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Global Shipping Emissions Audit

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Global Shipping Emissions Audit

Overview:

According to the latest UN assessment, freighters carry 10.7 billion tons of cargo across the oceans every year. The industry relies on fossil fuels, including shipments powered by oil, gas and coal, to stay in business. In fact, shipping accounts for 2% to 3% of global carbon emissions, which is greater than the emissions produced by all but the world's five highest-emitting countries (CNN, Luis Alfonso de Alba).

Additional background on environmental and health impact includes:

  • Maritime transport emits around 940 million tons of carbon dioxide emissions annually. Fifteen of the biggest mega-ships alone account for as much pollution as 760 million cars worldwide.
  • Shipping mainly produces sulphur dioxides, nitrogen dioxides, particular matter and carbon dioxide, but containerships are also responsible for ballast water, biocides, waste and oil spills and account for 26% of emissions from international shipping. International shipping accounts for 87% of CO2 emissions in shipping followed by domestic shipping (8%) and fishing (5%).
  • The largest emitters to date are Panama (15%), China (11%) and Liberia (9%), according to the International Council on Clean Transportation.
  • Ship pollution causes about 14 million cases of childhood asthma and 400,000 premature deaths per year (XChange, Florian Frese).

Decarbonizing the global shipping industry will provide tremendous synergy with national climate action plans around the world. According to a report from the Environmental Defense Fund, a push from the shipping industry to switch to renewable-energy-sourced liquid synthetic fuels could stimulate investment in renewable energy infrastructure of up to $6 trillion worldwide by 2050. Green hydrogen and the electrification of green electricity supply in ports will provide even more options to decarbonize the sector (CNN, Luis Alfonso de Alba). The Climate Action Summit will take place this September in New York. It will be a crucial step toward achieving the transition in shipping (CNN, Luis Alfonso de Alba). There is significant untapped potential to reduce shipping emissions cost-effectively, and many companies have begun exploring the scalability of hydrogen fuel cells (XChange, Florian Frese).

Current global shipping emission landscape – challenges and opportunities

In the current market, 80 percent of the world’s shipping fleet runs on a particularly dirty type of fuel known as heavy fuel oil, or bunker fuel.

About heavy fuel oil / bunker fuel:

  • It's thick and sooty, and when it burns, it emits sulfur and particulate matter that can cause respiratory illness.
  • It also emits greenhouse gases, including carbon dioxide and methane, which trap heat in the atmosphere and cause global warming (Ballard, Alan Mace).

Viability of fuel cells:

  • For marine vessels, fuel cells are the only viable, true zero-emission option.
  • Just like batteries, fuel cells produce electricity with high efficiency through an electro-chemical process. The difference is, with a fuel cell, energy is stored separately in the form of hydrogen fuel.
  • The hurdles of widespread adoption are in the refuelling infrastructure, and hydrogen availability in ports. Before operators can power their vessels using fuel cells, hydrogen supply and fueling infrastructure need to be further developed (Ballard, Alan Mace).

The Paris Climate Accord successfully placed energy regulation on participating countries, however those regulations do not consider global shipping emissions. Carbon dioxide emissions from shipping cannot be attributed to any specific nation, which highlights a huge void in the mission to address climate change. In order to meet the aggressive goals outlined in Paris, all emissions need to be considered and regulated. Individual countries need to take responsibility for their contribution, and strategies need to be deployed to cut emissions. However, ships transport about 90 percent of world trade so this can be tricky when considering the amounting trade war with China (OceanConservancy, Whit Sheard).

In the absence of regulations, the International Maritime Organization (IMO) estimates that, at a minimum, shipping emissions will increase by 50 percent by 2050, but it could be as high at 250 percent. The European Union estimates that without intervention, shipping will account for one-fifth of global emissions by 2050 (OceanConservancy, Whit Sheard). Considering that this level of emissions puts global shipping on par with one of the top five emitting countries, such as Germany or Japan, taking immediate action to reduce shipping emissions can make a big difference (OceanConservancy, Whit Sheard).

To ensure that shipping is cleaner and greener, the IMO is engaging in regulatory initiatives. One prominent example for their work is the 2020 Sulphur Cap to ensure ships transition to using fuel with a Sulphur content of not more than 0.5% compared to 3.5% as of now (XChange, Florian Frese). In result of this shift, analysts estimate the container industry — which transports consumer goods such as sofas, designer clothes and bananas — is likely to be among those hit the hardest, with additional costs of approximately $10 billion, according to a Reuters report. Additionally, the world’s two largest container shipping lines, A.P. Moller-Maersk and MSC, have both reportedly said that falling in line with IMO regulations is likely to incur extra costs of roughly $2 billion for each of the companies (CNBC, Sam Meredith). Further, the OPEC oil producers, fuel sellers and shipping companies raised concerns that those new rules will make the oil market more volatile and will hurt ships that aren’t equipped to reduce sulfur emissions or pay premiums for cleaner fuel within the set timeline (CNBC, Emma Newburger).

The Organization for Economic Cooperation and Development estimates that new technologies, alternative fuels and renewable energy could almost fully decarbonize the shipping industry by 2035. That would eliminate the equivalent of the annual emissions of 185 coal plants (The Washington Post, Jessica F. Green). Although ambitious goals are technically feasible, politics are the main constraint. Ships are long-term capital investments — so taking older models out of commission before the end of their natural life is a costly proposition (The Washington Post, Jessica F. Green). The good news is that the IMO will adopt a Greenhouse Gas Emissions Plan in 2023 and that the goal will be to reduce emissions by 50 to 100% by 2050. The bad news is that they are currently stalling on immediately implementing reasonable and proven actions that will cut emissions—such as slow steaming, which basically means adopting a global speed limit. For example, slowing ships down by only 12% has been shown to reduce emissions by nearly a third while only negligibly impacting trade (OceanConservancy, Whit Sheard).

Although a new proposal to require slow steaming was not adopted, progress was made. It is becoming clear that both the industry and some countries that have not actively participated in addressing climate change are waking up to the reality that major reform is not only feasible, but also urgent. The next few years are critical (OceanConservancy, Whit Sheard). To compact this effort, eleven banks that lend to shipping lines announced on Monday, June 17 that climate impact will be integrated into the criteria that determines how much shipping companies can borrow, an effort the banks say will substantially cut CO2 emissions in the industry. The banks will set their new lending standards around the International Maritime Organization’s 2018 climate commitment, which seeks to reduce CO2 emissions by at least 50% from 2008 levels by 2050 and to cut emissions from individual ships by 40% from 2008 levels by 2030. The lending framework, called the “Poseidon Principles,” will assess and disclose whether financial institutions’ lending portfolios are in line with the IMO’s climate goals adopted in 2018. The 11 banks collectively represent about 20%, or roughly $100 billion, of the global ship finance portfolio. The banks involved include Citi, Societe Generale, DNB, Danish Ship Finance, Danske Bank and Norway’s DVB (CNBC, Emma Newburger).

Has the global shipping industry made any commitments to reducing emissions?

In an effort to reduce air pollution and carbon emissions, governments, port authorities and organizations across the world are tightening emissions standards for marine vessels. The international body that helps create global shipping regulations has clamped down on emissions of some air-polluting substances when ships are in or near ports. The new regulations, which started going into effect in 2012 and which decrease limits dramatically in January 2020, require ships to significantly cut the amount of sulfur pollution they emit when they're near land. For the U.S., the regulations apply anywhere within 200 miles of its coastline (NPR, Rebecca Hersher). The IMO also implemented additional climate regulations in 2018 that intend to slash emissions of sulfur by the world’s ships in 2020.

Progress in energy storage would allow the industry to decarbonize and pave the way for all-electric ships. A current example includes the “Ampere,” the first all-electric ferry in Norway that cuts shipping emissions by 95% and costs by 80%. Norway goes even one step further and plans the first autonomous electric container ship that could replace a total of 40,000 truck journeys a year (XChange, Florian Frese).

Innovation is also being introduced by industry leader Maersk in the form of a new carbon neutral product being piloted with select customers who are highly engaged in sustainable solutions for their supply chain. H&M Group is the first company to trial it as part of the shift towards carbon-neutral transportation (Maersk press release). The biofuel to be utilized is carbon neutral and provides H&M Group the ability to reduce their transport and logistics emissions towards their aspiration of carbon neutrality, when accounting for only the emissions from the vessel. When taking a full lifecycle view including all emissions from upstream production and transportation, the fuel entails savings of 85% compared to bunker fuel (Maersk press release).

Another method designed to limit emissions is slow steaming and route optimization which would reduce fuel consumption considerably. A 12% reduction in at-sea average speed leads to an average decrease of 27% in daily fuel consumption and thus fewer greenhouse-gas emissions. Against many concerns, cutting ship speeds by 30% reduces the GDP of exporting countries by less than 0.1%, according to a Delft study. Voyage optimization, another operational measure, is a technology to predict ship performance in various sea states to minimize fuel consumption. Weather-based route optimization, as an example, already accounts for fuel savings of 3% (XChange, Florian Frese).

Additional Regulation:

Examples of companies employing low-carbon shipping methods now

San Francisco Bay Ferry / Golden Gate Zero Emission Marine

In 2014, Leonard Klebanoff and his then-research partner, Joe Pratt, started systematically analyzing whether current ships could be retrofitted to run using hydrogen fuel cells instead of fossil fuels (NPR, Rebecca Hersher). Pratt says the project started when a San Francisco Bay ferry operator asked the Energy Department whether it was possible to switch his fleet over to hydrogen power. Although hydrogen fuel cell technology has existed for decades, at the time no one in the U.S. had ever analyzed whether fuel cells could be used to power the world's shipping fleet (NPR, Rebecca Hersher).

In 2018, Pratt left Sandia to prove it. He co-founded a company called Golden Gate Zero Emission Marine, drew up detailed construction plans for a hydrogen-powered ferry and persuaded the state of California to contribute $3 million to fund a pilot project. The ship's hydrogen fuel tanks will sit on the deck and will power a propeller below. The ship's exhaust will be moist air, devoid of sulfur, soot and greenhouse gases. In fact, the drinking fountains on the ferry will feature water recycled from the exhaust system. When the ship — it's a passenger ferry — is finished fall 2019, it will be the first hydrogen-powered vessel to operate in the United States. It will be used to carry passengers across the San Francisco Bay and for tours of the area, and a Sandia National Laboratories team will study the vessel's performance (NPR, Rebecca Hersher).

Additional Hydrogen-Powered Vessels:

  • Hydrogen-powered vessels are under construction in Norway and France, also funded in part with public dollars (NPR, Rebecca Hersher). The European innovation project FLAGSHIPS has been awarded five million Euros ($5.6 million) to support the deployment of two commercially operated zero-emission hydrogen fuel cell vessels.
    • The FLAGSHIPS project is participating in the construction of the vessels, one for Lyon, France, and one for Stavanger, Norway. In Lyon, a hydrogen push-boat operated by Compagnie Fluvial de Transport (CFT) will serve as a utility vessel on one of its most demanding rivers, the Rhône (The Maritime Executive, Staff)
  • The United States announced this May that ABB would be supplying the systems that will power the first U.S.-built, all electric and zero emission passenger vessel for Maid of the Mist Corp., operators of Niagara Falls tour boats. By enlisting ABB to provide the boat with an integrated power and propulsion package including lithium ion battery packs and an onshore charging system, the US is enabling sustainable operation with maximum reliability (WorkBoat, Ken Hocke).
  • A new carbon neutral product is also being piloted by Maersk. The biofuel in this project is the same blend of used cooking oil and heavy which has been tested and successfully validated in a trial driven in collaboration with the Dutch Sustainability Growth Coalition (DSGC), and Shell this year. It is certified as a sustainable fuel by the International Sustainability & Carbon Certification (ISCC) body (Maersk press release).
    • The biofuel trial on board Mette Maersk has proven that decarbonized solutions for shipping can already be utilized today, both technically and operationally. A new carbon neutral product which generates a savings of 85% compared to bunker fuel is being piloted with select Maersk customers now (Maersk press release).
  • GE’s Power Conversion business and fuel cell manufacturer Nedstack announced collaboration on developing hydrogen fuel cell systems for powering zero-emission cruise vessels (Safety4Sea).
    • The GE and Nedstack collaboration comes as both parties acknowledge the cruise industry's joint responsibility to eliminate the possible negative impacts it might have on port communities, the health of passengers and staff, and on the environment as a whole, while shipowners are already under pressure to comply with the 2020 sulphur cap. GE and Nedstack envisage using fuel cell technology on passenger ships, replacing traditional diesel engines with fuel cells, and HFO with hydrogen (Safety4Sea).

Nerijus Poskus, VP and global head of ocean freight at Flexport is sceptical of the timeframe for widespread integration. Flexport is taking a different approach to innovation and is turning this "ancient" industry on its head to accelerate growth. This San Francisco-based start-up is a global freight forwarder and customs broker powered by cloud software and analytics platform. Its technology promises to use software to optimize speed, reliability and cost for its customers, including Sonos, Georgia-Pacific and Klean Kanteen (CNBC, George Kavallines). Even still Poskus says, “it will be another decade before the shipping industry could begin to adopt hydrogen fuel cells. And, until there is more demand for fuel cell technology, hydrogen fuel will remain significantly more expensive than other, more polluting, shipping fuels” (NPR, Rebecca Hersher).

Key Quotes:

"If shipping was a country, it would be the sixth-largest polluter in the world," says Nerijus Poskus of the shipping technology company Flexport. "About 3% of global emissions are released by ocean freight shipping" (NPR, Rebecca Hersher).

"There's been a lot of interest in putting hydrogen fuel cells on boats," says Leonard Klebanoff, a researcher at Sandia (NPR, Camila Domonoske).

“We believe this is the only commercially viable path to make the required investments our industry requires to reach the carbon neutral target. We are so pleased to see a significant shift in sentiment and involvement from customers, fuel suppliers, equipment manufacturers, and competitors towards sustainable solutions,” emphasizes Toft (Maersk press release).

“We’re making banks alert to the consequences of climate change in their portfolios,” said Michael Parker, global industry head for shipping with Citigroup (CNBC, Emma Newburger).

“We’re now taking climate change issues into decision-making in a way that helps the industry transition to necessary technology to design ships, reduce emissions and decarbonize the industry” (CNBC, Emma Newburger).

”[The Poseidon Principles] are the world’s first global, sector-specific and self-governing climate alignment agreement among financial institutions,” Mitchell said. “The significance of this agreement cannot be understated” (CNBC, Emma Newburger).

“We’ll help make lending decisions and investing decisions much less speculative and more directed toward the environmental consequences of that investment,” he said (CNBC, Emma Newburger).

“This is not occurring in a vacuum,” Mitchell said. “There are more policies coming down the pipe from IMO, and those will be policies that bring in more challenging aspects of decarbonization” (CNBC, Emma Newburger).

"Technology is being tested. It's promising. I do think once it proves that it actually works, by 2025-plus, people will start ordering [new ships]," he says. "It takes three to five years to build a ship, so maybe by 2030 we will start seeing hydrogen ships" (NPR, Rebecca Hersher).

"The technology to get there doesn't yet exist," says Alisdair Pettigrew, a marine energy consultant. "There are millionaires that are going to be made out of coming up with the right solutions, but they're not there yet" (NPR, Camila Domonoske).

"I am not necessarily making a prediction that oil will suddenly become fantastically expensive," he says. "I am more making the argument that alternative energy sources over time will become fantastically inexpensive" (NPR, Camila Domonoske).

“Ships are increasingly being required to shut down their engines in port. We’ve seen this in California, for example, and China has introduced an emission control area in the Yangtse delta. However, the trend is shifting from emissions reduction to total elimination. Achieving this will take deep expertise and innovation – and that’s precisely what this collaboration between GE and Nedstack will deliver,” says Azeez Mohammed, President and CEO, GE’s Power Conversion business (Safety4Sea).

“It is going to affect crude oil producers, traders, ship owners, refiners, equity investors, insurance companies, logistical businesses, banks… Who’s left? I’m struggling to think of anyone it might not affect. That’s why it is a huge transition,” Sawyer said (CNN, Sam Meredith).

“It is an enormous switch. If you considered shipping alongside all of the oil consuming nations, it would be number four or five on the list — so it is an enormous amount of consumption,” Anthony Gurnee, CEO of Ardmore Shipping, told CNBC’s “Squawk Box Europe” (CNN, Sam Meredith).

“We are going to a fundamentally different type of fuel. It is having a bigger impact on the refining industry than it is on shipping,” Gurnee said (CNN, Sam Meredith).

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