Ships navigating the world’s oceans emit a staggering one billion tons of carbon dioxide annually. This figure surpasses the emissions from global aviation and is approximately 1.5 times South Korea’s total national emissions.

This raises a complex question: When a ship travels from South Korea to the United States, who is responsible for the carbon it emits during the voyage? Is it South Korea, the U.S., the ship owner or the cargo owner?

Under the Kyoto Protocol of the United Nations Framework Convention on Climate Change, greenhouse gas emissions from international shipping and aviation are treated differently from emissions in other sectors. The responsibility for limiting and reducing these emissions is delegated to the International Maritime Organization (IMO) and the International Civil Aviation Organization, respectively. This special designation exists because attributing maritime emissions to specific nations is both technically and politically challenging, as vessels are mobile assets that operate across multiple jurisdictions.

As the primary regulator for the international shipping sector, the IMO has introduced several measures to address carbon emissions. In 2023, it adopted the “IMO Strategy on Reduction of GHG Emissions from Ships,” which set an ambitious goal of achieving carbon neutrality by the 2050s. This strategy includes indicative checkpoints, such as a 20 percent reduction in emissions by 2030 and a 70 percent reduction by 2040 (striving for 30 percent and 80 percent, respectively), and outlines potential mid- and long-term measures to achieve these targets.

To drive progress, the IMO has already implemented short-term actions. In 2022, amendments to Annex VI of the International Convention for the Prevention of Pollution from Ships came into effect, introducing the Energy Efficiency Existing Ship Index and the Carbon Intensity Indicator. These regulations compel ship owners to enhance the technical and operational efficiency of their vessels to meet approved standards or improve their ratings.

In April, the IMO’s Marine Environment Protection Committee agreed in London to establish a GHG Fuel Intensity standard for large ocean-going ships over 5,000 gross tons, which emit 85 percent of the total carbon emissions from international shipping.

Starting in 2028, vessels failing to meet emission reduction targets will be required to purchase remedial units at a cost that could exceed 500,000 won ($360) per ton of carbon dioxide. This is a substantial financial burden, especially when compared to the European Union’s carbon credit price of around 100,000 won per ton and South Korea’s carbon credit price of roughly 10,000 won per ton. This new carbon pricing mechanism will create a direct financial incentive for decarbonization of the maritime industry.

A simulation conducted by the Japanese ship classification society, ClassNK, factored in both IMO and EU environmental regulations and projected a dramatic shift in ship operating costs. By 2035, the cost of regulatory compliance is expected to surpass the cost of fuel itself for vessels using conventional fuels.

The South Korean shipping industry faces a significant challenge. While estimates vary, the annual cost for domestic shipping lines to comply with IMO regulations is projected to be around 1.3 trillion won by 2030, with an additional 200 billion won for the EU’s Emissions Trading System. These costs are expected to rise over time as regulations become more stringent.

The choice of emission reduction methods, and the timing and conditions of their adoption, will directly impact a shipping company’s competitiveness. According to the World Economic Forum, the most significant contributions to achieving carbon neutrality in the shipping industry will come from ammonia (32 percent), energy efficiency measures (20 percent), hydrogen (14 percent) and biofuels (12 percent).

Successfully transitioning to alternative fuels will require a concerted effort involving collaboration between the shipping, shipbuilding and oil refining industries, as well as strong government support to ensure a stable fuel supply and the development of necessary port infrastructure.

In the meantime, the shipping industry must pursue a dual strategy. According to the 2024 Maritime Forecast report from DNV’ a global leader in assurance and risk management, immediate operational and technical energy efficiency measures can reduce fuel consumption by as much as 16 percent by 2030. This makes it crucial for shipping companies to adopt a variety of emission reduction technologies to lower short-term regulatory costs.

The strategic imperative is clear: While pursuing the long-term goals of fleet replacement with low-carbon vessels and transitioning to alternative fuels, companies must secure advanced reduction technologies to enhance efficiency now. This requires benchmarking against leading competitors, ensuring a rational distribution of costs across the value chain, establishing government-supported collaborative bodies for real-time information sharing and conducting thorough lifecycle assessments for different fuels to understand their true environmental footprint from “well-to-wake.”

The era of maritime carbon regulation has officially begun. Just as South Korea’s shipbuilding industry turned environmental regulations into a competitive advantage by leading the market for liquefied natural gas carriers, the shipping industry must now seize this moment.

Inaction is not an option, as it could lead to “stranded assets” — vessels that are too inefficient to operate profitably or are barred from certain environmentally conscious ports and trade routes. By leveraging technology and fostering collaboration, we can transform the challenge of carbon regulation into an opportunity to reduce costs and strengthen its global competitiveness.

Source: The Korea Times