zero carbon fuel. However, it is not expected to be applicable in shipping until the second half of the 2030s. Furthermore, it is not just fuels that need to be replaced. The current fleet of ships must be retrofitted and ports must adapt storage and infrastructure to accommodate green fuels.

Huge investments are needed

“Maritime assets have long lifespans – typically 25 years. The existing global fleet of around 100,000 ships are costly and difficult to retrofit to accept alternative fuels,” the Energy Institute report says. “Despite these challenges, international regulations and market dynamics are compelling the industry to take immediate action,” it adds.

As of early 2023, the average age of a ship was 22.2 years and more than half are older than 15 years, according to UNCTAD. “This means that many ships are either too old to retrofit or too young to scrap,” it says.

“The urgency of decarbonization is evident. Yet the sector faces multibillion-dollar investments amid uncertainty about the best transition methods,” UNCTAD adds, while noting that the additional costs will be a burden on small island nations that rely on shipping for their economies.

“Alternative fuels show promise, but their adoption remains in the early stages, with 98.8 percent of the fleet still sailing on fossil fuels. The silver lining is that 21 percent of vessels on order will operate on cleaner alternatives like liquefied natural gas, methanol and hybrid technologies,” it says.

Complacency is not an option

In addition to the IMO’s fuel specifications and emissions targets, the U.N. body now requires shipowners to report their energy efficiency measures and their emissions. The European Union has mandated that from 2024, large vessels travelling within the EU or to EU ports will be subject to the EU Emissions Trading Scheme. This will add to costs because it will require ship operators to purchase carbon credits. These reached a high of more than 105 euros ($111) in February 2023. They have since come down to around 85 euros.

A promising technology for cutting emissions that is gaining widespread attention is on-board carbon capture. Using this technology, carbon dioxide can be stripped prior to being released into the atmosphere. However, although the technology can be applied to all types of vessels, there are cost issues involved. It will also take time to scale up.

Natural gas as an alternative

The International Council on Clean Transportation has noted that growth in natural gas use as a shipping fuel between 2012 and 2018 has increased methane emissions by 145 percent. Methane is a potent greenhouse gas, “Without additional policy action, shipping’s greenhouse gas emissions are expected to grow by 16 percent from 2018 to 2030 and 50 percent by 2050,” it says.

Championing LNG

The United Arab Emirates, home to the world’s second largest bunkering hub at Fujairah, is among countries actively promoting the decarbonization of shipping. The Fujairah Oil Industry Zone has started slowly moving away from oil. Abu Dhabi National Oil Company is developing a new liquefied natural gas facility that will allow Fujairah to offer LNG bunkering facilities

LNG is the most advanced “alternative” bunkering fuel and emits lower emissions than traditional bunker fuels. The UAE is also developing low-carbon hydrogen, ammonia and methanol as energy sources. These could potentially be offered for bunkering at Fujairah.

It is worth noting that the COP28 climate summit scheduled in Dubai from November 30 until December 12 will have decarbonizing shipping on its agenda. During the summit, the UAE will present its ideas for cleaning up the maritime industry. As a global shipping and aviation hub, the UAE has supported the establishment of so-called “green corridors” for shipping. These dedicated trade routes would connect major maritime hubs that promote sustainable fuels. For the global shipping industry, the limited availability of sustainable fuels and costs are the main barriers to achieving net lower emissions targets. But what is clear is that the maritime business can no longer swim against the tide of decarbonization.

For more op-eds, click here.

Disclaimer: Opinions conveyed in this article are solely those of the author. The information presented in this article is intended for informational purposes only. It does not constitute advice on tax and legal matters; neither are they financial or investment recommendations. Refer to our full disclaimer policy here.