The international shipping industry faces possibly historic moments over the coming weeks with decisions forthcoming on how to ensure ships’ emissions will reduce significantly over the coming years. In his latest opninion piece, SWZ|Maritime’s editor-in-chief stresses the shipping industry doesn’t oppose stricter emission regulations, but argues that investment in R&D is lacking in most plans while it will be key for zero-emission to become reality.
In every issue of SWZ|Maritime, SWZ|Maritime’s editor-in-chief Antoon Oosting writes an opinion piece under the heading “Markets” about the maritime industry or a particular sector within it. In the October 2021 issue, he looks ahead to possible upcoming emission regulations and what the shipping lobby has to say about it.
A lot of shipowners are still making bigger profits than ever due to the logistical crisis caused by the Covid-19 pandemic, particularly the ones that control box ships. Yet, this is also increasingly true for the owners of bulk carriers and multipurpose ships that, for lack of better, are now being used to meet the demand for shipping space for the transport of containers. So much so that they are now all scrambling to order new ships from China and South Korea. But this euphoria could soon be over as the international shipping industry faces possibly historic moments over the coming weeks. These will determine how shipping will be able to operate in just a few years’ time and how much can still be earned with it.
And this can have far-reaching consequences for the shipping industry. Dropping international aviation and shipping emissions from the draft Paris climate agreement (COP21) in December 2015 raised a lot of criticism from NGOs, governments, and politicians. NGOs Seas At Risk and Transport & Environment (T&E) warned that excluding shipping and aviation from the COP21 agreement would fatally undermine the prospects of keeping global warming below 2°C. The governments that compromised on the COP21 agreement referred to the ICAO (aviation) and IMO (shipping) as the responsible organisations to set standards for the contribution these industries should make to battling the climate crisis.
In April 2018, the International Maritime Organization (IMO), based in London, adopted an initial strategy on the reduction of greenhouse gas (GHG) emissions from ships, with a vision to phase them out as soon as possible in this century. In a hard-fought compromise, the IMO agreed to reduce the total annual GHG emissions from shipping by at least fifty per cent by 2050 compared to 2008. Considering the expected growth of the world maritime fleet, this would mean that by 2050, ships would have to emit on average seventy per cent fewer GHGs than in 2008. At that time, it was the best that could be achieved as there was strong resistance from countries like Brazil, Saudi-Arabia, the US, and other especially commodity-rich countries that have no interest in making their export more expensive.
On the other hand, small island states in particular fear to disappear in the rising sea levels caused by climate change, and European nations strive for a far more ambitious climate change strategy. So, this turned out to be a compromise that no one was really happy with. Especially not the NGOs that want more action against climate change. But instead of increasing the pressure on the opposing member states within the IMO, their anger turns in particular against the shipping lobby.
However, the IMO is first and foremost an intergovernmental organisation of currently 174 member states and three associate members. Only they have the right to vote. In addition, some eighty non-governmental international organisations have been granted consultative status when they are capable of making a substantial contribution to the work of the IMO. These can be shipping groups, such as BIMCO or Intertanko, but also environmentalists like Greenpeace. The IMO is therefore not the instrument of the shipping lobby.
The accusation that the shipping lobby is blocking stricter rules for the emission of climate-threatening exhaust gases is also unjustified. Shipowners do realise that they will have to change their operations and need cleaner ships. But to make shipping cleaner and more environmentally friendly, shipowners must have the guarantee that the chosen solutions are technically and commercially feasible. Technically feasible simply means that the technology works and is safe, but if it is too expensive to operate, the shipowner will simply not get a loan from the bank or other investors to build those innovative ships. In other words, they must be commercially viable.
Instead of joining the climate change deniers, the shipping lobby is pushing for a tightening of IMO’s GHG strategy targets. The International Chamber of Shipping (ICS), which organises the different shipping interest groups, submitted plans to the IMO on the 5th of October, detailing urgent measures which governments must take to help the industry achieve net zero CO2 emissions by 2050. Just one month before the shipping industry’s flagship COP26 decarbonisation conference “Shaping the Future of Shipping”, ICS (which represents eighty per cent of the global shipping industry) is pushing governments to double the ambition of the IMO’s current target, which is to reduce emissions from international shipping by fifty per cent by 2050.
Shipping wants net zero
The plans of the ICS include a compulsory R&D fund to develop zerocarbon technologies, and the development of a carbon levy for shipping to expedite the transition to more expensive zero-carbon fuels. In its submission, the ICS accepts the vital need to accelerate decarbonisation timelines. But it states that a net zero target by 2050 will only be plausible if governments take the necessary actions to achieve this. The industry has therefore taken the step of proactively setting out the measures that must be taken by governments to make decarbonisation by 2050 a reality rather than a soundbite.
‘The adoption by IMO of a net zero target will send the very strong signal sought by the industry, as well as energy providers, shipbuilders and engine manufacturers, so that investments in green fuels and technology can be accelerated and scaled,’ the ICS says.
Given the lifespan of new oceangoing ships of 25 years, if the industry is to meet an ambitious net zero target, thousands of zero-emission ships will need to be in the water by 2030. It will therefore be critical for the IMO to adopt those urgent measures required to accelerate an increase in Technology Readiness Levels. A key step is for governments to approve the establishment of the USD 5 billion IMO Maritime Research Fund (IMRF) at a critical IMO meeting this November, simultaneous with the second week of COP26.
Funding vs taxes
ICS calls for an IMRF (USD 5 billion R&D Fund) as it will provide guaranteed levels of funding to accelerate the development of zero-emission ships, without requiring governments to use taxpayers’ money. This is because the IMRF will be funded by mandatory R&D contributions from shipowners globally, via a USD 2 levy, which the shipping industry wants in place by 2023.
To expedite the transition to net zero, the ICS has also made a comprehensive proposal setting out the architecture for a broader carbon levy applicable to shipping, which will be considered by IMO member states at a preparatory meeting in mid October. This global carbon levy will help close the price gap between zero-carbon and conventional fuels and could be used to provide the billions of dollars needed to deploy essential new bunkering infrastructure required in ports worldwide, to ensure consistency in the industry’s green transition for both developed and developing economies in the run up to 2050.
Against EU ETS on shipping
Although the ICS and the European shipowners organisation ECSA support the European ambition to reduce the GHG emissions from shipping, they strongly oppose the EU plans to bring European shipping under the EU Emissions Trading System (ETS). The ICS condemns this policy as just another tax-raising scheme that will only make shipping – so the transported goods – more expensive for EU citizens.
‘Other than as an ideological revenue raising exercise, which will greatly upset the EU’s trading partners, it’s difficult to see what extending the EU ETS to shipping will achieve towards reducing CO2, particularly as the proposal only covers about 7.5 per cent of shipping’s global emissions. This could seriously put back climate negotiations for the remaining 92.5 per cent of shipping emissions,’ ICS secretary general Guy Platten said a couple of months ago.
Not truly serious
‘The failure to include investment in research and development in the proposals, at a time when the IEA (International Energy Agency Ed.) and the new US administration are highlighting that emission reduction will only be possible with the development of technologies that do not currently exist, is disappointing,’ Platten also said, and: ‘To indicate one thing at the beginning of the process and then to withdraw it to pay for a post Covid recovery sends a clear message to industry that the EU is not truly serious about decarbonising global shipping. This also sends a message beyond shipping that political and investment risk is high in Europe. This only goes to show why we need the USD 5 billion IMO Maritime Research Fund.’