Times gettin’ tougher than tough
The trouble with the future is that it’s so much more expensive than the past. The present is getting more pricey by the day but for shipowners, there is little comfort in knowing that the cost of powering their ships is only going one way.
The latest research from the Global Maritime Forum, which began as a sort of Maritime Davos and has morphed into a behavioural nudge unit has predictably bad news about the costs of decarbonization.
Such is the competitive gap between current ship fuel and the zero-emission fuels which will need to become dominant by the 2040s that the market needs a firm hand in the small of the back to make the shift happen.
The GMF notes that the gap is the result of a combination of market barriers and failures, availability issues and a relative lack of information and regulation on safety, as well as the price differential driven by R&D, infrastructure and investment requirements.
Projections made by Lloyd’s Register and nudgers-in-chief UMAS in 2020 suggest that across the 2030s and 2040s, zero-emission fuels will be – at best – approximately double the price of conventional fuel. As a result, there is an urgent need for policy to close the competitiveness gap and ensure shipping meets its decarbonisation commitments.
“The cost of zero-emission fuels must be significantly reduced to close the competitiveness gap with fossil fuels [and] to bridge this gap, we need to realize the potential of public-private collaboration,” according to Christian Ingerslev, CEO of Maersk Tankers.
Companies must develop and deploy solutions at scale while policy makers must put in place the necessary regulation to make zero-emission shipping commercially viable and the default choice by 2030, he added.
The GMF’s latest report suggests multiple potential policy options for closing the competitiveness gap. A preferred way forward to support the shipping sector through an equitable zero-emission transition is a policy package that could consist of a global market-based measure that collects revenue which is then used to support the transition, with a direct ‘command-and-control’ measure that sends an unequivocal signal to the market that a fuel transition will take place.
It optimistically suggests that this could be complimented by voluntary initiatives, information programs and national and regional policy measures to stimulate investments, encourage knowledge sharing and support capacity development.
UMAS Principal Consultant Isabelle Rojon suggests that decarbonization policy for shipping “needs to be as much about equity and fairness as it is about climate change mitigation” which suggests she hasn’t met many shipowners.
While it is true as Rojon says, that vast inequalities exist globally, many of them worsened by climate change, the bottom line is that shipping needs a global framework and more than anything it needs a number to shoot for.
The GMF has estimated that the carbon price required under full decarbonization by 2050 or 50% decarbonization by 2050 and finds that there is no big difference in average price level between the two scenarios. An average carbon price of just under $200 per tonne is required for shipping’s full decarbonization, whereas under the 50% reduction scenario it is around 10% lower.
It advocates for a sliding scale approach with the introduction of a ‘relatively low’ carbon price in the 2020s which is gradually increased to around $200 making it possible to fully decarbonize shipping and create an industry that is powered solely by net-zero energy sources by 2050.
While national and regional action are important and have a role in the transition, the work on a global package of policies to close the gap will be key, it adds. This will depend on “developing and deploying a mix of policies which can address different aspects of the transition, according to Alison Shaw, Research Associate at UCL.
She adds that because the use of market-based measures in the shipping industry is relatively uncharted territory, the sooner policy-makers can surmount this challenge together, the better for the transition, the industry and the environment.
Completely true and given that the IMO has been discussing MBMs for over a decade with no progress, it seems unlikely that the largest emitters would agree to sign up for one without a guarantee that at least some of the money flows back to them.
For that they would need to know what they were in for, which suggests that while the policy part of the solution is developing, the nuts and bolts of emissions baselines, who pays for what and how the revenue is used are some way from agreement. But the real need for actual baseline vessel specific emission measurement is an essential foundation for any emissions solution.