The carbon leviathan

The Marshall Islands are a scattering of coral atolls, palm trees and white beaches lying low in the Pacific Ocean between Hawaii and Australia. None of the Islands’ three exports – fish, coconuts and young emigrants – make a mark on global trading volumes. Yet the Marshall Islands registers more big ships than almost anywhere else on Earth. Over 3,000 seagoing vessels call the Marshall Islands home – on paper. They supply precious foreign income in exchange for the convenience of a rubber stamp.

Registration location is one of the many quirks of international shipping. Another is the exemption of shipping from climate change agreements. Transport on the high seas is responsible for 2.5% of global greenhouse gas (GHG) emissions but has so far avoided the kind of terrestrial regulation that is seeing coal phased out and the mass arrival of electric vehicles worldwide.

To put it another way: if shipping were a nation, it would be the sixth largest emitter of GHG emissions, behind Japan but before Germany. Moreover, the difference between the rules for transport on land and sea means that shipping’s share of GHG emissions could rise from 2.5% to more than 20% by 2050, according to EU estimates. That would put it ahead of any single nation as a polluter. 

One of the providers of the data behind those estimates is the UCL Energy Institute, a world leader in modelling shipping trends and energy demands. For over a decade it has been providing information on ways in which the maritime transport sector could act to decarbonise profitably and the risks of ‘business-as-usual’ thinking.

The Institute’s work is realistic, depressing and hopeful all at the same time – often in one paragraph. One of its findings is that charterers, who rent ships, have not thus far rewarded or looked to reward low-emission vessels. This lack of incentivisation is understandable: climate mitigation policies are inevitable but the actual form they will take and their commercial ramifications are not clear. 

Sea change

The industry knows change is coming, but has not pushed itself to reform. This is reflected in a 2017 joint study by UMAS, a commercial research arm of the UCL Energy Institute’s shipping group. The study found that 80% of industry respondents feel Zero-Emission Vessels (ZEVs) are necessary and that reliability and scalability are more important than cost. But in the same study, the majority of respondents didn’t want to pay more than 10% more for ZEVs than current vessels or see a carbon price higher than $50 a tonne. That carbon price is far above current levels (although, unlike for gold or oil, there is no true global market for carbon trading yet). Nevertheless, $50 a tonne is much lower than the estimates many academics reckon necessary to limit global warming to two degrees Celsius.

As no-one can be sure where carbon pricing will go, the Institute offers scenarios to help shipowners and charterers understand the commercial consequences of a range of carbon prices alongside other germane factors such as freight rates, ship speeds and the cost of ZEVs. One interesting result from the research is that, amid all the many variables, the cost of borrowing money to purchase new vessels is not a major factor.

This would be welcome news in any line of business. However, as Nish Rehmatulla, Senior Researcher at the UCL Energy Institute admits, the problem with his team’s work is that it does not always come up with the answers shipowners want to hear – even though UCL’s GloTraM modelling is predicated on profit maximisation. 

One recent paper, for example, showed that the cost of climate mitigation adaptation could reduce revenues under many scenarios. If the price of a tonne of carbon goes no higher than $50 and freight rates are low, the academics foresee flat to falling revenues even for shipowners who take a long-term perspective, i.e. are prepared to wait at least seven years to recoup essential green investments. Other scenarios suggest a carbon price of $100–$500 is necessary to make ZEVs as attractive, pricewise, as conventional ships. 

If this sounds dissuasive, the academics simultaneously point out that many seemingly more comfortable approaches, such as a short-termist business-as-usual mentality might seduce shipowners to virtual shipwreck: owning a fleet too expensive to be adapted to new technological regulations. This version of stranded assets is a warning that disruptive technology and/or stringent new regulations produces not just winners but also victims.

New law of the sea

For the shipping world, 2018 brought a double dose of stringent new regulations when the International Maritime Organisation (IMO) – the UN body that organises international shipping – agreed to put a cap on toxic emissions from maritime engines, notably sulphur dioxide, and bring the industry more in line with terrestrial ambitions for curbing carbon dioxide emissions. 

Gambling that things won’t change for shipping is no longer an option. The sulphur cap begins in earnest in 2020. The bigger target is to at least halve GHG emissions by 2050, leaving the door open to full decarbonisation.

Both targets have been welcomed by bodies all over the world, including some commercial shippers who see this as a chance to put clear water between themselves and dirtier rivals. The Marshall Islands early on put sustainability before profit and championed decarbonising. On coin-flat islands like theirs, every one-inch rise in sea levels jeopardises 10 feet of drinking water contained in the islands’ aquifers. 

Even the mighty US Department of Defense is starting to fret: it has tested missiles in the Marshalls for decades, but some of its facilities could be permanently inundated within the next two decades.

Whether you are the Pentagon, a shipping tycoon or a Pacific islander, data should inform any sensible long-term policy. The UCL Energy Institute conducted research for the international Institute of Marine, Engineering, Science and Technology in its submissions to IMO debates. These submissions have grown in influence right up to last April’s historic decision.

Now it is time for the whole shipping industry to engage. The new targets help to sharpen parameters for business planning. They do not, however, dictate how the emissions reductions are to be achieved. Regarding ZEVs, for example, it remains unclear what the winning fuel or technology will be. 

Bridges to nowhere

The response from Rehmatulla and colleagues at the UCL Energy Institute has been to map out the potential of new fuels under different economic scenarios and using various financial metrics. One is the cost of storing – ‘bunkering’ in shipping jargon – new fuels. Infrastructure for hydrogen is more complex than for biofuels. But biofuels cost more to make. You have to grow a crop ‘upstream’ first, and the total cost, including the preparation of arable land, severely lowers this energy’s attractiveness.

Likewise, the Institute has been unambiguous that increasing capacity for Liquefied Natural Gas (LNG) is a ‘bridge to nowhere’. LNG facilities have been funded to the tune of E250m by the European Union alone because LNG is cleaner than current ship fuel in terms of local air pollution, as it reduces harmful sulphur and nitrogen oxides and particulates close to zero. But this fuel will not ultimately help meet the IMO targets for carbon dioxide, warns Rehmatulla.

On other metrics, such as the cost of the actual motor, electric fares well. But expensive batteries and this power type’s unsuitability for long voyages is dissuasive in the modelling. This only leaves more work to be done, according to Dr Tristan Smith, the UCL Energy Institute’s Reader in Energy and Shipping: “Unless action starts now on maturing these fuels options’ applicability to deep-sea merchant shipping, we won’t see ZEVs in the water by 2030 in order to meet the GHG target”. 

How the war was won

Key milestones to the IMO's agreement to at least halve carbon emissions by 2050

September 2013

Pacific leaders launched the Majuro Declaration at the annual meeting of the Pacific Islands Forum in the Marshall Islands. Declares climate change the biggest threat to their people.

May 2015

The Marshall Islands submits a request to the IMO’s Marine Environment Protection Committee asking for a debate on how shipping can reduce GHG emissions as part of the global effort to restrict further warming to 1.5 degrees Celsius. The motion was postponed, in part to see what would happen at the Paris negotiations on climate change later that year.

April 2016

With France, Belgium, Germany and Morocco as co-sponsors, Pacific Island leaders make a further submission to consider shippingís ëfair shareí of GHG emissions. This time almost one-third of country representatives support the motion (The IMO is a curiosity among UN organisations in that many delegates representing their country are actually employees of large shipping companies and exporters)

October 2017

A harshly reduced cap on sulphur emissions is announced to commence from 2020.

April 2018

The IMO agrees to limit GHG emissions from international shipping by 2050 to at most 50% of 2008ís output, while pursuing efforts to phase them out in line with the Paris agreement temperature goals.

Facts and figures

International shipping produces nearly one billion tonnes of CO2 emissions, which is approximately 2–3% of total man-made emissions.

Read the research

• “Navigating Decarbonisation: An approach to evaluate shipping's risks and  opportunities associated with climate change mitigation policy” (UMAS, commissioned by Carbon War Room, 2017) 
• “An analysis of the MEPC 69 Debate on reduction of shipping GHG emissions” (UMAS, 2016)
• “Zero-Emission Vessels 2030. How do we get there?” (Lloyd’s Register & UMAS, 2017) 
• See a visualisation of the world's commercial shipping fleet over the course of the year 2012 at shipmap.org

The Bartlett Review 2018
Words: Brendan Maton
Image: Kiln
Image caption: A still from shipmap.org, an interactive map showing the movements of the world’s commercial shipping fleet over the course of 2012