IMO’s decision causing further uncertainty

As it affects long-term expectations and solutions to other regulations.

Yet another challenge for the shipping industry after the International Maritime Organization’s greenhouse gas cuts deal, requiring the industry to come up with GHG-free vessel designs over the next decade, while it has been struggling with several other regulations. Last Friday, the IMO's Marine Environment Protection Committee adopted a strategy on the reduction of the shipping industry’s GHG emissions by 50 per cent from 2008 levels by 2050. The measure comes in addition to the cap on sulphur-oxide content in fuel from 2020, which will direct shipowners to cleaner solutions, such as LNG, exhaust-cleaning systems and low-emission fuels. The industry will additionally need to cut carbon dioxide emissions “per transport work” by at least 40 per cent by 2030. The latter could be achieved by slow steaming to maximize fuel efficiency in the global fleet. But as the global fleet is expected to continue growing over the coming decades in parallel to global trade, meeting the cuts “per transport work” could prove a rather tricky task for the shipping industry.

New vessels coming into service in the 2030s will need to run on GHG emission-free power sources. But as it’s not yet clear what these sources should be, this task will prove a real challenge to shipping. Back in 2016, the IMO decided to cut marine fuel sulphur limits to 0.5 per cent in 2020, but the options to implement the cuts were already quite familiar to the industry. At the moment, several untested technologies are on offer. Earlier in March, a report from the OECD's International Transport Forum argued that 100 per cent carbon dioxide cuts were achievable for shipping by 2035. The report suggests efficiency measures such as slow steaming and more hydrodynamic hull designs in the short term, while power sources like methanol, hydrogen, ammonia and wind power could be the solution in the longer run. The question now is whether proponents of more radical cuts are satisfied with this deal. There is hope that harsher measures could be avoided from being imposed at a regional level by authorities unimpressed by the results achieved at the global level.

The commitment to cut carbon emissions “at least” by 50% by 2050 comes secured the support of more ambitious countries, as the words “as least” suggest that the cuts could be later intensified. IMO Secretary General Kitack Lim characterised the deal as “not a final statement but a key starting point". The EU and Marshall Islands wanted an emissions cut of 70 per cent, with the EU previously having threatened to include shipping in its emissions trading system if the IMO would not have a satisfactory GHG emissions strategy in place by 2023. But resistance was strong from the US, Saudi Arabia, Brazil and Panama against such measures. IMO delegates and officials now hope that the EU will try to toughen the cuts in next MEPC meetings rather than imposing its own measures locally.

Major global shipping industry association BIMCO also welcomed the IMO agreement, considering it a success as the IMO “set an absolute target for emissions reductions for an entire industry“, which has been seen as “a landmark achievement in the effort to reduce emissions, and something that every other industry should look to for inspiration".

The GHG strategy will without doubt affect the plans to implement the IMO's 0.5 per cent sulphur cap on marine fuels in 2020. Uncertainty increases, as the latest regulation encourages the "wait-and-see" attitude already dynamically developing among some shipowners and bunker sellers. Refinery owners will need to invest in expensive upgrades to increase their middle distillate production, so that they meet new demand from the shipping industry. But as the industry will have to change much earlier, most of shipowners will turn away from oil within the next two decades, making such investments less rational in the long term. Similar approach is expected by shipowners with high belief in the benefits of LNG bunkering. Burning natural gas will without doubt reduce GHG emissions compared with oil, but these reductions will not be enough to meet the levels set by the IMO's new strategy.

Fotios Katsoulas

Head of Research, Affinity Shipping LLP Posted on 16 Apr 2018| 15:04 (GMT+1)
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