INSIGHT: Shipping Industry Comes Out of the Shadows at COP28

Five leading shipping CEOs at COP28 have called for an end to fossil-fueled ship orders. Image Credit: Wallenius Wilhelmsen

As environmental experts from around the world descend upon Dubai for the 2023 Conference of the Parties of the UNFCCC (COP28), the shipping industry has a better story to tell at this year's event.

The International Maritime Organization's revised GHG strategy, adopted at MEPC 80 in July, has set shipping on course for net-zero emissions by or around 2050, with indicative checkpoints set for 2030 and 2040. The strategy also requires zero- or near-zero GHG fuels and technologies to take up 5-10% of the industry's energy demand by 2030.

The targets are now much more ambitious than the initial strategy set in 2018. While not yet fully aligned with the 1.5°C global warming pathway envisaged by the Paris Agreement – adopted at COP21, eight years ago – the strategy is now much closer to that goal.

At the regional level, shipping also faces being charged for its carbon emissions at scale for the first time as it enters the European Union's emissions trading system next year.

These significant developments in maritime decarbonisation regulation will leave shipping in a much more prominent position at international climate summits. During this year's COP28, the schedule is brimming with maritime-related topics, attracting involvement from key maritime entities. The IMO is actively engaged in both the conference and UNFCCC meetings. Additionally, the International Chamber of Shipping (ICS), in collaboration with the Emirates Shipping Association, is set to organize the "Shaping the Future of Shipping Summit."

In the coming weeks, the discussion of key factors by global leaders has the potential to accelerate maritime decarbonization.

New Fuel Discussions

What's needed next from these international meetings is more detailed work on implementation.

Much has already been done on the setting up of green corridors, identifying major trade routes and ensuring the regulation and logistics are in place to supply green fuels to the ships using them. This work should be expanded as much as possible.

Biofuel supply is set to come under strain as more industries – not least aviation – compete over the available product. While biofuel blends have been a convenient drop-in alternative for shipping so far, some international discussion will need to focus on how alternative, sustainable feedstock can be provided, so that shipping can remain an off taker of the biofuels that are not suitable for the road and aviation sectors.

But other alternatives are increasingly available. Much of the current shipping orderbook could  run on synthetic LNG or methanol if production of these alternatives can be ramped up, and the use of ammonia should also be a valid pathway once more research and development work into its safe handling as bunker fuel is carried out.

But for all of the fuel types to be part of the decarbonization path for shipping, all stakeholders in the value chain are deeply dependent on governmental decisions and cost investments in energy production and infrastructure.

A Need for Global Measures

If the shipping sector is to meet the targets set by IMO, the industry is going to need much greater clarity on its finances as it decarbonises.

Synthetic fuels are likely to cost several multiples of current bunker prices, once their lower energy density is taken into account, even if the cost of the renewable power needed to produce them comes down significantly over time.

The IMO's GHG strategy needs to be followed by regulatory measures that provides a financial incentive for shipping companies to switch to alternative fuels, while gradually phasing in requirements for the use of lower carbon fuels.

The IMO is planning to adopt a pricing mechanism that charges shipping companies using conventional fuels for their GHG emissions.

The funds generated would then be redistributed as subsidies to support zero-carbon alternatives, helping to narrow the price gap. This measure along with a global fuel standard is currently slated for adoption by 2025, entering into force in 2027.

Therefore, what will be needed from COP28 and future summits of this kind is more behind-the-scenes discussions on how to generate support among the 175 IMO Member States and industry stakeholders for the necessary regulatory measures to be adopted by IMO.

The support of all countries was key to delivering this year's revised GHG strategy, and will be as critical to delivering financial measures to incentivise shipping's decarbonisation pathway. We look forward to these important discussions and more, to ultimately set a solid pathway for IMO and the shipping community at large.