Shipping’s Route to Decarbonisation

The shipping industry is under pressure to decrease its carbon missions as part of the broader drive by global governments to address the risks posed by climate change.

With about 90% of the world’s trade transported by sea, shipping accounts for at least 2% of the world’s total greenhouse gas emissions.

In April, the Singapore Maritime and Port Authority (MPA) announced initiatives to reduce the shipping industry’s greenhouse gas emissions, including a S$120 million fund for a decarbonisation centre, which will fund decarbonisation research and technology projects. As part of that, six private conglomerates – BW Group, Sembcorp Marine, Eastern Pacific Shipping, Ocean Network Express, Foundation Det Norske Veritas and BHP – each contributed S$10 million to the cause, with the remaining to be put up by the MPA.

Separately, the MPA also signed a memorandum of understanding with Singapore sovereign investor Temasek Holdings to explore decarbonisation opportunities with the state investor and companies in its portfolio.

Elsewhere in Asia, the China Classification Society, a not-for-profit sovereign body that conducts classification, certification and notarial surveys of ships and offshore installations, and state-owned enterprise China COSCO Shipping Group also signed an agreement to work together to tackle the issue of greenhouse gas emissions in the maritime sector.

In the private sector, some shipping groups have also set their own targets. Maersk, the world’s largest container shipping company, announced in 2019 that it would have net zero carbon emissions from its operations by 2050, paving the way for many others.

Cleaner fuels

Cleaner fuels have emerged as alternatives to the bunker fuels currently used to power vessels. One way to reduce carbon emissions in shipping is for vessels to run on more environmentally conscious fuels such as ammonia and green hydrogen, both of which do not produce carbon.

Green hydrogen uses renewable energy combined with electrolysis, a technology that has been deemed pivotal to global decarbonisation endeavours. Hydrogen can also be used to make alternative fuel, ammonia, which is already widely used onshore for multiple purposes, but ammonia will need to be produced at scale to satisfy demand as a shipping fuel.

Herein lies the problem – there are hefty costs associated with the adoption of cleaner fuels, and governments around the world are at staggered stages with assisting that transition. Funding, incentives, and green initiatives, particularly for the shipping sector, differ in pace and scope.

The Global Maritime Forum estimates that transitioning the industry to meet the International Maritime Organisation’s 2050 emissions target, which is a 50% cut in greenhouse gas emissions from 2008 levels by 2050, by using ammonia fuel would cost at least €1 trillion.

Producing green hydrogen at scale is expensive and complex. Hydrogen is a mature technology onshore but storage of hydrogen on a vessel creates issues in relation to its low energy density.

Even as policymakers around the world explore mechanisms for supporting investment in the development of cleaner fuels and aim to drive down the cost of adopting the technology in the longer term, the 2050 targets for the shipping industry marks an arduous journey.

The alternatives

There are other alternatives, albeit with substantial shortcomings.

Short-term solutions include using liquefied natural gas (LNG), a fossil fuel that produced fewer carbon emissions than bunker fuels, but LNG comprises the potent greenhouse gas, methane.

Additionally, vessels can turn off their generators and charge up via onshore electricity supplies when in port to reduce pollution, harnessing the ‘shore power’ movement, which can cut emissions from ships at berth to zero. It is a tried and tested technology that is available now, for example, in Shenzhen, China. But there are major barriers as projects can be complex and costly. They have long payback periods and returns on investment also lack certainty.

One other option for lowering consumption is lengthening transit times. At least 20% of emissions by vessels can be cut by reducing the average speed of fleets. Ocean Network Express (ONE), a container shipping company headquartered in Singapore and Japan, said that it could reduce carbon emissions by at least 15% if speeds were lowered by 10%. But slowing ships is not an option for all companies, and it could force some fleets to sail more ships.

Catalysts of change

Global greenhouse gas emissions plunged by roughly 2.4 billion tons in 2020, a 7% drop from the year before and the largest decline on record, triggered by worldwide Covid-19 restrictions.

Change is possible and barriers surmountable, but much of the onus lies on governments and policymakers to act as catalysts of change. The shipping industry can deliver on 2050 targets when supported and incentivised appropriately by government-led policies.

JTJB has been advising the shipping industry for over 30 years. Based in Singapore and with offices and associated advisers in many major ports of the world, we can help with your decarbonisation journey. Speak to our lawyers for advice.