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Shipping industry

Competitiveness

Carbon-zero shipping is on the horizon, here’s how we chart a course

Published 15 September 2021 in Competitiveness • 9 min read

Shipping accounts for 3% of global CO2 emissions, and the volume of business is expected to grow by more than 50% over the next 30 years. It’s a huge task, but here’s how carbon-neutral sea transportation can be achieved.  

A 180,000 deadweight-ton Capesize dry bulk vessel embarks on the 30-day journey from Shanghai to Port of Tubarão in Brazil with its hulls empty. It then lies idle for three weeks before returning to China laden with iron ore. The emissions from the round trip could total almost 5,000 tons of CO2. But it doesn’t have to be this way.  Shipping is the lifeblood of the global economy and an essential part of all major supply chains. Everything from your mobile phone, your furniture, and the food in your fridge will most likely have been produced elsewhere in the world; and, on average, 90% of it will have been transported by sea. This requires a huge amount of energy, and the 300 million tons of fossil fuels consumed by the global fleet every year results in shipping accounting for 3% of global CO2 emissions. There is wide agreement that this needs to be taken to zero by 2050 for shipping to decarbonize in line with the Paris Agreement, but decarbonizing shipping is an enormous task.  

The challenge we face  

With 70,000 ships currently operating globally and a highly decentralized structure, shipping has been labeled a hard-to-abate sector. Fuel is a major part of annual ownership costs in maritime transportation, representing up to 25% of the total. Fossil fuels are distributed efficiently and produced at a fraction of the cost of zero-carbon alternatives. Traditional oil can be produced for less than $100 per metric tonne, compared with around five times that amount for green ammonia and higher still for bio-oil.  

Some might argue that part of the solution should lie in reducing the volume of shipping and encouraging consumers to buy more from local sources, but there is no sign that consumer behavior is changing drastically or global trade decreasing. On the contrary, shipping volumes are projected to grow just over 1% a year between 2020 and 2050, an overall increase of more than 50%. Transport by ship is by far the most energy-efficient form of freight transport in terms of CO2 emissions per ton of cargo transported per mile – the question is how we develop it to be a zero-carbon solution as well.  

Shipping is the lifeblood of the global economy and an essential part of all major supply chains, with around 90% of goods transported by sea
Shipping is the lifeblood of the global economy and an essential part of all major supply chains, with around 90% of goods transported by sea

Drivers of the transition 

In 2018, the International Maritime Organization (IMO), the United Nations agency that regulates shipping, adopted a strategy aimed at reducing greenhouse gas emissions from shipping by 50% by 2050 compared with 2008 levels, and phasing them out completely as quickly as possible this century. The strategy also aims to reduce the carbon intensity (emissions per ton transported) of international shipping by at least 40% by 2030 and 70% by 2050. 

Some leading companies have set even more ambitious targets. Three of the top 10 container shippers, accounting for more than 30% of global capacity, have committed to fully decarbonizing their business by 2050. The same can be seen in the car-carrier segment. As an example, the Norway-based company Høegh Autoliner has laid out its plan for a very rapid replacement of a large part of its existing fleet with zero-carbon vessels within this decade.  

Our goal at the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping is to show the world that it is possible to decarbonize the shipping industry by 2050 by identifying the transition pathways and supporting the systemic changes required. 

Our roadmap for this journey calls for action by 2030 to make the net-zero target by 2050 due to the long investment cycles in shipping, but important steps need to be taken even sooner. By 2023, we need large demonstration projects to show what is possible. We will work to introduce “green corridors” – shipping routes using green fuels between major ports such as Shanghai, Singapore, Rotterdam, Hamburg, Los Angeles and New York. Such demonstration projects would accelerate the transition and convince smaller ports and companies of the benefits of decarbonization, and lead to the transfer of best practices around the world. 

A carbon tax would narrow the cost gap between fossil fuels and zero-carbon fuels
Sustainable trade

Producing green fuels for shipping 

Among the key challenges are bringing down the cost of green fuels and establishing a sustainable supply chain that matches the one we have now for fossil fuels. Central to this challenge is the feedstock for these fuels. The energy used to produce the new fuels must come from renewable sources if they are to be produced sustainably. It is possible to produce ammonia that generates no CO2 in shipping, but CO2 is emitted during the production process. To solve this problem, the electricity used in the production process needs to come from renewable sources, such as wind and solar. A range of green fuels will be needed to achieve the zero-carbon targets, and these will have to be available across the world. The routes taken by dry bulk carriers and tankers are determined by cargo bookings that are not made a long time in advance. A ship fueled by methanol, for example, would run into problems if the fuel was available say in Rotterdam and Singapore but not in Durban. 

Several zero-carbon fuels are being developed, including hydrogen, ammonia and methanol, and each presents different advantages and challenges. Some pose particular challenges for bunkering (the fueling of ships in ports). Ammonia, for example, is toxic to humans. Together with our partners and the authorities, we will carry out projects on the development of safe bunkering procedures for ammonia in Singapore and Rotterdam. Our findings can then be deployed in other top bunkering ports as an example of how best practices can be transferred across the globe. 

A major expansion of renewable energy capacity will be needed to produce zero-carbon fuel sustainably
The aim is to introduce ‘green’ fuels between major ports, including Shanghai, New York, and Rotterdam
The aim is to introduce ‘green’ fuels between major ports, including Shanghai, New York, and Rotterdam

Preparing the fleet for green shipping 

New ship designs will be needed to accommodate the green fuels. Because of the long lifetime of a ship, most new-builds will need to be running on green fuels by 2030 to make the 2050 target. Retrofitting existing ships also has a role to play. Green fuels may require additional tank capacity, which will reduce cargo capacity, and refueling may need to be done more frequently, thus reducing range. 

So much remains to be done and there are important hurdles to overcome. Firstly, a major expansion of renewable energy capacity will be needed to produce zero-carbon fuel sustainably. Green electricity is being developed much too slowly to decarbonize shipping. The renewable energy currently available is naturally being targeted at producing electricity for homes and cars, so we need to significantly ramp up capacity. 

Governments and regulators have a vital role to play here. The cost gap between fossil fuels and zero-carbon fuels is simply too great for uptake to happen organically. Tighter global regulations on energy efficiency are needed to accelerate the transition and build the confidence needed for the necessary investments to be made in green technologies, along with delivering a reliable fuel supply chain.  

The introduction of a carbon tax is also essential. At first glance, this may seem counterintuitive because it would increase costs, but it would serve to narrow the cost gap between fossil fuels and their zero-carbon equivalents. And while the extra costs would have to be passed on to consumers, the money raised could subsidize early adopters of zero-carbon fuels and be circulated back into the shipping industry. 

In short, we need the IMO, EU and national governments to commit to decarbonizing international shipping by 2050; support industrial-scale zero-emission shipping projects; and deliver policy measures that will make zero-emission shipping the default choice by 2030. 

Customer demand is growing 

Customers can exercise important leverage too. Already shipping companies are being asked by large consumer clients such as Amazon, Nike and H&M how they can work together to cut the amount of C02 emissions involved in the transportation of their goods. 

There are also signs that consumers may be willing to pay a premium for green transportation. The cost of shipping is usually only a tiny component of the retail price of a product. Giving customers a green delivery option at a marginally higher price would enable them to exercise this choice. 

Our analysis shows that up to 70% of consumers are willing to pay a price premium of up to 5% for sustainable consumer goods, and that 43% of global e-commerce shoppers would be prepared to pay an extra €0.10 for carbon free delivery. Consumer activism can end up being a major driver of shipping decarbonization.  

Furthermore, we have to take an entire-system approach to build a green fuels supply chain for shipping. This means acting on several fronts at simultaneously to avoid a classic “chicken and egg” problem. There is no point building the ships equipped to run on green fuels unless shipbuilders know that the fuels themselves are going to be available in all the ports where they are needed. And similarly, energy producers need to know that shipping companies will want to buy new fuels before developing large-scale production. 

There are many reasons to believe that we can achieve our goal. Momentum is starting to build at the IMO, which adopted a package of concrete measures to deliver on its emissions reduction strategy in June. The EU will expand its emissions trading system to cover shipping. The new US government has a strong green agenda and John Kerry, the administration’s climate envoy, has called for the IMO to adopt a 2050 zero emissions target. Technology providers are teaming up to develop the solutions that are needed. Shipowners are setting ambitious emission reduction targets. And public/private partnerships such as the Mission Innovation clean energy initiative and private partnerships like our own are providing additional impetus. Where there is a will, there is a way. 

Authors

Mads Peter Zacho

Head of Industry Transition at the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping

He has worked in shipping for 17 years, recently as CEO for J. Lauritzen A/S. Before that he was CFO in TORM, CFO in SVITZER and deputy head of Treasury in Maersk. He spent the first 10 years of his career in the financial industry in Denmark and the US. Mads brings shipping experience from a number of shipping segments, namely the dry bulk, gas tanker, product tanker and towage segments. Mads has an MSc in Economics from the University of Copenhagen and an MBA from IMD.

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