International Shipping

More efforts needed
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In this report

International shipping accounted for around 2% of global energy-related CO2 emissions in 2019. Ambitious and concrete policies are needed to meet the goals set forth by the International Maritime Organisation to reach carbon neutrality in the second half of the century. Reducing carbon intensity in the near term, for instance through energy efficiency measures and slow steaming, is a priority. Over the longer term, policies are needed to promote the adoption of low- and zero-carbon fuels and technologies for oceangoing vessels.

CO2 emissions from international shipping, 2010-2019, and in the Sustainable Development Scenario, 2030

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Tracking progress

Shipping is a key enabler of international trade, accounting for about three-quarters of total freight transport activity. It is also the most energy-efficient way to carry cargo in terms of energy use per tonne-kilometre (tkm).

Nevertheless, direct CO2 emissions from shipping activities have surged in the past decade as cargo volumes have increased globally. Strategies to comply with the Paris Agreement have been defined, but policies to encourage alignment with the ambitious goals laid out by the International Maritime Organisation1 (IMO) are still needed.

In April 2018, the IMO adopted a strategy to reduce GHG emissions from international shipping to align the sector with Paris Agreement climate goals. The strategy proposes to cut absolute GHG emissions by at least 50% by 2050, and thereafter to attempt to eliminate them altogether. It also aims to reduce the carbon intensity of international shipping by at least 40% by 2030 and to pursue efforts to reduce emissions intensity 70% by 2050 compared with a 2008 baseline.

The consequences of this strategy will be far-reaching, as energy efficiency measures alone will not be sufficient to reach the absolute GHG emissions reduction target. Switching to low- and zero-carbon fuels will also be necessary.

A number of policies aiming to reduce air pollution from shipping have been announced in the past decade, many of which have already been enforced. The global sulphur cap mandated by the IMO entered into effect in January 2020. It requires shipping vessels to either use maritime fuels with a maximum sulphur content of 0.5% or install a scrubber to comply with sulphur dioxide emissions regulations.

While these regulations can help curtail air pollution as well as continue to reduce the health impacts on populations living at or near major ports and the environmental impacts on the oceans, there is a risk that they will lock in investments in fossil fuel technologies and delay the transition to carbon-neutral fuels. 

In January 2019, the IMO’s Data Collection System (DCS) regulation for ships’ fuel oil consumption entered into force. The regulation requires all ships with a gross tonnage of 5 000 tonnes and above to prepare annual reports on their fuel oil consumption and transport activities. The aim of this system is to create a solid database that can be used to track and monitor energy consumption from international shipping as well as calculate CO2 emissions. DCS will help to clarify longstanding discrepancies in emissions estimates among different organisations, as highlighted by the Third IMO GHG Study 2014.

The European Union has been actively exploring measures to align the shipping sector with the aims of the Paris Agreement. The EU Monitoring, Reporting and Verification (EU MRV) regulation, which entered into force already in 2015, requires ships calling at European ports to monitor and report their CO2 emissions, fuel consumption, transport work and average energy efficiency. The monitoring phase started in 2018 (i.e. all companies having ships covered under the EU MRV had to submit their first emissions report to the accredited verifier at the end of 2018). Similar to the IMO DCS, the EU MRV is the starting point for the European Union to track the evolution of CO2 emissions from its shipping sector and eventually enforce policies to steer it in line with the Paris Agreement.

In December 2019, the European Commission committed to extend the EU ETS to cover the maritime sector within the framework of the European Green Deal. However, the proposal still needs to be approved and is unlikely to enter into force before 2022. 

In response to the increasing number of policies encouraging shipping sector decarbonisation, the private sector is adopting strategies to align with the new regulatory framework, with two outstanding collaborative initiatives:

  • In 2019, a group of banks jointly representing around USD 150 billion in shipping financing signed the Poseidon Principles, which commit them to integrate climate risk considerations into financial decision-making in the maritime industry.
  • Several industries from the maritime shipping, fuel and infrastructure value chains have joined forces in the Getting to Zero Coalition dedicated to commercialising deep-sea zero-emission vessels (ZEVs) by 2030 along with the associated infrastructure.

The only regulations currently in place to encourage greater shipping efficiency are the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Management Plan (SEEMP). Both are enforced by the IMO, with the EEDI targeting energy efficiency standards for new ships and the SEEMP the efficiency of ship operations.

The EEDI mandates average annual efficiency improvements of around 1.5% for the new global fleet from 2015 to 20252. This falls short of historical improvement rates, as energy use by the global shipping fleet per tkm declined by an average 1.6% annually between 2000 and 2017. Therefore, although the current formulation of the EEDI will prevent backsliding on energy efficiency advancements, it does not promote improvements beyond historical rates. In consequence, some organisations are pressing the IMO to tighten the EEDI standards to encourage the uptake of new technologies that would improve vessels’ energy efficiency even further.

Carbon intensity of international shipping under EEDI and Sustainable Development Scenario, 2005-30

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Energy intensity of international shipping under EEDI and Sustainable Development Scenario, 2005-30

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Several of the fuels and technologies needed to put international shipping on track with the Sustainable Development Scenario (SDS) are not yet commercially available. In recognition of this, in December 2019 several shipowners proposed to the IMO a levy of USD 2 per tonne of bunker fuel (raising the cost of bunker fuel by less than 1%) to fund R&D on zero-emission vessels and fuels.3 Considering pre-COVID‑19 bunker-fuel consumption, the levy could generate almost USD 500 million per year.

However, before low-carbon fuels reach commercialisation, short-term measures are also needed to rapidly reverse the trend of rising emissions. Three mechanisms are generally considered to comply with carbon intensity regulations: reduce design speed; fit ships with energy-efficient technologies; and switch to low-carbon fuels. Energy Technology Perspectives 2020 describes how to align the maritime shipping sector with the Paris Agreement using all three of these measures.

Due to a lack of policy mechanisms, virtually no low-carbon fuels were used in international shipping in 2019. Accounting for only 0.1% of final energy consumption, biofuels are the only non-fossil alternative that has been adopted so far, and according to the current policy framework, low- and zero-carbon fuels are projected to make up almost 3% of total energy consumption in international shipping in 2030 and roughly one-third in 2050.

This falls short of the 3% and 9% estimated requirements of the SDS, highlighting the need to demonstrate and scale up the deployment of vessels powered with low-carbon fuels soon. Given that they still cost more than fossil-fuelled vessels, further policy action is needed to encourage the advancement of emerging technologies and fuels.

Low- and zero-carbon fuel shares in international shipping by scenario, 2019, 2030 and 2050

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Now that the IMO has set GHG emissions mitigation targets for international shipping, concrete and dedicated policy measures need to be put into effect quickly to realise them. The IMO, the UN body responsible for regulating international shipping, is best placed to approve and enforce recommended policies.

A regulatory scheme to guide the investment decisions of shipowners, operators, financiers and refiners needs to be implemented soon. It is also necessary to tighten design efficiency standards for new vessels together with enforcing operational efficiency standards to ensure vessels are achieving all possible gains.

More stringent mandatory design efficiency standards for new vessels would spur the uptake of new technologies to raise the energy efficiency of ships coming online. These standards should be aligned with the IMO’s longer-term carbon intensity and absolute GHG emissions reduction targets, and at minimum should be more ambitious than what the market would already deliver in response to rising fuel prices.

Adopting more energy-efficient operations and technologies alone cannot bring international shipping in line with the SDS. It is also necessary to switch to low- and zero-carbon fuels, but because they are considerably more expensive than fossil fuels, policies are needed to create greater market equality to encourage their adoption.

One such policy mechanism consists of operational CO2 standards (also called a goal-based mechanism) that set mandatory objectives for ships to reduce their operational carbon intensity per unit of transport work. Set at stringent enough levels, operational carbon intensity objectives gradually drive the uptake of zero-carbon fuels.

These standards could be implemented regionally and/or globally, using emissions levels registered by the EU MRV and the IMO DCS as a baseline. Operational carbon intensity standards offer market participants the flexibility to choose the most convenient and suitable compliance strategy while gradually reducing vessel CO2 intensity. They also provide a well-defined and stable regulatory framework, lowering the risks of developing new technologies and building the associated refuelling infrastructure.

Operational carbon standards provide the regulatory context for more demanding measures such as operational zero-emissions mandates that require ships not to emit any GHGs during operations in certain situations, such as when they are in Emission Control Areas (ECAs) or in port.

Zero-emissions mandates create a demand for zero-carbon fuels and encourage commercialisation of the requisite technologies. Moreover, they introduce zero-carbon fuel usage gradually and in safe areas/environments. The mandates should initially be implemented in geographically limited areas for the most suitable ship types, and once proved feasible, extended to other areas and other types of ships while gradually becoming more ambitious.

Since the technologies needed to achieve SDS targets have not yet been commercialised, the pace of RD&D of maritime fuels and technologies should be accelerated. Given that vessels have lifetimes of 20-30 years, it is crucial to commercialise zero emission vessels (ZEVs) and begin deploying the associated refuelling infrastructure in this decade.

To rapidly identify the most competitive options and hasten cost reductions, governments and industries should join forces to fund development and demonstration activities. Revenues of the fuel levy proposed to the IMO and of the EU ETS from shipping could be the starting point for a larger fund to centralise all financing. This fund could be administrated by the IMO, which should establish a board of experts to set priorities for ZEV innovation and to co‑ordinate relevant RD&D activities. 

The OECD delegation’s submission to the IMO recommended numerous measures to align international shipping with the SDS, including:

  • Strengthening the EEDI to require that all new ships entering the fleet be at least 60% more efficient than the EEDI baseline by 2030 (50% for container ships).
  • Implementing an operational efficiency standard to ensure that ships still in use in 2030 are nearly 20% more efficient than the EEDI baseline (around 15% for container ships).
  • Implementing a mechanism to enable the adoption of low-carbon fuels (e.g. an operational CO2 standard per unit of transport work or a mandate) to reduce the average well-to-wheel carbon intensity of marine fuels by almost 10% from the 2015 level by 2030, and by nearly 50% by 2050.
  • Developing and adopting a CO2 pricing system for maritime fuels.
Resources
Acknowledgements

The authors would like to extend their gratitude to Faig Abbasov of Transport and Environment, Tristan Smith of University Maritime Advisory Services and the members of the Clean and Efficient Combustion Technology Collaboration Programme for their valuable feedback on this section.

References
  1. The IMO is the UN body that deals also with GHG emissions issues for international shipping.

  2. Measured in MJ per vkm rather than per tkm to exclude the effect of increasing average ship size, thereby disregarding projected vessel growth. The underlying assumption is that each ship complies with EEDI standards, i.e. 10% greater fuel efficiency per year between 2015 and 2020, 20% between 2020 and 2025, and 30% between 2025 and 2030.

  3. Although USD 2/t would be levied on fuel bunkered in any port worldwide and the EU ETS applies only to ships calling at European ports, the EU ETS would generate approximately USD 4 billion/year in revenue (assuming average 2019 CO2 prices), which is much higher than the USD 0.5 billion/year expected from the fuel levy.