The next decade will mark a key milestone for the decarbonization of the shipping industry. The industry is consuming every year 300 million tons of fossil fuels accounting for 3% of global Greenhouse Gas (GHG) emissions. If appropriate initiatives aren’t undertaken, shipping’s emissions are anticipated to rise by 50% by 2050 compared to 2018 primarily impacted by the fleet growth and increases in volumes of transportation. The total capital expenditure cost of decarbonizing is USD 1tn to USD 3tn, creating significant investment opportunities. This market is starting to gain momentum now enabled by technical advancements and industrialization, led by companies listed in European capital markets.
REGULATORY AND GOVERNMENTAL INITIATIVES
On the global level, the International Maritime Organization (IMO) is pushing the shipping industry to further reduce GHG emissions and has set a net zero emissions goal by or around 2050. Further concrete regulatory actions were introduced by the IMO such as ships’ energy efficiency enhancement on July 15th, 2011. Governments are also actively supporting IMO strategy by imposing and/or increasing carbon taxes related to shipping CO2 emissions.
To monitor the effectiveness of actions implemented and vessels performance, two indexes were introduced by the IMO since January 2023. On the technical side, the Energy Efficiency Existing Ship Index (EEXI) is a one-off certification requirement that demonstrates that a new vessel is more energy- efficient than older vessels through a technical design change to the ship. On the operational side, the IMO established the Carbon Intensity Indicator (CII) that requires companies to report their vessel’s annual emissions, distance travelled, and weight to receive an energy efficiency rating (A, B, C, D, E).
ENERGY EFFICIENCY, AN IMPORTANT DRIVER
Going forward, energy efficiency will significantly contribute to the decarbonization of the shipping industry. Energy efficiency is achievable by transporting more goods per journey and optimizing engine performance across various load speeds. Shipping companies, such as MAERSK, are working on redesigning their ships to stack and carry more containers while maintaining the same fuel consumption level. In addition, complementary solutions are available to support energy efficiency efforts such as more efficient propeller designs that allows ships to operate at more economical speeds, reducing both costs and emissions. However, energy efficiency solutions aren’t enough to lower emissions, given the anticipated fleet expansion. As part of the IMO regulations, technical and operational amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI were introduced to enhance ships' energy efficiency in the short term and reduce their GHG emissions. These regulations have been in place for almost a decade for newbuild vessels and more recently for existing ships. For new vessels, the Energy Efficiency Design Index (EEDI) is a measure that requires new vessels entering the fleet to be more efficient by design than their predecessors by a certain percentage. This percentage is measured against a reference line representing the average efficiency of ships built between 2000 and 2010.
ALTERNATIVE FUELS TECHNOLOGY, THE GO-TO SOLUTION
Currently, the shipping industry is predominantly shifting to Liquified Natural Gas (LNG) because it’s a good transitional alternative even though it prolongs the dependence on fossil fuels. However, compared to other fossil fuels, LNG, reduces GHG emissions compared to fuel oil, and it can be easily substituted by lower-carbon alternatives such as bio-LNG and e-LNG. Other energy sources are gaining popularity such as Methanol, Hydrogen, and Ammonia (first set of Ammonia engine ship delivery expected in 2025). On the other hand, for short routes, Electric ferries represent a promising alternative, with the current electric ferry project backed the European Union, boasts an energy efficiency rating of 85%. The Ellen is the first 100% electric ferry, designed by LECLANCHÉ, is able travel 41km and takes 30 minutes to fully charge. Ellen can carry 200 people and 40 vehicles and has been shuttling between Danish ports of Soby and Fynshav since 2019.
