Deep Dive on Decarbonization of Maritime Industry

An extract from Marsh's Global Maritime Issues Monitor, a deep-dive perspecitve on the impacts of decarbonisation

Climate change is an increasingly urgent global issue that crosses sectors and geographies. Reducing Green House Gas Emissions (GHG) is at the forefront of many efforts to combat the potentially catastrophic rise in global temperatures, and an area in which shipping has a strong role to play.

Our 2019 Global Maritime Issues Monitor, produced in partnership with the Global Maritime Forum and the International Union of Marine Insurance (IUMI) looks at some of the critical issues facing the marine industry.

In this deep dive article, we explore the results from our global maritime survey, where we asked senior global maritime stakeholders for their views around decarbonization.

Zero-Emission Vessels and Fuels Are Critical for Reduction of GHG Emissions

In the maritime industry, the IMO’s Initial GHG Strategy states that international shipping’s total GHG emissions must be reduced by at least 50% by 2050.

Improving energy efficiency will not be enough to reach this goal: Commercially viable, zero-emission vessels must start entering the global fleet by 2030, with their numbers radically scaled through the 2030s and 2040s.

Overall, survey respondents see these issues as having a relatively high impact and feel generally unprepared for them.

Regulatory uncertainty is viewed by respondents as the biggest potential barrier to shipping’s decarbonization in the next 10 years, and is also seen as the most likely to occur and is in the top three for potential impact on shipping’s transition to zero-carbon emissions.

Zero-carbon fuels and vessels are not yet a reality, and their competitiveness with fossil fuels and vessels remains unclear.

Environmental regulation could help the industry overcome these barriers, but there is uncertainty around which measures will be agreed on, and how quickly.

Hideaki Saito, Chairman of the Marine Environment Protection Committee at the IMO, notes that the IMO is a “unique body that may establish a robust policy framework on international shipping to be applied and enforced in a legally binding manner regardless of flags.”

He points out that the IMO has developed 59 legally binding conventions, which all ships operated today are subject to follow.

“Even in terms of climate change issues, I am convinced that IMO can develop robust and effective regulatory framework in the global context.”

The survey results strongly indicate that the maritime industry is unprepared for zero-emission fuels and vessels entering the fleet in 2030.

Price and Availability Present Barriers to Low-Carbon Fuel Adoption

Still, Lord Adair Turner, Chair of the Energy Transitions Commission, says the group is convinced that transitioning to zero-carbon in shipping by mid-century is feasible.

“This profound transformation needs to be undertaken now, and significant progress made in the next 10 years, but it will require more time to reach the net-zero objective globally,” he says.

“In the short term, any new vessel should either be run on zero-carbon fuels, or have the potential to be run on zero-carbon fuels with minimum retrofitting as soon as the price of these fuels comes down, probably in the early 2030s. Retrofitting of the existing fleet can also be anticipated.”

What is the LIKELIHOOD the following barriers will hinder the industry's decarbonization within the next 10 years?

Ranking: 1 – Very unlikely, 2 – Unlikely, 3 – Likely, 4 – Very likely
Rank Issue Likelihood
1 Regulatory uncertainty 3.31
2 Availability of zero-carbon fuels 3.17
3 Availability of zero-carbon vessels 3.11
4 Competitiveness of zero-carbon solution 3.11
5 Customer interest in zero-carbon solution 3.07
6 Availability of finance for zero-carbon solutions 2.85

A major barrier to preparedness, he says is the price differential between heavy fuel oil and low-carbon fuels such as biofuels, hydrogen, and ammonia.

“But the industry should anticipate that this price differential will shrink, as carbon prices increase and the cost of low-carbon fuels comes down,” he says.

To speed up the progress of this transition, he says, the debate within the industry over which marine technology option will prevail needs to play out.

“Building up confidence in the feasibility of different technology pathways in real-world operation is essential to prepare the ground for deployment at scale. These initial efforts will need to be underpinned by coordinated action from leading global ports to incentivize use of low-carbon fuels and structure the appropriate fuel provision infrastructure, as well as by a tightening of regulations.”

The survey results indicate that the availability of zero-carbon vessels may be a major barrier to shipping’s decarbonization within the next 10 years.

It ranked high both in perceived impact and likelihood of occurring and received the lowest preparedness score of the survey.

How PREPARED is the maritime industry to overcome these barriers?

Ranking: 1 – Very prepared, 2 – Unprepared, 3 – Prepared, 4 – Very prepared
Rank Issue Preparedness
1 Availability of zero-carbon vessels 1.90
2 Availability of zero-carbon fuels 1.94
3 Competitiveness of zero-carbon solution 1.96
4 Regulatory uncertainty 2.15
5 Customer interest in zero-carbon solution 2.20
6 Availability of finance for zero-carbon solutions 2.30

Similarly, the availability of zero-carbon fuels had among the lowest preparedness scores of the section.

At the end of January 2019, Lloyds Register, in collaboration with UMAS, published Zero-Emission Vessels: Transition Pathways, which evaluated solutions that are both in line with a decarbonisation trajectory and are realistic technologically.

By identifying technologies with the best chance to compete in a more dynamic marine fuels market, the study identified three possible pathways:

  • The first is based on large-scale availability of renewable electricity, with electric fuels consequently the dominant fuels in shipping. The majority of the fuel mix would come from technologies including hydrogen and ammonia produced through electrolysis, e-methanol, and improved energy storage.
  • The development of biofuels is a second path, assuming that a fundamental change in large areas of land use is acceptable and sustainable. Bio-gasoil and bio-methanol could cover a major share of shipping’s fuel mix.
  • Thirdly, energy could be supplied through a mix of electric fuels, biofuels, and hydrogen and ammonia produced from natural gas, with carbon capture and storage (CCS).

The results also indicate that the competitiveness of zero-carbon solutions is seen as a major barrier to shipping’s decarbonisation over the next 10 years.

To be widely adopted across the maritime industry, zero-carbon solutions must be commercially viable compared to traditional fuels.

This will require innovative technology and maturation, which can reduce the cost of alternative fuels and zero-carbon technologies, as well as policy measures that can help bridge the remaining price gap. Whether this will happen in time to achieve the IMO targets is a concern.

Developing Environmental Policy and Financial Solutions

Ian Parry, Principal Environmental Fiscal Policy Expert at the IMF, says that two critical policies are needed in order to overcome the competitiveness barrier to the deployment of low-emission technology into maritime fleets.

“One is an aggressive research and development program administered by the IMO, to develop technologies and lower their costs,” he says.

“The other policy is a tax on the carbon content of maritime fuel, or fuel levy, which would level the playing field between technologies with different carbon intensities, thereby providing incentives for clean technology adoption. The tax could be collected by an IMO administered fund, should be applied globally and could be ramped up progressively over time in line with other pricing schemes.”

The survey highlights another important barrier to shipping’s decarbonization in the next 10 years: customer interest in zero carbon solutions.

Zero-emission fuels and solutions are currently more expensive than traditional fuels, making it difficult for ship operators to use unless customers are willing to provide economic incentives, for instance in the form of a price premium.

An outstanding question in this regard is whether customers of the maritime shipping industry are prepared to pay a premium for shipping services with lower greenhouse gas emissions or provide other forms of economic incentives for shipping companies that are first movers in this field.

How PREPARED is the maritime industry to overcome these barriers?

Ranking: 1 – Very prepared, 2 – Unprepared, 3 – Prepared, 4 – Very prepared
Rank Issue Preparedness
1 Availability of zero-carbon vessels 1.90
2 Availability of zero-carbon fuels 1.94
3 Competitiveness of zero-carbon solution 1.96
4 Regulatory uncertainty 2.15
5 Customer interest in zero-carbon solution 2.20
6 Availability of finance for zero-carbon solutions 2.30

“We know that governments and end consumers are increasing their interest in sustainability across the entire value chain,” says Jan Dieleman, President of Ocean Transportation at Cargill. “This is putting pressure on our customers and, like us, they’re facing new challenges surrounding reporting. They’re starting to realize that reducing GHG Protocol Corporate Scope 3 CO2 emissions can have a positive impact, but as to whether they’re ready to pay a premium to do so, it’s still early days.”

Respondents feel most confident about the availability of finance for zero-carbon solutions, which mirrors the industry’s generally increased confidence in its ability to obtain finance.

This could be because financing is starting to be seen as an incentive for shipping’s decarbonization, partly because of the Poseidon Principles — the self-governing climate alignment agreement among financial institutions, which in 2019 collectively represent a bank loan portfolio to global shipping of approximately $100 billion, around 20% of the global ship finance portfolio.

Financing the unprecedented technology transition in shipping, including zero-carbon fuels, will require significant investment, says Paul Taylor, Global Head of Shipping and Offshore at Societe Generale. “Ship owners will look to their banks and for government intervention to bridge the gap, including incentives for investment,” he says.

“One of the longer term impacts of the Poseidon Principles will be that greater liquidity will be available to finance more efficient vessels. Signatory banks will be eager to support their clients regarding the financing of zero-carbon vessels as banks and ship owners seek to comply with 2050 IMO targets. Zero-carbon solutions will be required from 2030 if these targets are to be met. It’s everyone’s responsibility to be part of the solution.”

Taylor notes: “I am surprised that there is not greater confidence in the availability of financing for zero-carbon solutions. I strongly believe that this will be a strong focus of shipping financiers, and that liquidity will be available for the right project.”

Despite the overall low preparedness scores the issues in this section received, decarbonization of maritime shipping and its energy value chains is not impossible.

“Even the International Energy Agency has been surprised by the pace of the energy transition over the past decade,” says Lord Turner. 

“Drastic cost reduction in renewable electricity, battery, and electrolysis for hydrogen production are reshaping the energy supply globally. Deployment at scale in other sectors than shipping (for instance road transport) is likely to drive further cost reductions. The shipping industry could be surprised by how fast new low-carbon fuels might be available. A wind of change might also come from consumers: The buyers of maritime logistics services are under pressure from their own customers and investors to clean up their supply chains.”

Scatter plot highlighting impact vs likelihood vs preparedness of decarbonization


Nevertheless, a transition of this magnitude within the given timeframe will require close collaboration and deliberate collective action from all parts of the energy system.

The good news is that global industry players are starting to wake up to this challenge. In conjunction with the UN Climate Action Summit in September 2019, Global Maritime Forum, Friends of Ocean Action, and World Economic Forum announced the Getting to Zero Coalition — a powerful alliance representing senior leaders within the maritime, energy, infrastructure and finance sectors, supported by decision-makers from government and IGOs.

The Coalition aims to have commercially viable zero emission vessels operating along deep sea trade routes by 2030.

In the 2019 Global Maritime Issues report we also did a deep dive on the theme of Workforce of the Future, in which we look at issues ranging from automation, employee diversity to skilled workers. Read the full article here.