Can we decarbonize the shipping industry?
What will it take to reduce the enormous amount of emissions associated with global trade?
On March 23, 2021, millennials were granted their new talking point when the Ever Given, a container ship that spans 3.5 football fields, got stuck across the Suez Canal. The maritime transport industry came to a screeching halt; it was not until March 29 when the ship was successfully dislodged and free. As traffic resumed, more than 400 container ships were waiting to pass. Normalcy restored. Less memes about the Ever Given were shared. People moved on. However, this spotlight on the global maritime shipping industry piqued my curiosity.
When you think about it, life as we know it is heavily influenced by international trade. Approximately 80% of global trade by volume is associated with ocean shipping. Maritime transport almost becomes an unsung hero with how efficiently it works behind the scenes. It wasn’t until the meme-ification of the Ever Given that I started reading information about the emissions portfolio of maritime transport, and the industry’s decarbonization goals.
A MASSIVE FOOTPRINT
According to the International Maritime Organization’s (IMO) Fourth IMO Greenhouse Gas Study published in 2020, the maritime shipping industry emitted 1.06 billion tonnes of CO2e emissions in 2018, which is equivalent to 2.89% of the global anthropogenic emissions produced in that year. To put that into perspective, if the global shipping industry were a country, it would be the 6th most emissions-intensive.
Evidence suggests that the carbon intensity of container ships is improving overall; however, the massive expansion of the global shipping industry is offsetting advancements in carbon intensity. Calls for decarbonization materialized when the IMO established a goal of reducing the industry’s GHG emissions by at least 50% from 2008 levels by 2050. The Getting to Zero Coalition posits that to reach this goal, zero-emission vehicles must become available for use as early as 2030.
REDUCING THE CARBON INTENSITY
From a technical perspective, there must be direct improvements to further reduce the carbon intensity of the shipping fleet. Since the 1950s, many industry fleets use liquid fossil fuels such as heavy fuel oil, marine gas oil, and marine diesel oil. Alternative fuels must be explored: liquified natural gas, biofuels, hydrogen, and even less conventional energy sources such as electric propulsion. Conversely, vessel efficiency improvements must be contemplated. Slow steaming, for instance, is a practice that promotes vessel efficiency by operating the ship below full speed (e.g. 25-40km/h instead of 45 km/h).
In any case, the path to decarbonization needs to consider marginal abatement costs from different fuels and vessel efficiency improvements that allow for a significant reduction in greenhouse gas (GHG) emissions, while being financially practical to be implemented on a sizeable scale.
POLICY OPTIONS
Even more interesting to discuss are the different policy options available to prompt players in the industry to decarbonize. Much like how society would collapse without law and order (I may be referring to the award-winning TV series here), carbon policy is important to ensure that the global maritime industry is on track to meet its ambitious goals. One of my favorite books on carbon policy is Designing Climate Solutions by Hal Harvey, Robbie Orvis, and Jeffrey Rissman. In this book, they classify carbon policies into four types: performance standards, economic signals, research and development support, and enabling policies. I will focus on the first two types of carbon policies and how they relate to the maritime industry.
PERFORMANCE STANDARDS
Performance standards impose targets on performance. These standards are necessary to incentivize players to meet criteria that cannot be influenced by price. Current policies being implemented include the Energy Efficiency Design Index (EEDI) launched in 2001. This standard establishes minimum energy efficiency levels for the shipping industry, with increasing stringency over time. Experts are not convinced that measures like the EEDI are enough to meet IMO’s decarbonization goals, so from a performance standard perspective, other policy signals must be explored:
- Having a speed limit to enforce slow steaming (and perhaps even a more stringent speed limit in playground zones)
- Fuel standards
- Stronger efficiency targets than what is currently included in the EEDI
Performance standards are important. Because consumers are not particularly interested in the carbon intensity of how their goods are shipped, performance standards establish a level benchmark that shipping industry players must adhere to. Moreover, the creation of performance standards spurs innovation. Companies have the incentive to implement innovative practices and technologies that would be most economical for them.
ECONOMIC SIGNALS
On the flip side, there are economic signals. Balcombe et al. (2019) further breaks down economic signals to three main subcategories: controlling the emissions price, controlling the emissions quantity, and subsidies:
- Emissions price controls: An example of this is imposing a carbon tax on the purchase of fuel
- Emissions quantity controls: An example of this is establishing a credit-based trading program, built in to a benchmark system or a cap-and-trade system
- Subsidies: An example of this is providing financial assistance for green technologies
An interesting development occurred last year when the European Union indicated that they are planning to include the shipping industry in the EU Emissions Trading System (EU ETS) from January 1, 2022. It remains unclear what this actually means and how this will be implemented. What we do know is that the EU ETS is a cap-and-trade system that operates in all EU countries that establishes a cap on the amount of greenhouse gases that can be emitted by different industries covered under the system. Players must purchase or receive allowances in order to make them compliant, otherwise, they will be subject to heavy fines.
I’m curious to see how the EU rolls this policy out, and other (hopefully multilateral) policies that will be implemented in the next few years by IMO, and other organizations/governments. Time is ticking, whether it be the IMO’s decarbonization goals by 2050 or the Getting to Zero Coalition’s goals on having zero emission vehicles available by 2030. In any case, the shipping industry needs to get its ship together.
REFERENCES
Balcombe, P., Brierley, J., Lewis, C., Skatvedt, L., Speirs, J., Hawkes, A., & Staffell, I. (2019). How to decarbonise international shipping: Options for fuels, technologies and policies. Energy Conversion and Management, 182, 72-88. doi:10.1016/j.enconman.2018.12.080
International Maritime Organization. (2020). Fourth Greenhouse Gas Study 2020.
Each Country’s Share of CO2 Emissions. (2018). Retrieved from https://www.ucsusa.org/resources/each-countrys-share-co2-emissions
