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Sailing Towards Sustainability: The Role of Global Shipping in Decarbonization

Updated: Dec 11, 2023

In the vast arena of maritime trade, where cargo-laden behemoths navigate the world's oceans, a new narrative is unfurling—a narrative of transformation, accountability, and carbon-conscious navigation. The maritime industry often dubbed as a traditional industry, finds itself at a crossroads where its environmental impact is poised for a recalibration. Against the backdrop of climate imperatives, the maritime sector steps onto a stage demanding sustainable navigation.

Consider this: maritime shipping accounts for nearly 3% of Greenhouse Gas(GHG) emissions,13% of Sulphur Oxide (SOx) emissions, and 15% of Nitrous Oxide(NOx) emissions, a figure poised to rise if left unchecked. A symphony of factors contributes to these emission numbers. Vessel propulsion, auxiliary machinery, and energy-intensive operations at sea and in ports collectively form a nexus of carbon contributors leading to climate change and global warming at large.

As we continue, we unfurl the scroll of maritime metrics: EEDI, EEXI, CII—an alphabet soup that navigates the seas of efficiency enhancement. Peel back the layers, and we encounter the undercurrents of innovation—LNG, methanol, hydrogen, ammonia—alternatives that jostle the status quo, promising respite from carbon's clutches.

Yet, my mariners, remember: the tempests of change are ever-swirling. Enter the Poseidon Principles and 'Getting to Zero,' heralding a maritime metamorphosis. On the horizon of digital decarbonization, data unfurls its sails, steering ships toward an eco-awakened course.

So batten down the hatches as we delve into maritime decarbonizations' intricate dance—a waltz of industry, policy, technology, and aspiration.

1. Energy Efficiency: A few key metrics lead the charge in maritime decarbonization, as global bodies attend the rallying cry for reining climate change. Although they might seem a bit overwhelming if you’re seeing them for the first time, understanding is vital in a trillion-dollar industry. Ignoring this change is not an option.

At the heart of this transformation lie the acronyms that echo throughout shipyards and boardrooms: EEDI, EEXI, CII, and EEOI. These seemingly cryptic codes—Energy Efficiency Design Index(EEDI), Energy Efficiency Existing Ship Index(EEXI), Carbon Intensity Indicator(CII), and Energy Efficiency Operational Indicator(EEOI)—hold the key to assessing and enhancing vessel efficiency.

EEDI (Energy Efficiency Design Index) delves into a vessel's eco-credentials from the get-go, calculating energy consumption per unit of cargo capacity. This index wields clout in shaping ship blueprints to align with emission-cutting aims, a prime directive in maritime evolution.

EEXI (Energy Efficiency Existing Ship Index) takes on the real-world challenge—scrutinising operational efficiency for vessels already navigating the waves. By adapting to evolving norms and technologies, EEXI evaluates and stamps ships based on energy prowess, encouraging retrofitting and fostering continuous rejuvenation.

EEOI (Energy Efficiency Operational Indicator) is the voyage's watchful eye, tracking fuel efficiency in real time as ships journey. By amalgamating carbon emissions with transport workload, EEOI aids in route optimization and energy savings—a true guiding metric.

CII (Carbon Intensity Indicator) is the measure of a ship’s environmental impact per unit of voyage effort. It doesn't just track energy efficiency; it factors in cargo specifics. With a balanced view, CII fuels informed decisions, steering shipping's course toward sustainable waters.

SEEMP (Ship Energy Efficiency Management Plan) isn't just a document—it's a maritime mantra. Seamlessly melding operational excellence, industry mandates, and environmental aspirations, SEEMP navigates ships toward energy efficiency shores, fostering a maritime realm that sails with an eco-conscious wind.

These metrics, originally proposed by the International Maritime Organization(IMO) are more than statistical tools, emerging as the North Star guiding the shipping industry toward greener horizons.

2. Emission Reduction Technologies: Amid the tides of maritime progress, emission reduction technologies emerge as beacons of change, reshaping the maritime landscape. Scrubbers, also known as exhaust gas cleaning systems, are at the forefront of the industry.

The systems intercept sulfur emissions from traditional fuels, cleaning the exhaust gases and reducing their impact on air quality. Scrubbers are a pivotal asset in the quest for cleaner seas, offering a transformative solution to comply with stringent sulfur emission regulations.

In parallel, we navigate the uncharted waters of nitrogen oxide emissions with selective catalytic reduction (SCR) systems. These systems, akin to institutional mechanisms, engineer a tactical chemical transformation, addressing the nitrogen oxide challenge at its core. The deployment of SCR systems in the maritime industry represents the industry's intent to reconcile operational dynamics with environmental concerns.

A harmonizing chord is struck with the introduction of carbon capture and storage (CCS), a nuanced maneuver akin to institutional innovation. Serving as a vessel for capturing and sequestering CO2 emissions, CCS embodies the sector's commitment to ecological equilibrium. It acts as a bridge connecting the maritime realm's industrial thrust with the realm of conscientious emissions management.

3. Regulatory and Financial Frameworks:

In the maritime landscape, regulatory and financial frameworks are undergoing transformative shifts, driven by the imperative of environmental sustainability.

At the forefront is the Poseidon Principles, an influential initiative that has reshaped ship financing. This framework, embraced by prominent financial institutions, integrates environmental considerations into lending decisions. Backed by 30 leading banks financing shipowners globally and representing $200 billion in maritime assets, it is one of the largest green finance initiatives ever undertaken by the industry. By assessing a vessel's carbon footprint and alignment with decarbonization goals, the Poseidon Principles underscore a paradigm shift in maritime financing towards greener investments.

Another significant endeavor gaining momentum is the "Getting to Zero" coalition, charting a course towards commercially viable zero-emission vessels. This global coalition unites industry leaders, aiming to navigate the challenging waters of technological innovation and regulatory alignment. With an ambitious goal to deploy zero-emission vessels by 2030, the coalition advances a vision of a maritime industry at the vanguard of emission reduction.

The Sea Cargo Charter (SCC) mirrors the Poseidon Principles, targeting cargo owners and charterers rather than institutional investors. Presently, it boasts 29 signatories. While Poseidon employs the AER metric for carbon intensity, SCC utilizes the IMO's Energy Efficiency Operational Indicator (EEOI), gauging CO2 emissions per ton of cargo per nautical mile. In the past, corporate social responsibility scarcely affected bulk shipping; however, a transparent stance on environmental, social, and governance aspects is progressively vital to cargo owners, charterers, and financiers.

Sustainable Ship Initiatives: SSI is a sustainability initiative for the shipping industry, promoting collaboration to tackle sustainability challenges beyond compliance. There are six vision areas of the SSI: oceans, communities, people, transparency, finance, and energy. The SSI has created a range of outcomes since its inception, including a ship recycling transparency initiative, clean technology, and sustainable biofuels.

Green Ship Corridors: As part of coastal states' sustainability agendas, these routes prioritize environmentally friendly shipping. Corridors of this type facilitate the evolution of greener navigation by providing incentives for eco-friendly vessels.

4. Alternative Fuels: In the ever-evolving maritime landscape, the spotlight falls upon alternative fuels as catalysts for a greener future. Liquefied natural gas (LNG), methanol, hydrogen, ammonia, and biofuels emerge as the key players in this transformative narrative, each carrying the potential to reduce greenhouse gas emissions and reshape maritime practices.

LNG takes the stage, lauded for emitting fewer pollutants and showcasing reduced CO2 emissions. However, its successful integration hinges upon overcoming infrastructural limitations and ensuring a reliable supply chain for bunkering purposes. As per SEA-LNG, a global not-for-profit organization backed by CMA-CGM, MSC, ZIM, K-LINE, “ LNG is the only commercially viable and scalable alternative marine fuel that can enable the shipping industry to remain competitive while phasing-out emissions this century.”

Many shipowners seem to agree with this, as an astonishing amount of 49% of the current orderbook at shipyards comprises ships being powered by LNG.

Methanol steps forward as a versatile contender, boasting low emissions and adaptability. But as the maritime industry navigates this new territory, retrofitting existing infrastructure and securing a consistent supply become pivotal challenges. One of the biggest backers of Methanol is the global container giant Maersk, which recently received the world’s first containership powered by methanol.

Hydrogen : As a shipping fuel, hydrogen is produced through renewable energy electrolysis, stored as compressed or liquid hydrogen, and used in engines and fuel cells. Alternatively, hydrogen can be converted to ammonia for easier transportation via ships.

Global hydrogen production was around 70 million tons in 2018, and the world's first liquefied hydrogen cargo was transported between Australia and Japan aboard the MV Suiso Frontier. Using hydrogen as a fuel is expected to have lower CO2 tailpipe emissions than diesel operations. However, it requires more space onboard, making hydrogen shipments worldwide costlier.

Mathias Jansson, Director of Fuel Gas Supply Systems, Wärtsilä Marine Power, says ,”The biggest challenge is that there are no rules concerning the use of hydrogen as a fuel for shipping.”

Ammonia, an emissions-free prospect, presents itself with both potential and hurdles. With a Global Warming Potential of zero, ammonia presents itself as the best on the list, until we discovered its highly toxic nature. The maritime industry has to control the challenges of managing its energy-intensive production processes.

Biofuels, derived from organic sources, enter the scene with a renewable edge. Emitting less CO2, they offer a pathway to sustainable maritime operations. Biofuels face the uphill task of addressing scalability and catching up with demand once wide-scale adoption takes place.

In a global survey of major shipping companies conducted by the Global Maritime Forum, the Global Centre for Maritime Decarbonisation, and the Mærsk Mc Kinney Møller Center for Zero Carbon Shipping, it is clear that the maritime industry will have a multi-fuelled future on the path to zero emissions. As of today, research suggests that most companies are backing either LNG or Methanol, with a staggering amount of the current orderbook being occupied by these two.

ShipFinex gives investors focused on green technology a chance to invest in newer-age ships, in a tokenised manner. Join the growing community of sustainable shipowners worldwide as we reshape traditional shipping.

5. Maritime Carbon Tax: Carbon tax within the shipping industry is a crucial concern that arises from the exclusion of shipping emissions from the 2015 Paris Agreement and the lack of their inclusion in national reduction targets by U.N. member countries.

In September 2021, the International Chamber of Shipping (ICS) put forth a suggestion concerning the inaugural worldwide carbon tax for the maritime sector. Their proposition advocated for a universally acknowledged market-oriented mechanism, aiming to expedite the adoption and implementation of zero-emission fuels.

However, it's not solely the mandated global market-based mechanism that has been proffered as a rallying cry within the industry. Companies like Maersk Tankers have independently championed the idea of a $150 levy per metric ton of CO2 emissions, manifested as a carbon tax. With global support, especially from key European countries, this concept has been gaining momentum as a potential short-term solution.

The International Maritime Organization (IMO) reached an agreement last year to price shipping emissions by 2030. The next step is to agree on the price and the use of revenue.

Simultaneously, the European Union is promoting a notion of proportionate shared responsibility to cultivate market conditions conducive to the process of decarbonization. The 'Fit for 55' framework seeks to pave the way toward a more sustainable future within the maritime domain.

From within the industry's own ranks, propositions have surfaced regarding the pricing of emissions. These inklings encompass a worldwide carbon tax directed at ships with a mass surpassing 5,000 gross tons, alongside a $150 per ton CO2 carbon charge.

The implementation of carbon pricing would stimulate enhancements in energy efficiency and pave the way for the gradual adoption of low-carbon fuel alternatives. The tax collected would facilitate investments in research as well as establish a critical supply chain needed for facilitating a transition.

6. Digital Decarbonization: If you’re hearing this word for the first time, then fear not, you’re not alone. Open up your LinkedIn on any given day and there are thousands of startups operating in this field, most backed by big industry names as decarbonization head-on, digitally.

Digital decarbonization involves leveraging advanced technological solutions and data analytics to slash greenhouse gas emissions and promote sustainability in the shipping industry. This prioritizes the implementation of digital strategies and tools designed to optimize vessel efficiency, reduce fuel consumption, and mitigate the ecological footprint of shipping activities.

Thousands of startups are active in this space. One prominent instance is Nautilus Labs, a startup harnessing the potential of machine learning to finely tune vessel operations, leading to reduced fuel consumption and saving millions both in bunker costs and tones of CO2 emitted. A parallel illustration is GreenSteam, another startup proficient in delivering data analytics and machine learning solutions, specifically for increasing vessel efficiency and concurrently reining emissions. The likes of Maersk and CMA CGM have heavily invested in these startups, integrating their innovative solutions to enhance their operational prowess.

Beyond the startup realm, shipping corporations are profoundly invested in cultivating their proprietary digital methodologies aimed at optimizing vessel performance and fuel efficiency. A case in point is MSC, which has cultivated an indigenous data analytics framework, adept at assimilating real-time data streams to calibrate vessel operations and reducing bunker consumption. Similarly, Hapag-Lloyd has successfully introduced a comprehensive monitoring system that scrutinizes vessel performance, thereby fine-tuning its operational intricacies.

In a broader context, the utilization of data-driven approaches to optimize vessel performance and enhance fuel efficiency assumes paramount significance within the maritime sector. This strategic initiative, indispensable for mitigating environmental repercussions, is also a pivotal determinant in sustaining competitiveness within the market landscape.

At ShipFinex, we recognize the responsibility we bear on our shoulders as we empower the next generation of shipowners on the path to decarbonization. We have an ongoing project of analyzing all projects for green indicators, which will be visible alongside each listed vessel on our exchange platform. The parameters would greatly help investors make carbon-conscious decisions. Signup here.

Written by ANKUR KUNDU

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