With the IMO’s sulphur rules around the corner, shipowners are already facing another huge challenge: the energy transition needed to reduce the emission of greenhouse gases (GHG) like CO2. To reach a fifty per cent GHG reduction by 2050 (compared to 2008), shipowners have to develop their plans for the soon-to-be-built zero-emission ships today.
Saying that the profession of a shipowner is far from easy nowadays is a huge understatement. He or she constantly has to decide on new solutions of which he cannot know the consequences. And while it is still far from clear how the IMO sulphur rules that come into force on the 1 January 2020 will work out, the shipowner also needs to find an answer to the upcoming energy transition, and soon.
Fossil Fuel Financing to Dry up
Soon, means that probably only a few years will be left as the sources for investing in ships that will still sail on fossil fuels will dry up. At the same time, the restrictions for the use of fossil-based fuels will only become stricter. This could be one of the tough conclusions derived from the last seminar of the Platform voor Schone Scheepvaart (Clean Shipping Platform) on the 3rd of December in Harderwijk.
In this platform, shipowners (KVNR), shipbuilders (NMT), maritime knowledge institutes like TNO and Marin, the port authorities of Amsterdam and Rotterdam and environmentalists (Stichting De Noordzee) exchange knowledge about how shipping can become cleaner. The Dutch Ministry of Infrastructure and Water Management plays the role of observer.
Emissions to Increase Significantly Without Policy Change
As the subject of the seminar – “Energy Transition in Shipping” – already made clear, the IMO goal for 2050 is not to be reached by simply making new ships more energy efficient. Shipping releases approximately 940 million tonnes of CO2 into the atmosphere every year. According to the Third International Maritime Organization (IMO) study (2014) on GHG emissions, this is about 2.5 per cent of total global emissions.
This seems only marginal, but if action is not taken quickly, emissions are likely to increase significantly. According to the IMO study, the emissions from shipping will increase by fifty to 250 per cent by 2050 under a no-policy-change assumption, thus undermining the objective of the Paris Agreement to limit global warming to two degrees.
From Fifty to Seventy Per Cent
Therefore, IMO’s Marine Environment Protection Committee (MEPC) adopted an initial strategy on the reduction of GHG emissions from ships in April 2018. According to the IMO, this vision confirms its commitment to reducing GHG emissions from international shipping and, as a matter of urgency, to phasing them out as soon as possible in this century.
More specifically, under the identified “levels of ambition”, the initial strategy envisages for the first time a reduction in total GHG emissions from international shipping which, it says, should peak as soon as possible. Moreover, the total annual GHG emissions should be reduced by at least fifty per cent by 2050 compared to 2008, while, at the same time pursuing efforts towards phasing them out entirely.
With the ongoing growth of shipping, however, this means that ships not only have to halve their emissions, but that they have to lower them by an average seventy per cent. A further reduction of the emissions from shipping was at that moment (2018) not possible, risking the loss of support of important countries and, therefore, the inability of reaching a consensus. The aim of reaching consensus is considered highly necessary to come to a policy that is globally effective.
With the ongoing growth of shipping, emissions have to be lowered by an average seventy per cent
Countries like India, Indonesia and Russia have already raised concerns about whether or not they will put into effect the IMO 2020 sulphur rules. These dictate a reduction of the maximum sulphur content of fuels from 3.5 to 0.5 per cent unless a ship can guarantee that with the use of a scrubber the emissions from the funnel can also comply with the requirements.
Pressure Is Mounting
Yet, while the awareness in the countries listed may lag behind reality, the political pressure in Europe and certain states in the US is mounting for far more radical measures to force shipping to reduce its emissions of GHGs. At the seminar in Harderwijk, researcher Jeroen Harmsen of TNO pointed out that the Green Deal that was announced recently by newly appointed EU-commissioner Frans Timmermans, targets at a reduction of GHGs of forty per cent by 2030. For shipping, this means a reduction of 55 per cent.
Furthermore, Timmermans is also considering to bring shipping under the regime of the Emission Trade System (ETS), which means that shipping companies have to buy ETS rights for the amount of GHGs they emit with their ships.
Problem Lies in Investment Costs
Technically speaking, there are already a lot of fuels capable of substantially reducing the emission of GHGs. These include LNG, alternatives like biofuels, methanol, biogas or ammonia and synthetic fuels, such as hydrogen or the use of batteries. However, until now, the use of any of these alternatives leads to significantly higher investment costs for newbuild ships and their exploitation.
Only for LNG is it possible, according to former Spliethoff-staff member and nowadays independent consultant Sjaak Klap, to develop a realistic business case for a newbuild ship. The extra costs of the investment in an LNG-installation can be compensated by lower operational costs of LNG as a fuel.
Not Future Proof
According to the Society for Gas as a Marine Fuel (SGMF) from London, there are now 172 LNG fuelled ships in operation and 198 on order. Important for availability: 77 ports are now supplying LNG as a fuel. The problem with LNG as a fuel for shipping is that it is indeed cleaner, but not future proof as it still contributes to the emission of GHGs.
With reductions of 98 per cent for SOX (sulphur oxides), 86 per cent for NOX (nitrogen oxides) and 96 per cent for particulate matter, LNG is substantially cleaner than the use of HFO (heavy fuel oil) or MGO (marine gas oil). Yet, the reduction of CO2 emissions amounts to no more than a marginal eleven per cent, especially because of methane slip that remains as a rest product of burning LNG. So, to save the climate, shipping cannot rely on LNG.
One way or the other, shipowners have to hurry up with investing in ships that could sail on LNG as the financing possibilities offered by banks will probably soon dry up. By the end of 2021, the European Investment Bank (EIB) will stop financing maritime projects based on the use of LNG.
The financing possibilities for LNG offered by banks will probably soon dry up
So the loan of 110 million euros that shipowner Spliethoff signed for at the beginning of this year with ING Bank and the EIB for retrofitting the fleet with scrubbers, would probably not be possible anymore in two years’ time. At the end of August, Spliethoff announced it would have seven ships built on LNG for its affiliates WijnneBarends and the Finnish Bore Group.
New Fuels Need Years of Development
The meeting of the Dutch Platform for Clean Shipping again provided no clear answers for shipowners. The technology of LNG-driven ships has only just matured, while that of the use of all kinds of alternative fuels like hydrogen, methanol, ethanol and biofuels will still need years of development. How much more they will contribute to the necessary investment in newbuild ships is still absolutely unclear.
Batteries, for example, might be common technology, but are still very expensive for shipowners. As long as shipowners are unable to come up with viable business cases where profit is guaranteed, they are not welcome at the banks.
Even EU-officials and politicians still do not know what a real green ship is
But even EU-officials and politicians still do not know what a real green ship is. In the vision of the European Commission, the EIB will have a yearly budget of an enormous 180 billion euros to finance energy and renewable energy. This budget should also be available for greening shipping. A high representative of the European Committee urged the attendees at the meeting in Harderwijk to come up with proposals for green ships.
This article appeared in SWZ|Maritime’s December 2019 issue.
Related News
