Shipowners and operators face sharply increased costs as they gear up to comply with a slew of new decarbonisation regulations coming on stream over the next few years. The need to develop, test and implement a wide range of new technologies and infrastructure to support the use of cleaner, alternative fuels on ships is expected to deliver a sizeable financial hit to commercial shippers. New technologies and fuels are needed to remove emissions and reduce shipping’s impact on the environment to reach the International Maritime Organisation’s (IMO) 2050 target, but these will come at a cost to the industry and consumers, said an Aug 30 report by DNV.

The Norwegian classification society added that freight rates for containerised goods could double over the next 25 years and will be passed on to consumers as an increase in the price of seaborne goods. While shipping is needed to support trade between countries, it is a large and growing source of greenhouse gas emissions. In 2018, the industry was responsible for around 2.9 per cent of global emissions caused by human activities, according to the European Commission.

This has continued to rise over the years, likely contributing to increasingly higher temperatures and erratic weather patterns. If the climate change impact of shipping continues, it will also undermine the objectives of the Paris Agreement, a global framework to avoid climate change by limiting global warming to well below 2 deg C, the European Commission said.

Ships over 5,000 tonnes operating in European Union waters must buy allowances for their carbon dioxide emissions under the EU Emissions Trading Scheme, which took effect in the shipping industry in January.

The allowance costs are passed through the supply chain to the responsible company, which could charge consumers more to cover the extra costs.

More regulations will be enforced in 2025.

One is the FuelEU Maritime Regulation, which sets requirements on the annual average greenhouse gas intensity of the energy used by ships trading within the EU.

These requirements will become progressively stricter over the years, starting from a 2 per cent reduction of greenhouse gas intensity from 2020 levels in 2025, and accelerating to reach an 80 per cent reduction by 2050.

The regulation “effectively forces” the adoption of cleaner fuels like advanced biofuels and hydrogen to help the maritime sector achieve net-zero emissions by 2050, DNV said.

Meanwhile, IMO negotiations to develop a basket of measures mandating reduced greenhouse gas intensity of marine fuels and implementing an emissions pricing mechanism are under way, and could be enforced in the years ahead.

All these will require time and capital to achieve, so decarbonising shipping will first require a transition to carbon-neutral fuels like liquefied natural gas, liquefied petroleum gas, ammonia and methanol, which do not increase the net amount of carbon dioxide in the atmosphere when used, DNV said.

This would still require shipowners to invest in building vessels that can run on these fuels.

DNV noted that 92.6 per cent of the tonnage, or total carrying capacity of the ships in operation, can only use fuel oils, although half the tonnage currently on order will have alternative fuel capability.

Compared with a scenario where things remain unchanged, DNV estimates that achieving the IMO’s targets would likely raise the total cost of shipping containerised goods by 91 per cent to 112 per cent, or around double the current cost to ship a similar container.

“Decarbonising shipping will come at a cost. Increased freight rates will have to be passed through the value chain, with consumers likely to pick up most of the tab,” said DNV.

Source: The Strait Times by Kang Wan Chern, Deputy Business Editor