Natalia Gorina will be speaking at the Shipping & the Blue Economy Virtual Forum taking place 23 - 24 September 2020. Register here!

The maritime shipping sector faces a decarbonisation deadlock. While pressure to downsize its GHG footprint increases rapidly, the sector remains responsible for over 1 billion tons of CO2e or 2.89% of global emissions, with an increase of 9.6% in 2018 compared to 2012 levels. Looking specifically at methane emissions, the International Maritime Organisation (IMO) found an increase of 150%.

As the sector struggles to find impactful solutions to downsize its GHG footprint, the IMO's recently published 4th GHG study predicts an increase of international shipping emissions of up to 130% above 2008 levels by 2050 in a business-as-usual scenario. This scenario would severely undermine the objectives of the Paris Agreement and will elicit increasingly stringent pressure from regulators, investors and citizens.

International shipping is not, however, covered by the Paris Agreement or country-level pledges to reduce emissions. In 2018, the IMO announced an ambition to at least halve such emissions by 2050 compared to 2008. This is the end goal, but how will we get there? The IMO is expected to define a regulatory framework, providing clear rules and incentives, but only in 2023. How can the sector take action today?

Growing momentum

Like any sector built on complex heavy machinery, technological solutions are not always readily available. Shipping is very capital intensive, the lifetime of vessels is about 30 years and they use the dirtiest types of fuels (heavy fuel oil and marine diesel oil), meaning the return on investments for new solutions have a long lead time. Decisions need to be taken today on vessel technology makes changes to the global fleet by 2050.

The industry is exploring a wide range of measures, from technological and operational solutions to increase efficiency - such as improved engine and hull design, shore power or improved scheduling and slowing the speed of ships - to electric propulsion for ferries and other short-haul vessels, to several alternative fuels for deep sea vessels, which constitute the vast majority of the over 50,000 ships currently sailing global seas. Liquefied natural gas (LNG) is being used as a lower-carbon intensity transition fossil fuel, while new sustainable fuels such as green hydrogen (generated with renewables), ammonia, methanol and biofuels are being explored and tested in pilot projects. None of them has yet emerged as the optimal scalable solution due to inherent technological and economic constraints.

But there is a growing global momentum for change! Almost all of the 82 shipping leaders recently interviewed by Shell and Deloitte, saw the economic disruption of COVID-19 on the industry as an opportunity to accelerate progress towards decarbonisation. 90% of interviewees considered decarbonisation as important or top priority for their organisations, noting that its importance has increased significantly over the past 18 months. There is a real opportunity to take decarbonisation efforts in the sector to the next level.

Turning the tide

MSC Nela at port of Long Beach CA - Image Credit: MSC

In the past years, climate initiatives in the shipping sector have focused on measuring greenhouse gas emissions and agreeing on common standards. This is the case for longstanding initiatives such as the Clean Cargo that collects GHG data in the container cargo sector or the Smart Freight Center that developed the GLEC Framework for measuring freight-related emissions. These initiatives have put in place a solid basis for more transformative action.

The latest cross-industry initiatives already show that nowadays the focus has shifted from measurement to action: how to achieve emissions reductions and carbon neutral or net zero status? For example, the Poseidon Principles - a global framework for climate-aligned ship financing was launched in June 2019 by 11 banks. By now 18 banks signed up holding roughly $150bn of ship finance loans, out of an estimated $400bn total. Similarly, in September 2019, the Getting to Zero Coalition was launched with the aim to develop a commercially viable, deep sea zero emissions vessel (powered by a zero emission fuel) by 2030. Starting with 28, the membership grew by now to 110 companies from the maritime, finance and fuels sectors.

A bridge solution

Furthermore, companies in the shipping sector are increasingly recognising the need to deliver short term impact now while also embarking on a long-term carbon neutrality journey. This is where climate finance solutions for carbon compensation come into play. Carbon compensation, also known as offsetting, means purchasing carbon credits from third party-certified projects such as afforestation and forest protection, biogas, community solar devices etc. Carbon compensation is an easy and affordable starting point and can act as a bridge solution as the sector scales up solutions for direct mitigation.

Importantly, high quality carbon compensation supports projects that improve livelihoods and contribute to a range of Sustainable Development Goals - a key part of any company's corporate social responsibility strategy. Companies engaged in carbon compensation span various sub-sectors in the marine industry: cruises, ferries, dry bulk shipping, containerships, offshore, LNG tankers and ports. They are still few leaders, but the trend is visibly growing.

For example, South Pole is supporting the Singapore-based dry shipping company Berge Bulk, that owns and operates 70 vessels, to reach carbon neutral status by 2025 under the Blue Matters comprehensive environmental strategy. Berge Bulk selected projects registered under the Gold Standard or the Verified Carbon Standard in locations that are closest to the hearts of their colleagues and clients.

In fact, carbon credits can also become a powerful tool to engage with customers and differentiate from competitors. This is the case of the MSC Carbon Neutral Programme we launched with MSC Mediterranean Shipping Company (MSC), the world's second largest container shipping company by TEU capacity. In addition to investing heavily in sustainability and trialling a range of alternative fuels and technologies to reduce emissions from its fleet, MSC wanted to help bridge the gap between shipping today and the zero-carbon future. As part of this programme, MSC calculates the emissions relative to the cargo moved and gives the opportunity to all its clients to compensate for the unavoidable emissions of the marine and inland transportation of their goods by investing in carbon offset projects. The two climate action projects chosen for the programme – the Kariba forest protection and community project in Zimbabwe and the Huóshui Grouped Small Hydropower in China – not only reduce emissions but achieve help alleviate poverty, create health benefits and improve livelihoods.

Protecting and restoring coastal ecosystems with blue carbon

Communities heavily depend on waterways and natural ecosystems at the Padang Tikar Blue Carbon Project - Image Credit: South Pole

Finally, there is a growing interest in the maritime sector for compensating emissions with carbon credits from "blue carbon" projects due to their explicit link to seas and oceans. Blue carbon projects involve conservation, restoration and/or expansion of coastal and marine ecosystems, such as mangroves, tidal marshes and seagrass meadows. When protected or restored, blue carbon ecosystems sequester and store more carbon per unit area than terrestrial forests. But, when degraded or destroyed, they emit the carbon they have stored for centuries. Scientists estimate that as much as 19% of emissions from tropical deforestation globally are released from degraded coastal ecosystems.

The benefits of blue carbon projects are extraordinary: they support coastal water quality, act as fish nurseries, provide coastal protection against floods and storms and support coastal communities. The wide-reaching environmental and social impacts make such activities highly attractive, but funding is often lacking. To address this South Pole is working to certify, under the Verified Carbon Standard, several blue carbon projects that will generate carbon credits. For example, a mangroves and peatland protection project in West Kalimantan, Indonesia, and a mangroves protection project in Eastern Honduras. This will enable shipping companies to compensate for their emissions in the coming years.

Shipping companies can and should play a vital role in providing climate finance to blue carbon projects as well as developing new projects of their choice. Even if the technological readiness and scalability of low-carbon solutions remains a challenge, there is no excuse for non-action. Committing to become carbon neutral or launching carbon neutral shipping products with carbon credits is a necessary win-win solution for the individual business, the climate, the economy and the oceans.

Natalia Gorina will be speaking at the Shipping & the Blue Economy Virtual Forum taking place 23 - 24 September 2020. Register here!