IEA (2021), International Shipping, IEA, Paris https://www.iea.org/reports/international-shipping
About this report
Innovation is vital to ensure that zero-emissions oceangoing vessels are made commercially available by the mid-2020s. Policies are urgently needed to reduce the carbon intensity of shipping activities (e.g. energy efficiency measures and slow-steaming requirements). Importantly, policies are also needed to encourage the adoption of low- and zero-carbon fuels and technologies for oceangoing vessels.
Shipping is a key enabler of international trade, accounting for more than three-quarters of total freight transport activity. Generally, it is also the most energy-efficient way to carry cargo in terms of energy use per tonne-kilometre transported.
Not including 2020 and the impacts of the Covid-19 pandemic, direct CO2 emissions from shipping activities have risen since the 2010s, mainly due to higher global demand for seaborne trade. Despite recent policy developments, much stricter measures are needed to achieve a 1.42% average annual reduction in emissions between 2020 and 2030 – the rate consistent with the Net Zero Emissions pathway.
In 2018, the International Maritime Organisation (IMO) introduced its Initial Greenhouse Gas Strategy to reduce emissions from international shipping. The strategy aims to cut absolute GHG emissions by at least 50% from the 2008 level by 2050, and thereafter to eliminate them altogether. It also targets reducing the carbon intensity of international shipping by at least 40% by 2030 and 70% by 2050, relative to the 2008 baseline. To achieve these goals, the IMO has set out to identify measures for the short term (approved in 2020), medium term (between 2023 and 2030) and long term (beyond 2030).
In 2020, IMO member countries approved a set of short-term measures to achieve the target of reducing carbon intensity 40% by 2030. The measures adopted comprise mandatory goal-based operational and technical requirements.
Technical requirements are based on a new Energy Efficiency Existing Ship Index. Starting in 2023, specific energy efficiency targets will be applied to the existing vessel fleet based on ship type and size. This measure follows the same logic as the Energy Efficiency Design Index, but it extends efficiency improvement targets to the whole fleet rather than just to newbuild ships.
Meanwhile, operational requirements are based on a Carbon Intensity Indicator (CII) that measures grams of CO2 emitted per cargo-carrying capacity and nautical mile. Each vessel will be rated against a baseline CII, which will become increasingly stringent over time.
Some countries and several shipping companies have officially stated that the short-term measures approved are not ambitious enough. While a number of countries are now demanding an immediate start to negotiations on medium- and long-term market-based measures, others have opposed this proposal. In the meantime, while not questioning the IMO’s jurisdiction and authority, some regions have begun to craft their own shipping emission regulations.
The European Commission welcomed approval of the IMO’s short-term measures, but also stated that they fall short of EU ambitions. Consequently, the commission proposed measures to steer European shipping activity into line with its own decarbonisation targets. First, it adopted a legislative proposal to extend the EU Emission Trading Scheme to maritime shipping.
Next, the commission proposed the FuelEU Maritime initiative, which imposes restraints on the average annual GHG intensity of on-board energy used by ships. These limits become stricter over time, starting at a 2% annual reduction in 2025, rising to 6% in 2030 and up to 75% in 2050. The goal is to force ships to gradually adopt low-carbon fuels during voyages within the European Union and for half of voyages to and from the European Union.
In the absence of zero-emissions technologies, ships at berth must also connect to the onshore power supply. Ships that do not conform with the restrictions will be subject to a penalty, although companies can pool the performances of different ships and use the over-performance of one to make up for another’s shortfall.
In response to the EU signalling that it is willing to take matters into its own hands, some of the largest shipbuilding nations (China, Japan and Korea) and organisations have declared that the IMO should be the only authority crafting shipping emissions regulations.
The newly approved technical and operational measures established by the IMO are not sufficient to curb GHG emissions from international shipping in the long term. The short-term measures entail an average annual efficiency improvement of the global vessel fleet (measured as emissions per tonne-kilometre) of almost 2% between 2020 and 2030. This is only slightly better than the historical average annual improvement rate of 1.6% between 2000 and 2017. Average annual improvements of more than 4% to 2030 are required to put international shipping on the Net Zero Emissions pathway.
Virtually no low-carbon fuels are used in international shipping today. Biofuels are the only non-fossil fuel alternative that has been adopted to date, and they account for only 0.1% of final energy consumption. According to the current policy framework, low- and zero-carbon fuels are projected to make up roughly 2% of total energy consumption in international shipping in 2030 and 5% in 2050. However, this falls severely short of the 15% in 2030 and 83% in 2050 the Net Zero Scenario estimates to be needed.
It is therefore necessary to scale up vital technologies currently at the demonstration and prototype stages as soon as possible, and to develop supporting infrastructure. Greater attention should be paid to ammonia in particular, as it is projected to be the main low-carbon fuel for transoceanic journeys in the Net Zero Emissions Scenario, yet it is still at the prototype phase.
To make zero- and low-carbon fuels more competitive and economically viable, several market-based measures have been proposed, such as a bunker levy or carbon tax. Recently, the Marshall Islands and Solomon Islands proposed a levy of USD 100/tCO2-eq emitted by vessels starting in 2025. The levy would increase either annually or every five years by 30% or 100%. Alternatively, Trafigura proposed to the IMO a levy of USD 250-300/tCO2-eq.
In 2019, the Poseidon Principles framework was launched to align shipping financing with industry decarbonisation goals. Increasingly, marine insurers are being invited to commit to a Poseidon Principles-style scheme that will require annual reporting of their clients’ carbon footprints.
The Global Maritime Forum has recently announced a sister scheme to the Poseidon Principles. It will use a traffic-light scoring system to indicate the extent to which the carbon footprints of marine insurers’ portfolios align with IMO decarbonisation targets. The purpose of the initiative is to encourage insurance companies in the marine sector to help their clients meet shipping decarbonisation goals.
Current short-term measures are not nearly ambitious enough to put shipping on the Net Zero pathway. Medium- and long-term measures must therefore be implemented promptly.
Such measures should establish a stable, long-term regulatory framework that steers ship owners, operators, financers and fuel suppliers towards investing in the rapid development and uptake of technologies that are necessary to achieve Net Zero alignment, but that are still at the demonstration/prototype stage.
The recommended policy mix should consist of strengthened carbon intensity standards (to spur technology development); market-based measures (to close the price gap between fossil-fuelled and low-carbon vessels); and, potentially, an end date for building new vessels with fossil fuel propulsion.
Progress on R&D programmes and demonstration projects should be accelerated to bring to market the maritime fuels and technologies required to achieve Net Zero targets.
For this reason, the European Commission allocates part of its revenue from the EU Emissions Trading Scheme and the FuelEU Maritime Initiative to developing and using low-carbon fuels (i.e. hydrogen and ammonia) in the maritime sector.
Furthermore, the IMO has been urged by the shipping industry to consider developing a new International Maritime Research and Development Board, although it has not yet been established. The board would accelerate R&D of low- and zero-carbon fuels and technologies, financed through a tax of USD 2/tonne on fuel consumed by ships.
Operational GHG standards specify mandatory requirements for ships to reduce their operational carbon intensity per unit of transport work. These standards allow market participants to choose the most convenient and suitable compliance strategy while gradually tightening requirements for lowering the GHG intensity of vessels.
They lay the foundation for a stable, well-defined regulatory framework, thereby reducing the risks of developing new technologies and building associated refuelling infrastructure. Moreover, when operational standards are set at sufficiently stringent levels, they can drive zero- and low-carbon fuel uptake.
While the IMO has implemented such requirements, the stringency of specified reductions must be scaled up to surpass the levels described in the IMO’s Initial GHG Strategy. These standards should be tightened immediately, as progress decarbonising the shipping sector must be made now, not stalled until the approval of medium-term measures in 2023-2030, as currently outlined.
Importantly, the IMO currently follows a tank-to-wake approach in measuring shipping emissions, meaning that only those from onboard fuel combustion are counted. In contrast, measuring on a well-to-wake basis takes all emissions associated with fuel extraction, production, processing and delivery into account. Regulating well-to-wake emissions can support the transition to low-carbon fuels and avoid incentivising the reallocation of GHG emissions from onboard operations to upstream fuel production processes.
The viability of low- and zero-carbon fuels is impaired by their high cost compared with fossil fuels. Market-based measures, such as carbon pricing, can close the price gap between fossil fuels and low-/zero-carbon fuels by causing negative externalities to be reflected in fuel prices.
A carbon price may need to be very high to be effective on its own in stemming emissions from international shipping. However, when coupled with operational carbon intensity standards, the two measures can be mutually reinforcing to spur the transition towards zero-carbon shipping.
The authors would like to extend their gratitude to Faig Abbasov, Jacob Armstrong and Delphine Gozillon from Transport and Environment and the members of the Maersk Mc-Kinney Moeller Centre for Zero Carbon Shipping.