The shipping industry is, in the words of a recent UN report, the backbone of global trade.
Yet while marine freight plays an integral role in the global economy, transporting around 80% of the world’s trade in physical goods every year, shipping companies have not been properly scrutinized on their environmental impacts to date.
This is partly because emissions from ships – as with planes – are difficult to trace back to any one country. The issues in ascribing emissions, and therefore responsibility, to a national body led to the aviation and shipping sectors being left out of the Paris Agreement.
Because of this, many of the policy innovations we have seen in other sectors haven’t been replicated for the shipping industry: CO2 emissions are not directly regulated in the same way as in other industries and there is no industry-wide carbon price or emissions trading scheme in operation for these companies.
But don’t let this historical blind spot fool you: we need the shipping sector to be a key part of the low carbon economy.
Maritime freight could be the most feasible way to balance increasing global trade with falling emissions, mainly because the huge size of the vessels means they are much more efficient at transporting goods than other methods.
The sector has made some progress on managing its emissions: from 2000 to 2015, emissions from the shipping industry increased, but at less than half the rate of cargo transported. However, we are still very far away from having a low carbon shipping sector, especially given the IMO estimation that emissions from the sector could rise by between 50-250% by 2050.
Thankfully, industry stakeholders are beginning to wake up to the need for a solution: last April, the IMO, the shipping industry’s governing body, introduced its greenhouse gas (GHG) strategy. The strategy targets a 50% minimum reduction in emissions by 2050 for the sector, with a commitment to align this strategy with the Paris Agreement when it is revised in 2023.
On top of this, just last month, eleven major banks with significant holdings in the global shipping industry signed up to the ‘Poseidon Principles’, a comprehensive set of guidelines aimed at accelerating decarbonization within the industry.
As a sector mainly financed by debt – this could have a significant impact.
Shipping companies slow to innovate
Beyond these principles and targets however, what are shipping companies actually doing to prepare themselves for a low carbon world?
This is the question we set out to answer in CDP’s latest piece of sector research, A Sea Change. In the report, we rank 18 of the world’s largest publicly listed shipping companies, including European Maersk and Norden (Denmark), Hapag-Lloyd (Germany) and Euronav (Belgium) along with 11 other companies headquartered across Asia (plus one in Bermuda) on their readiness for the low carbon economy.
Technical innovation will, of course, be key to fighting climate change across the economy.
But in shipping, where key assets (including the ships themselves but also the infrastructure that support them such as cranes, ports and bunkering) are expected to last anywhere from 20-50 years, the immediate need for a focus on technologies with transformative potential - like battery electrification or ‘e-fuels’ produced from renewable sources - is particularly pressing.
Worryingly though, shipping companies seem to be favoring a more incremental, piece-meal approach to innovation, focusing on minor efficiency gains which will not bring significant emissions cuts.
Of the 18 companies, only three - Japan’s NYK and Denmark’s Maersk and Norden - are actively investing in transformative technologies. Levels of collaboration with equipment manufacturers are low when compared to other sectors.
For example, NYK is working towards developing zero-emission vessels for 2050, whilst European Maersk and NORDEN are actively pioneering the use of ‘second generation’ biofuels produced from waste sources such as cooking oil.
That said, despite these leading examples, without a bold, collaborative position on innovation, the industry is in serious danger of missing the targets set by the IMO.
Symbolic of the industry’s incremental approach to innovation is the role of LNG (liquid natural gas).
Ten of the companies in the report, are actively engaged in the development of LNG marine fuel, which is touted as a less emissions intensive ‘bridging fuel’ to low or zero carbon alternatives.
While LNG is cheaper and more developed at this point in time, it’s long term potential is severely limited.
Taking into account life cycle emissions, LNG would only deliver CO2 cuts of between 5-10%.
And the specifics of how LNG is stored and used on ships mean that infrastructure would need significant modification to allow the industry to move from LNG towards more credible low carbon solutions like e-fuels. In short, while LNG is often seen as a first step towards decarbonization, it may end up being more of a dead end.
Low carbon operations starting to gain traction
On the operational side, the news is a bit more encouraging.
Measures such as voyage optimization and cold ironing (using onshore power when berthing) are fairly common, and thirteen of the companies examined have developed slow steaming strategies (where the speed of ships is reduced to achieve fuel efficiency gains).
Several both European and Asian companies - K Line, HMM, Euronav and COSCO Shipping Holdings - disclose the adoption of super slow steaming strategies but details regarding the coverage of these strategies is limited.
Slow steaming can deliver significant decarbonization benefits, with speed reductions of 10-15% reducing fuel consumption by about 30-40% for bulk fleets and possibly more for container vessels.
However, the industry as a whole is yet to wake up to the potential of slow steaming, and ‘when to go slow’ is still primarily a commercial decision, with decarbonization a secondary factor.
Indeed, the majority of companies appear to be limited by commercial timetables and are only practicing slow steaming when there are clear financial benefits.
Climate oversight falling short
When it comes to climate governance and management, the sector is also lagging.
While 12 of the 18 companies disclosed that they have emissions reduction targets, there is a worrying lack of climate oversight at the board level, with only three companies having a formal climate or environmental committee on the board.
At the same time, disclosure is poor for the sector with only four companies officially supporting the TCFD and only five companies having completed CDP’s 2018 Climate Change questionnaire.
After years out of the limelight, shipping is beginning to face real pressure from regulators and investors to get on board with the low carbon economy.
Industry leaders in Europe and Asia like Maersk, NYK, and Mitsui OSK have taken positive steps, but these companies are the exception, not the rule.
To truly move towards low carbon shipping, and, by extension, a world where we can have both less carbon in the air and robust global trade, we need to see more transparency, more innovation, and more willingness to take the bold steps necessary to secure shipping’s place in a low carbon world.
Shipping needs to face up to this new reality or face troubled waters ahead.