The pathway

to green
shipping

March 2021

kpmg.com
 Introduction
The earth’s climate has changed throughout history, emitting it back to earth’s surface contributing to the
without many alarming fluctuations. However, in recent warming of the earth. The indication for rapid climate
times, the change has been unusual. Since the industrial change can be seen by numerous examples such as
revolution, the global temprature has been increasing at global temperature rise, warming oceans, shrinking ice
an alarming rate. According to studies, there has been sheets, glacial retreat, sea level rise, ocean acidification
an increase of about 0.9 degree Celsius in the planet’s and extreme weather events. Many countries have
average surface temperature since the late 19th century. committed to the reduction of their GHG emissions in
This is largely driven by man-made greenhouse gas the Paris Agreement to avoid the catastrophic impacts of
(GHG) emissions. Carbon dioxide (CO2), methane (CH4), climate change. This agreement aims at keeping the rise
nitrous oxide (N2O), chlorofluorocarbons (CFCs) and of global warming to well below 2 degrees Celsius above
water vapour (H2O) are the major contributors to GHGs. pre-industrial levels and at pursuing efforts to limit the
The greenhouse effect is the process of absorbing heat rise to 1.5 degrees.
radiation emitted from earth’s surface by GHGs and

Figure 1: Global GHG Emission by Sector

2016 global emissions of greenhouse gases (fuel combustion emissions attributed to energy consumers)

4.4% 24.3% 12.1%

2016 Energy industry own Manufacturing and Transport (Road)
use construction
Total:
48.5 Gt
1.4%
Transport (International
1.1%
Transport (International
1.9%
Transport (Other)
Shipping) Aviation)

Residential
11.0% Commercial
6.7% Unallocated
3.6% Agriculture
11.9%
Combustion

6.6%
Land Use Change Waste
3.2% 5.7%
Industrial Processes
5.9%
Fugitive Emissions
and Forestry
Source: http://earthcharts.org/emissions-sources/

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 The Pathway to Green Shipping 2

There are different sources of economic activities that

are causing the build-up of GHGs in the atmosphere.
Around two thirds of the GHGs are due to the
combustion of fuels for producing energy and resulting
from transport1. Considering only the power generation
at the point of production, around 25% of Global GHG
emissions are attributed to the environment.2

If these emissions are attributed to the final

consumption, then 24% of emissions are from
manufacturing, forestry and construction which primarily
involves fuels burned on site for metallurgical, mineral
transformation processes, energy and chemical. The
CO2 emission from the Chinese industrial sector is
reaching almost the total emissions including all sectors
— of Canada and the European Union combined. 3
GHG emissions from fossil fuels burned for road,
rail, air and maritime transportation account for 17%
of the total emissions. Residential and commercial
consumers account for around 11% and 7% of the
emissions, respectively, by burning fuels for production
of heat in buildings or for cooking at homes and due
to onsite energy generation. The process other than
energy generation accounts for 11.9% emissions from
agriculture (cultivation of crops, livestock), 6.6% from
land use change and forestry (deforestation), 5.7% from
industrial processes, and 3.2% from waste.
4
Emissions from the transport sector are one of the
major contributors to the climate change due to extreme
dependency on fossil fuels. GHG emissions from this
sector have increased at a faster rate than any other Although shipping is the most fuel-efficient mode of
energy end-use sector, leading to more than twice transport, it is the growing source of GHG emissions
the emission volume since 1970. When the world is and consumption of fossil fuels, that contributes to
stressing on the reduction of emissions across sectors, climate change. In 2012, around 85% of the total CO2
the emissions from the transport sector are on the emissions from ships were contributed by international
rise. The majority of the emissions from this sector shipping (see Table 1). If international shipping were to
comes from road transportation (including passenger be considered as a country, it would have been the 10th
and freight), which accounted for 80% rise in emissions largest emitter of energy related CO2 in 2012. As per
during 1970–2010.5 There is an increase in emissions a study, maritime transport accounts for 2–3% of the
from other transport modes as well, such as aviation GHG emissions annually; this fraction is expected to rise
and maritime, except rail. The emissions from railways to 5% by 2050 if left unregulated.7 This will affect the
have significantly reduced over the past decades due internationally agreed goal of keeping global warming
to conversion of power to electricity from coal and below 2 degrees Celsius, which requires immediate,
diesel. In 2014, 53% of the global transport emissions significant and sustained global mitigation. This might
mainly came from the high-income and middle-income lead to a net negative emissions in the long term
developing countries.6 worldwide.

1 https://www.iea.org/reports/co2-emissions-from-fuel-combustion-overview
2 https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data
3 https://www.statista.com/statistics/1054826/carbon-dioxide-emissions-by-country-sector/
4 https://www.researchgate.net/publication/335104931_Estimating_the_infrastructure_needs_and_costs_for_the_launch_of_zero-emission_trucks
5 https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_chapter8.pdf
6 https://www.wri.org/blog/2019/10/everything-you-need-know-about-fastest-growing-source-global-emissions-transport#:~:text=Emissions%20from%20the%20
transport%20sector,emissions%20from%20burning%20fossil%20fuels.
7 https://ec.europa.eu/clima/sites/clima/files/transport/shipping/docs/marine_transport_en.pdf

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 IMO and international
regulations in shipping
The International Maritime Organization (IMO) is a UN from international shipping by 50% and carbon intensity
body formed to specialize in the creation of international by 70% by 2050 (compared to the 2008 emissions).
treaties and other important regulations to ensure safety Though climatology scientists realized the threats of
and sustainability in the maritime environment, e.g. to global warming in the mid-20th century, it took a while to
tackle climate changes from maritime transport. IMO draw the international community to respond.
has embarked on a vision to reduce the GHG emissions

Historical background

Figure 2: GHG emission gap between IMO GHG strategy and BAU emissions

Units: GHG Emission

2008
as base year
Zero
Emisions
as soon as
possible
within this
century

Peak as soon intensity: Total: 50% reduction

as possible 40% reduction Intensity: 70%

2008 2020 2030 2040 2050 Within 2100

Emission pathway in line with IMO’s GHG strategy

Business-as-usual emissionsa
Emissions gap

Source: https://www.tandfonline.com/doi/pdf/10.1080/25725084.2019.1707938

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 The Pathway to Green Shipping 4

In 1988, the World Meteorological Organization and the (MARPOL) to amend the MARPOL Convention
United Nations Environment Programme established the (MARPOL Annex VI) in September 1997. This resolution
Intergovernmental Panel on Climate Change (IPCC). In invited the Marine Environment Protection Committee
1990, the First IPCC Assessment Report (FAR), which (MEPC) to limit the main air pollutants contained in ships’
reflected the views of 400 scientists, underlined the exhaust gas such as sulphur oxides (SOx) and nitrogen
importance of climate change as a challenge with global oxides (NOx) and prohibits deliberate emission of ozone-
consequences and required international cooperation. depleting substances. The resolution also invited IMO, in
The FAR played an important role in the creation of cooperation with the UNFCCC, to study CO2 emissions
the United Nations Framework Convention on Climate from ships for the purpose of establishing the amount and
Change (UNFCCC), the key international treaty to reduce relative percentage of CO2 emissions from ships as part
global warming and cope with the consequences of of the global inventory of CO2 emissions. MARPOL Annex
climate change. VI also regulates shipboard incineration, and the emission
of volatile organic compounds (VOCs) from tankers.
The United Nations Conference on Environment and
Development, popularly known as the Earth Summit, was IMO has conducted four studies on GHG emission in
held in Rio de Janeiro in 1992. The Earth Summit served the year 2000, 2009, 2014 and 2020, respectively. The
as a platform for other member states to collaborate. studies estimate multi-year annual total GHG emissions
The Kyoto Protocol, which was adopted in December from all shipping activities (see Table 1). The Fourth IMO
1997, mandated that industrialized nations cut their GHG Study (2020) provided an update on GHG emission
carbon dioxide (CO2) and GHG emissions at a time when estimates from international shipping from 2012 to 2018
the threat of global warming was growing rapidly and and future scenarios for shipping emissions from 2018 to
became an international law on 16 February 2005. The 2050. It also introduced the inventory of black carbon (BC)
protocol holds provisions for reducing GHG emissions emission from vessels for the first time. Black carbon is
from international aviation and shipping, according to the an aggregate of small carbon spheres that are released
International Civil Aviation Organization (ICAO) and the into the atmosphere during combustion8, i.e. the emission
International Maritime Organization (IMO) respectively. of fossil fuels such as heavy fuel oil (HFO). The 2020
study added that there was almost 12% emission of black
The Kyoto Protocol was adopted by the International carbon from 2012 to 2020 and IMO plans to agree on the
Convention for the Prevention of Pollution from Ships regulations of black carbon next year.

Table 1: Fourth IMP GHG study 20209

Total shipping and voyage-based and vessel-based international shipping CO2 emissions 2012-218
(million tonnes)

Vessel-based
Global Total Voyage-- International
anthropogenic Total shipping as a based Voyage-based Vessel-based shipping as a
CO2 shipping percentage of international international International percentage of
Year Wemissions CO2 global shipping Co2 shipping Co2 shipping CO2 global

2012 34,793 962 2.76% 701 2.01% 848 2.44%

2013 34,959 957 2.74% 684 1.96% 837 2.39%

2014 35,225 964 2.74% 681 1.93% 846 2.37%

2015 35,239 991 2.81% 700 1.99% 859 2.44%

2016 35,380 1,062 2.90% 727 2.05% 894 2.53%

2017 35,810 1,064 2.97% 746 2.08% 929 2.59%

2018 36,573 1,056 2.89% 740 2.02% 919 2.51%

Source: https://safety4sea.com/wp-content/uploads/2020/08/MEPC-75-7-15-Fourth-IMO-GHG-Study-2020-Final-report-Secretariat.pdf

8 https://www.iass-potsdam.de/sites/default/files/files/policy_brief_2_2017_en_black_carbon_in_europe.pdf
9 https://safety4sea.com/wp-content/uploads/2020/08/MEPC-75-7-15-Fourth-IMO-GHG-Study-2020-Final-report-Secretariat.pdf

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 5 The Pathway to Green Shipping

Figure 3: IMO’s GHG reduction strategy10

Sailing towards zero-emission container shipping

The International Maritime Organization (IMO) has introduced rules aimed at reducing harmful sulfur oxide (SO2), carbon
dioxide (CO2), and other greenhouse gas (GHG) emissions from ships.

Source: IHS Markit

2018 2020 2023 2030 2050

IMO adopts initial Low--sulfur fuel Short-term Mid-term Long-term annual
strategy to reduce mandate decarbonization decarbonization GHG reduction
GHG emissions deadline deadline deadline
Reduces the limit for
Sets a series of sulfur content of fuel Requires finalized Mandates an Requires a 50
GHG emissions oil used in ships to short--term average 40 percent percent reduction
reduction milestones 0.5 percent from 3.5 measures to reduce reduction in CO2 in total annual GHG
through 2050. percent, effective CO2 emissions by emissions per emissions by 2050
Jan 1, 2020. 2030. transport work by and encourages
2030 compared with efforts to phase
2008 levels. out GHG emissions
completely.

10 http://www.imo.org/en/OurWork/Environment/PollutionPrevention/AirPollution/Pages/Greenhouse-Gas-Studies-2014.aspx

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 The Pathway to Green Shipping 6

In April 2018 (Figure 4), the Initial IMO Strategy combined measures for states, focusing on Small Island
on Reduction of GHG Emissions from Ships was Developing States (SIDS) and least developed countries
adopted to enhance IMO’s contribution to global efforts (LDCs). The drafted amendment updated the Energy
in reducing GHG emissions from international shipping. Efficiency Design Index (EEDI) and the Ship Energy
The strategy is aimed toward starting off a vision to Efficiency Management Plan (SEEMP) for all ships by
reduce GHG emissions from international shipping and providing requirements to measure and assess the
phase them out as soon as possible during this century. energy efficiency of all vessels and set the necessary
attainment values. The new Energy Efficiency Existing
The strategy represents a framework for further action, Ship Index (EEXI) and the Carbon Intensity Indicator (CII)
starting with the long-term vision for international have been introduced as a technical and an operational
shipping, the levels of ambition to reduce GHG requirement, respectively, to reduce carbon intensity.
emissions and guiding principles. It also includes a Their aim is to address how ships are retrofitted,
candidate’s short- and mid-term measures with possible equipped and operated.
timelines and their impacts on member states, which are
the subject of ongoing negotiations. The strategy also The introduction of these tools looks like a huge step
identifies hurdles and supportive measures including by IMO, but is it enough? The pressure received from
capacity building, technical cooperation and research states and stakeholders make this step worthwhile.
and development. In October 2020, to make progress in It may be too early to praise or criticize it as its
reaching its goals by 2030, IMO drafted new compulsory implementation has just started. It is hoped that it will be
measures to carry out GHG emission strategy. The effective and efficient and serve as a yardstick toward a
proposal requires vessels to reduce carbon intensity green shipping environment. Its progress will be clearer
through technical and operational approach. A remote during its review in 2026.
meeting was held to draft this amendment developed by
the seventh session of the Intersessional Working Group Diving into the details of the path to green shipping,
on Reduction of GHG Emissions from Ships (ISWG- the relevant milestones mentioned below should
GHG 7). In addition to the mandatory requirements be considered and addressed to aid in reaching the
for vessels, the ISWG-GHG 7 addresses further steps aforementioned goals.
in evaluating the possible impacts of the proposed

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 Milestone 1: IMO’s first
regulatory measure
To improve the energy efficiency of international intensive fleets following the inclusion of the additional
shipping, IMO in July 2011 adopted mandatory measures ship types, which account for approximately 85% of
through the Marine Environment Protection Committee the emissions from international shipping. The aim is to
(MEPC) — 62nd session, also known as MEPC 62. release 30% more energy-efficient ships in 2025 than
The resolution passed at MEPC 62 was the first-ever those constructed in 2014 in a phased manner.
mandatory global energy efficiency standard and the
first mandatory global GHG reduction regime for an Energy efficiency is a considerably important topic these
international maritime sector. EEDI, which is a package days. Every sector is striving toward sustainability by
of technical requirements applicable to the largest and adopting new technologies or burning less amount of
most energy-intensive segments of the global merchant fossil fuels. The biggest source of GHGs in maritime
fleet, is applicable to all new ships and sets a minimum transportation is burning of fuels to generate energy.
energy efficiency level for the work undertaken (e.g. If one uses less energy, it will not only save the cost
CO2 emissions per ton-mile) for different ship types and of energy but also contribute to less pollutants in the
sizes. SEEMP is an operational measure that establishes environment. Ship energy efficiency can be attained by
a mechanism to improve the energy efficiency of a ship following a few simple steps as mentioned below; the
in a cost-effective manner. SEEMP also provides an concept needs to be adopted right from ship design
approach for shipping companies to manage ships and through its operation and monitoring stages. IMO
monitor ship and fleet efficiency performance over time. developed the concept of EEDI and SEEMP at MEPC 62
These mandatory requirements entered into force on to improve the energy efficiency of the new and existing
1 January 2013. The technical design package, EEDI, ships at the design and operation level.
has been developed for massive and the most energy-

Figure 4: Ship’s Energy Efficiency Process

Plan and
Design Monitor
Operate

Design energy Plan and operate Monitor energy

efficient ships ships in an energy- efficiency and
efficient way collect data
for further
improvements

EEDI SEEMP EEOI MRV

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 The Pathway to Green Shipping 8

EEDI is the most important technical measure for and can be implemented in various ways such as by
new ships and mandates a minimum required level optimizing the speed of the vessel, making a course
of efficiency and reduction of GHG emission. The change to tackle rough weather, performing hull cleaning
objective of EEDI is to stimulate continued innovation in dry dock, and installing heat recovery methods. All
and technical development of all the components these methods help in increasing a ship’s efficiency and
(hull design, hydrodynamics, engine, propulsion and optimizing its operation.
alternative fuels) influencing the fuel efficiency of a
ship by reducing GHG emission from its design phase. IMO adopted a mandatory Data Collection System (DCS)
EEDI is a nonbinding, performance-based mechanism for fuel oil consumption for international shipping by a
that allows the industry a freehand in the choice of resolution passed at MEPC 70, requiring ships weighing
technology to use in a specific ship design. The ship 5,000 gross tons or above to start collecting and
designers and builders are free to use the most cost- reporting data to an IMO database from 2019. SEEMP
efficient solution, as far as the required energy efficiency shall include a description of the methodology that will
level is achieved to comply with the regulations. be used to collect the data and the processes to report
EEDI estimates grams of CO2 released per amount of the data to the ship’s flag state. The updated version
transport work performed (gram of CO2 per ton-mile). introduces a carbon intensity indicator and a carbon
The smaller the EEDI, the more energy efficient the intensity indicator rating for vessels weighing 5,000
ship design. It is calculated by a formula based on the gross tons and above to determine their required annual
technical design parameters for a given ship. operational carbon intensity indicator. This process will
be performed annually through a data collection system
The regulation came into force on 1 January 2013. approach for an amount of fuel consumption of vessels.
The regulation was followed by an initial two-year It will determine the yearly reduction factor needed for a
phase required before a new ship design will meet the sustained improvement of a vessel’s operational carbon
reference level for their ship type. The CO2 reduction intensity within a required level of rating.
level (grams of CO2 per ton-mile) for the first phase was
set at 10% and is upgraded every five years to keep The documentation of the annual operational CII
pace with technological developments of new efficiency obtained is needed to be verified against the required
and reduction measures. Initial reduction rates have annual operational CII. This will ensure that the
been established for the period until 2025 and thereafter operational carbon intensity rating is determined. The
30% reduction is mandated for applicable ship types, rating will be classified into A, B, C, D and E signifying
compared to a reference line representing the average the major superior, minor superior, moderate, minor
efficiency for ships built between 2000 and 2010. inferior and inferior performance level, respectively,
Smaller ships have different efficiency requirements for and will be recorded in the ship’s SEEMP. Ships rated
different phases. below C for three consecutive years will need to submit
a corrective action plan to indicate how they can attain
The 74th session of the IMO Marine Environment rating of C or above.
Protection Committee (MEPC 74) approved
amendments to strengthen the existing mandatory The effectiveness of the current amendments, EEXI and
energy efficiency rules for new ships. The draft brought CII is to be reviewed at the beginning of 2026 to check if
forward the entry of phase three to 2022 from initially they require further development.11
planned 2025. This means that new ships built from
Energy Efficiency Operational Indicator (EEOI) is a
2022 must be significantly more energy efficient
monitoring tool that enables operators to measure
than the baseline. This is a sign of IMO continuously
the ship and fleet efficiency in operation and gauge
striving to eliminate GHGs from the shipping industry
the effect of any changes in operation, e.g. improved
by upgrading the norms as required by the current
voyage planning, more frequent propeller cleaning, and
conditions.
introduction of technical measures such as waste heat
IMO also developed SEEMP to maintain the energy recovery systems and a new propeller. EEOI index will
efficiency and control the GHGs of all exisiting shipping change after each voyage due to a number of factors
fleet. SEEMP aims to improve the efficiency of ships such as weather, temperature, and cargo carrying
weight.

11 https://www.imo.org/en/MediaCentre/PressBriefings/pages/36-ISWG-GHG-7.aspx

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 9 The Pathway to Green Shipping

Figure 5: Design efficiency, all ship sizes According to a study,12 the

energy efficiency of the
new ships built post 1990
40%
Average deviation from EEDI reference line

deteriorated compared to older

Less efficient ships. The ships built such as
30%
container ships, tankers and
20% bulk carriers in 2013 were on
an average 10% less efficient
10%
than those built in 1990.
0% This emphasizes the need
for regulations to check the
-10% efficiency of ships. However,
ships built post 2013 showed
-20%
More efficient a significant improvement
-30% in energy efficiency. Apart
from the bulk carriers, ships
1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015
in all other categories already
comply with EEDI phase 3
Containership Tanker Bulk carrier target of 30% efficiency from
baseline.
Source:
https://seas-at-risk.org/18-shipping/574-new-ships-10-less-fuel-efficient-than-those-built-in-1990-study.html

Table 2: Performance of bulkers, containerships, tankers, gas carriers and general

cargo ships

Ship Types analysis from 2013 to 2017, Bulk Container Gas General
inclusive carriers ships Tankers carriers cargo

Total number of ships in mandatory phase 1087 258 540 141 32

Distance to EEDI Mean 20% 40% 26% 25% 48%

reference line
Median 20% 43% 27% 24% 50%

Share with EEDI 30% under reference line <1% 71% 26% 13% 69%

Share of ships with innovative technology 0% 9% 0% 0% 0%

Average distance to EEDI reference line of 27% 58% 35% 42% 57%
top 10%

Source: T&E analysis based on IMO data

12 https://www.transportenvironment.org/sites/te/files/publications/2016_CE_Delft_Historical_Trends_in_Ship_Design_Efficiency.pdf

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 The Pathway to Green Shipping 10

Out of the 1,087 bulk carriers built between 2013 and Since only 9% of the containerships have reported the
2017, less than 1% of the vessels comply with IMO’s use of innovative mechanical or electrical technologies
requirements to EEDI phase 3 target. Oil tankers and and no other major ships built during this period have
gas carriers built during the aforementioned period are reported the use of innovative electrical and mechanical
better than bulk carriers in attaining the phase 3 target, energy saving technologies, there is a considerable
but the category needs a lot of improvement. The most scope for further improvement in these categories of
common type of ships in the global merchant fleet are ships. This portrays that extraordinary compliance on
general cargo ships — 22 out of 30 ships attained phase certain categories is not because of EEDI regulations but
3 target with the top 10% performing ships being 57% due to lower cargo rates and higher fuel prices pushed
more efficient than the baseline. It was discovered that for better fuel efficiency. It looks like new ships attained
71% of all newly built container ships already comply efficiency by building bigger container ships (economies
with EEDI phase 3 target, which is the highest among of scale) and slow steaming (reducing the speed).
all categories. The top 10% of the newly built container Therefore, in order to motivate all the stakeholders
ships are already almost two-fold more efficient than to develop and deploy the innovative technologies in
required for phase 3 of EEDI.13 ship design and operation, IMO needs to revise and
strengthen the updated energy efficiency regulations.

13 https://www.transportenvironment.org/sites/te/files/publications/Statistical%20analysis%20of%20the%20energy%20efficiency%20performance%20%28EEDI%29%20
of%20new%20ships.pdf

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 Milestone 2:
Development of
alternative fuels in
international shipping
The global merchant fleet consumes over 400 million The technological development in sustainable transport
tons of marine fuel annually, with projection of demand is the sign of advancement in the use of alternative
exceeding in coming years.14 The stricter regulations on fuels. There is a variety of alternative fuel types available
the sulphur content of marine fuels, both in the emission for shipping, such as liquefied natural gas (LNG),
control area and globally, have increased the demand liquefied biogas (LBG), methanol, hydrogen, hydrotreated
for low-sulphur fuels; earlier, 80-85 percentile of total vegetable oil (HVO), ethanol, and ammonia. To achieve
consumptions used to be residual fuel with high sulphur IMO GHG emission reduction ambitions by mid-century,
content.15 More than half of the share of total running carbon neutral fuels must supply 30–40% of the total
costs is typically from fuel costs and is increasingly energy for international shipping.16 The industry must
becoming the focus for improvements in order to gain choose the future marine fuels by evaluating factors
market advantage, both to achieve cost efficiency and such as environmental impact, technical performance,
reduce GHG emission; the implementation of energy availability, cost, and infrastructure.
efficiency measures needs to be supplemented by
alternative marine fuels.

Alternative fuels are also known as advanced fuels

that are derived from sources other than petroleum or
from renewable energy. Environmental revolution has
pushed shipping, like any other transport mode, to focus
significantly on the potential application of different
cleaner fuels and sustainable source of energy solutions.

14 https://www.joc.com/sites/default/files/u45421/Whitepapers/GeminiSeaburyWP_24pages.pdf
15 https://transportemaritimoglobal.files.wordpress.com/2014/01/dnv-gl-alternative-fuel-2014-positionpaper.pdf
16 https://www.dnvgl.com/expert-story/maritime-impact/Forecasting-the-effects-of-world-fleet-decarbonization-options.html

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 The Pathway to Green Shipping 12

LNG
LNG is a colorless mixture of gases, mostly methane cooled to condense into liquid. It is
sourced from natural gas, which is extracted from gas fields. LNG has been ranked high
as a fossil-fuel-based alternative by the shipping industry and the choice for newbuilding
since 2000. LNG is an attractive option to meet the new regulations on sulphur content in
marine fuels, as sulphur levels are less than 0.004% by mass. Almost all new ships, including
container ships and cruise ships, are being built to run on LNG, which emits approximately
25% less CO2 than conventional marine fuels in providing the same amount of propulsion
power. However, it has had a 150% increase in methane emission from 2012 to 2018. This
is due to the increasing number of LNG-powered vessels in operation. There are currently
around 175 LNG-fueled ships in operation while there are additional 141 ready LNG vessels,
with another 203 on order books.17 LNG is cheaper compared to marine gas oil (MGO) and
HFO. The fueling infrastructure has widely developed beyond just a handful of key bunkering
ports in recent times. LNG can now be delivered to vessels at 96 ports with further 55 LNG
bunkering ports under development.18 Even though the demand for LNG-powered vessels
in major ports around the globe illustrates the keen interest to use LNG as a marine fuel by
vessel owners and operators, it is only a good alternative for vessels in the short-run, and not
in the long-run. This can be justified by the Fourth IMO GHG Study published in 2020.

Hydrogen
The cleanest marine fuel with zero carbon emission is green hydrogen, which is produced
by using renewable energy. It can be produced in many ways such as by electrolysis of
renewable matter and by reforming natural gas. This is why only green hydrogen is currently
being considered, and not any other form of hydrogen. Hydrogen is the lightest of all gas
molecules, thus offering the best energy-to-weight storage ratio among all fuels. While fuel
cells are mostly used to convert chemical energy of hydrogen into electric energy, other
applications are also under consideration such as gas turbines or internal combustion engines
in standalone operations. Japan launched the world’s first liquefied hydrogen carrier vessel
in December 2019. However, it seems that hydrogen is still a fringe concept when it comes
to maritime applications. Liquid hydrogen is costly, difficult to produce, transport and store. It
is subject to the International Code of Safety for Ships using Gases or other Low-flashpoint
Fuels (IGF Code). The current IGF Code does not cover the storage hydrogen. Also, rules to
store hydrogen are yet to be formed. The scalability of hydrogen as a marine fuel is high as it
can be produced from water using electrolysis.

Japan adopted ‘Basic Hydrogen Strategy’ in early 2017, aiming to achieve parity with fossil fuels in
the transportation sector and cover the entire supply chain from production to market applications.

In June 2020, some of the European countries came up with the hydrogen strategy as part
of the COVID-19 stimulus package. Germany has come up with the National Hydrogen
Strategy. The goal is to develop a hydrogen market and promote hydrogen as a solution for
decarbonization. As a maritime country, Norway released its Hydrogen Strategy in which the
Norwegian government proposed to grant substantial fund to finance R&D on hydrogen and
set out its ambitions for the development of value chains for hydrogen-based solutions. The
UK government recently released an amount of £400,000 as fund for the HydroFLEX project
to experiment with hydrogen fuel cells and bring the first hydrogen train to the country.19

With proper advanced technologies, there are no principal limitations to production capacity
that could restrict the amount of available H2 to the shipping industry.

17 https://sea-lng.org/why-lng/global-fleet/
18 https://sea-lng.org/why-lng/bunkering/
19 https://www.theguardian.com/environment/2020/jun/28/hydrogen-fuel-bubbles-up-the-agenda-as-investments-rocket

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13 The Pathway to Green Shipping

Sails
Sails were the primary means of ship propulsion till the advent of fossil fuel engines 100
years ago. Nowadays, wind propulsion is considered a means of reducing ships’ fuel
consumption. The most commonly used technologies for wind-assisted ship propulsion
(WASP) are the wing sail concept, the kite sail and the flettner rotor. Kites and flettner rotors
are currently in use with practical experience. There are no direct fuel costs involved in
operating WASP since it uses the wind energy on water for propulsion but mostly requires
a small amount of secondary source of energy to operate the kites or sails initially with
minimal cost. Though the availability of wind is limitless, the quality of the energy required is
not constant. Hence, only selected global routes with high wind conditions are suitable for
use and one needs to depend on the weather routing software for maximum benefits. The
design changes in ships, unlike other transport vehicles, are slow due to which many of these
technologies currently being deployed are retrofittable solutions. These wind propulsion
systems installed on existing vessels save 5–20% fuel and possibly up to 30% emissions as
retrofits or incorporated into optimized new builds with potentially higher savings.20 WASP
would not be an option for all ships sailing in different routes; it can be used on certain
patches of the complete sail where wind energy is available abundantly as a secondary
propulsion system.

Battery
Batteries provide abilities to store electricity critical for the use of ship propulsion. Recent
technologies in batteries such as lithium-ion have made it possible for battery-powered
propulsion systems to be engineered for smaller ships. The lower power density and greater
weight limit the usage for many applications. Hence, for larger vessels, engine manufacturers
are focused on the hybrid electric solutions. However, using batteries as a standalone
solution is not possible in the current technology status; it may be combined with other
renewable sources of energy such as solar and wind. Solar energy is the proven solution in
shipping to meet the partial electricity requirements. However, the photovoltaic technology
is not energy-dense enough to power a whole ship’s requirement for propulsion. The relative
unreliability of solar energy round the clock makes it ill-suited for deep sea transportation or
operating in certain weather conditions.

Fuel cells are just like batteries — they produce electricity with a high frequency through an
electrochemical process. They offer higher electric efficiencies with lower noise. Fuel cells
need hydrogen-rich fuel such as natural gas, methanol and diesel using chemical reactors for
the cells, apart from pure hydrogen. There are several manufacturers available to scale up
the technology but availability of suitable fuels in large amounts will be essential if adopted
widely. The use of fuel cells increases as the cost of the renewable hydrogen continues to fall
over the years due to large-scale productions.

LNG, hydrogen, sails and batteries are some of the alternatives recommended by shipping
experts as a better retrofit for ships. These ideas are great; however, they are a lot to enable
vessel owners narrow their decisions on the best retrofit for their new built. The shipping
industry needs to narrow its options down to aid in making a better decision in the path
toward a greener industry.

20 https://www.offshore-energy.biz/wind-assisted-ship-propulsion-project-officially-launched/

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 The Pathway to Green Shipping 14

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Milestone 3: Efficient
technologies by
shipping lines and ports
for ship operations
There is a great potential for digitalization regarding the
processes in ship operation and system integration for
the efficiency and safety of vessels. Data is necessary to
achieve energy-efficient decision-making and reduction
in GHG emissions. Implementing smart ship technology
to upgrade the core systems of the current ships will
increase the data volumes (weather, navigation and
sensors) and processing requirements. While maritime
autonomy is a popular subject in the industry, the
technology is currently in the trial stage. Autonomous
shipping is a highly practical technology that helps in the
navigation of vessels and improves their productivity
and efficiency on the sea. It uses an on-board computer
that takes decisions about the route, speed, fuel
consumption, maintenance and even mooring at
the harbor. Smart shipping not only covers on-board
technologies but also includes the design of ports that
use technologies such as artificial intelligence (AI), big
data, internet of things (IoT) and blockchain to improve
shipping performance. There are a lot of research
and trials that have taken place for both newly built
unmanned vessels and retrofit options. IMO’s Maritime
Safety Committee has considered including the issue of
maritime autonomy in the regulatory framework for safe,
secure and environmentally sound trials and operations.

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 The Pathway to Green Shipping 16

Figure 6: Smart ship at a glance

Big Data Analytics

Weather Energy
Data
forecasts and optimization
processing
depth database tools

Sensor Web Onshore

information IoT Platform Insight

Integration to bridge
On route
system and onboard insight

Source: https://www.smartship2020.eu/

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 Milestone 4:
Transparency
The success of a business depends on its customers e.g. blockchain, goes hand in hand with transparency.
— how well they trust the business, and whether This poses the bigger question of whether a sector
they recommend it to others and continue to be part of with a history of secrecy is ready for digitalization at all.
it. Trust serves as a glue that binds customers and Is justifying secrecy all in the name of keeping trade
businesses together. Businesses cannot survive without moving really the reason for not being transparent?
trust from customers and business partners. While Transparency sounds and looks expensive; however, it
some parts of the shipping industry and bunkering is the ladder toward effective partnerships and cost-
sector are guarded with secrecy, the broader business efficient downstream.
sector is strengthening its bonds of trust by pushing
for accountability, transparency and incorporating It sounds vague to justify secrecy by claiming that
governance. customers will not be able to pay for, deal with
and handle data. Has the industry attempted to be
There are some shipping lines providing visibility on their transparent’?
website to their customers regarding the location of
ships, arrival time of ships and other relevant factors that Recently, Hapag-Lloyd introduced the smart container
might affect ships’ delay. Are such visibilities enough? opportunity for customers to be able to know where
Can they do better? We believe they can go beyond this their reefer containers are and if they are being
limit of visibility. tempered with. Though it sounds expensive, it was
a technology customer were willing to invest in.
Hidden surcharges in prices of shipping should be Also, companies from the logistics ecosystem like
clearly addressed as shipping customers complain about Kobo360, Airspace, Boxxport, Freight Tiger, Waresix
container prices giving a wrong representation of the and Optimiz, are providing an all-round transparency
total cost when deciding on a carrier. for their customers. Airspace, in an interactive session,
stated how transparency and speed met critical shipping
The shipping industry sees digitalization as a significant requirements for clients combating the pandemic. This
support system, but it should know that digitalization, should make other sectors in the shipping ecosystem
aware that customers are in for transparency and they
should not be denied as they hold businesses together.

Transparency and data accuracy can help the shipping

industry to proactively and efficiently manage disruption
in its supply chain. Finding a balance to effective and
financial-wise results is important to every business.
Additionally, access to the right data makes results
measurable and equips customers with the right
decision, which in the end benefits businesses. Building
a trustworthy relationship not only strengthens one
side of the business but also builds trust for the entire
ecosystem of the business.

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 Milestone 5: The power
of ESG (environmental,
social and governance)
In January 2004, the former UN Secretary General, Dr. covered by ESG. Basically, anything that will affect the
Kofi Annan scripted down an invitation to more than impact a business has on the environment. ESG do not
50 CEOs in prominent financial institutions regarding a necessarily apply to some specific companies, hence,
mutual initiative under the auspices of the UN Global these are applicable in all businesses and companies.
Compact with the International Finance Corporation (IFC)
supporting it. Afterward, the story of ESG commenced. There are a number of ranking reports that investors
A year after this initiative came about ‘Who Cares use as a tool to decide on which business to invest
Wins’, a report that had Ivo Knoepfel as the author. in, however, these reports might miss most relevant
The report delivered the information that incorporating businesses that might not have made it to the list. To
environmental, social and governance breeds sustainable be on a safer side, basing an investment decision on
markets, makes business sense and delivers better just one’s conscience is not enough. The ESG rating is
results for societies. Simultaneously, UNEP/Fi created the best tool to help investors make smart decisions
a report named the ‘Freshfield Report’, which was also to attain a market-beating profit since companies that
an evidence that the ESG concept is important for the perform high in ESG are likely to create a longer duration
evaluation of finances. of value, recognize talent and have a better financial
performance. ESG-based ranking system helps sieve
ESG investing, which is also collectively and popularly well-founded sustainable performers from the rest.22
known as the ‘sustainable investing’, are the three
relevant factors that are used when screening the ethical The ESG rating depends on the institution measuring
and sustainability effect of an investment in a company it. Different institutions come with different strategies,
or business.21 The factors of this term tackle a broader however, the most general one in examining the
range of issues that are not included in financial analysis, vulnerability to ESG risk and management metrics is
however, might have a financial relevance. ESG are by drawing an annual report, gathering stories from the
the three standards used by investors to measure the media, results from shareholders meetings, analytics on
behavior of businesses and determine their financial investments and data on executives. A numeric score of
performance in the future. Environmental concerns business’ financial risk is extracted from this data. The
such as labor practices, product safety, resource final score is a representative of ESG performance.
management, climate change, data security, etc. are

21 https://marketbusinessnews.com/financial-glossary/esg-definition-meaning/
22 https://www.alva-group.com/blog/what-are-esg-ratings/

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19 The Pathway to Green Shipping

In the environmental section of ESG, the shipping

industry’s headache is the emission of GHG, ability to
meet tight climate-related regulations, marine pollution,
ship recycling and climate risk 23, while the social section
looks at people, security of assets, diversity, equal
opportunity, health and safety, labor right and forced
labor in the industry.

Finally, in the governance field, tax transparency, anti-

corruption and political accountability are the problems
facing the shipping industry. Albeit ESG rating differs
from industry to industry, the most relevant ones in Lately, customers are interested in the operations
the shipping industry are corruption, sanctions, human of companies, their transparency, ethics and
rights, risk-related transactions and trading, recycling responsibilities. Companies take years to build their
practices, waste and emissions. While all these reputation, however, it takes minutes to defame it. The
are relevant problems in the shipping industry, this media is always on the lookout for negative information
publication focuses on the green deal. as it sells more, which makes it vital for companies to
integrate ESG in their business model.
The entire value chain of the shipping industry is facing
different ranges of ESG risks. Generally, the shipping Simply put, the focal point in assessing ESG in
industry often does not consider ship recycling as a the shipping industry will be on fleet emission and
vital part of the shipping value chain. Unsustainable ship energy efficiency because banks’ lending to maritime
recycling is having a negative effect on the shipping companies are already using KYC (know your client)
industry because these practices have a larger risk to check in tracking the processes of their clients. In
both the environment and the health of human at large. instances where there are weak or no ESG regulations,
Even though most companies do not acknowledge the least regulation regarding that aspect, for example,
the fact that it is an integral part of which all the value sanctions and anti-money laundering are specifically
chains in the industry are responsible for, some are explained. Failure to do so might result in serious
paving the way by developing and implementing policies ramifications for the sponsoring bank. Along with how
for a smooth and successful recycling of vessels. In relevant ESG is to the stakeholders, the question of how
conducting ESG risk assessment in a shipping company, its integration in companies can pay off is essential. Is
its recycling practices, policies and transparency must be ESG enough to tackle the sustainability goals?
closely examined to ensure that it is backed by the EU
Sustainability across all sectors of businesses has
regulations on recycling or the Hong Kong Convention at
recently been a talking point. Is it just a ‘talk more, do
the minimum.24 Additionally, it must entail instructions
less’ topic or these ideas will come to light? If this is a
on reporting and further details.
realistic discussion, what is shipping doing to be less
Funding by banks and investors are key for the shipping harmful to the environment? Are they paying for their
industry. Therefore, it is important for companies carbon emission like other sectors? Is IMO doing enough
to integrate ESG into their business model because to handle shipping’s emission? Are regulators such as EU
investors use this as a yardstick in selecting which over pushing? Are civilians overacting to climate change?
business to invest in. Firms that perform higher in ESG
Even though there are a lot of innovative ideas
probably have a better retention in talent, create longer-
suggested by various institutions on how IMO can attain
term value and have a better financial performance. A
its 2050 carbon reduction goal, the shipping industry
survey conducted by BNP Paribas indicated that the
has not laid a specific tunnel to see the brighter light at
participants of the survey who put more than one fourth
the end of it. Some suggest research and development
of their funds in ESG escalated from 48% in 2017 to
(R&D) as the best way to start. Others also think
75% in 2019.25
imposing carbon levies, using wind-powered ships, just
to mention a few, are also a way forward as read earlier.
These are all great ideas but some of these are long-
term plans. What is the interim solution?

23 https://static1.squarespace.com/static/59f0a1d780bd5ece4761c6ae/t/5cf6688ea62fc600015b55e8/1559652530403/TheGovGroup+ESG+Ocean+report+spreads_
spine.pdf
24 https://static1.squarespace.com/static/59f0a1d780bd5ece4761c6ae/t/5cf6688ea62fc600015b55e8/1559652530403/TheGovGroup+ESG+Ocean+report+spreads_
spine.pdf
25 https://assets.kpmg/content/dam/kpmg/cn/pdf/en/2020/01/integrating-esg-into-your-business.pdf

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 The Pathway to Green Shipping 20

Milestone 6:
Carbon pricing
What may be the best short-term plan before the forced the EU to halt the transfer of its carbon units.
implementation of a long-term plan? One of the best VAT fraud and re-sale of used carbon credits are other
possible way to an immediate solution is for IMO to challenges that the EU ETS encountered. Of course,
initiate carbon levies. Will an emissions trading system the Czech Republic opposed to the claim that it did not
(ETS), a carbon tax or the hybrid of these two methods initiate the theft of allowances. It went further to explain
be the best option? The answer to this would not be how the Czech registry headquarters was evacuated for
easy, but we believe IMO has enough resources to three hours and shifted the blame to that time period.
throw light on this. Tax evasion will be the parallel concern with carbon tax.
Comparing the two concerns, cybertheft is riskier than
ETS and carbon tax both are types of carbon pricing tax evasion and this is another reason why carbon tax
but the success rate of carbon tax integration into the is the best solution for global integration in shipping.
maritime sector is high. While they both put a price on ETS permits its users to trade allowances among
carbon, generate revenue and are cost effective, a hybrid themselves, which can result in extra transactional costs
system would be complicated. Looking at how both that the shipping industry might not be ready to incur
operate and their implementation and differences, carbon looking at the numerous changes in the industry right
tax comes across as a suitable option for the shipping now. These reasons make carbon tax a viable option for
industry. Since carbon tax uses well-established channels global implementation.
of tax system and does not require new infrastructure
such as the cap and trade do for its trading allowance, its Figure 7 shows the locations that have implemented the
global implementation by IMO will be easier. two types of carbon pricing.

Under the cap and trade system, short-term price

volatility can easily be removed due to the tax
approach.26 This can be a barrier for capital investment
and hinder political support for climate policy and dispirit
investment for research and development and new
technologies to mitigate emission. It is reasonable to
permit emission to vary yearly than to make it static for
a longer period. With ETS, this flexibility needs to be
built through borrowing of allowances or bank loan, but
it happens automatically for carbon tax. Additionally,
carbon tax can apply actions to automatically adjust
to meet a targeted quantity. In 2011, there was an
emission allowance theft case in Czech Republic and
a cyberattack in the EU ETS registry system. It was
reported that 475,500 allowances were stolen, which

26 https://seors.unfccc.int/applications/seors/attachments/get_attachment?code=TJQGYTI096K3J33ANM1HDWYEU51VRXNC

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21 The Pathway to Green Shipping

Figure 7: Locations that are currently using carbon pricing

ETS only* ETS and Carbon tax Carbon tax only**

California Chinese EU ETS Kazakhstan Switzerland EU ETS Argentina British Canada** Chile
Pilots X 17 X 14 Columbia

Korea New Québec Germany* Tokya Saitama Colombia Japan Singapore South
Zealand Africa

Nova RGGI Massachusetts Mexico Ukraine

Scotia

* As of 2021
** Canadian Federal ‘backstop’ measure applied to provinces not already implementing carbon pricing. As of October 2020 this includes Alberta, Manitoba,
New Brunswick, Northwest Territories, Nunavut, Ontario, Prince Edward Island, Saskatchewan, Yukon

Source: https://icapcarbonaction.com/es/?option=com_attach&task=download&id=715

1. Evolution of EU ETS In 1995, an Environmental Defense Fund employee

named C. Boyden Gray worked together with the
The most recent hot topic of discussion is EU’s idea of Environmental Protection Agency (EPA) to come up with
introducing ETS into the shipping industry as it believes a bill that later became a law of the Clean Air Act of 1990
that the shipping industry is being excluded from a lot of in the United States. That was the first time the cap and
taxes compared to other sectors (e.g. untaxed bunkers trade system was launched. The aim of the bill was to
for vessels). reduce acid rain. Later, it was reported by Smithsonian
magazine that acid rain emission was reduced to 3
Carbon pricing has been existing since 2005 but is million tons that year. In 2005, the EU adopted this
now spreading its wings across the world — among idea of the US as a strategy to reduce emission of
industries and countries due to states’ and institutions’ greenhouse gases at a lower cost. Even though it was
goal to reduce carbon emission in the near future. It is adopted, it remains a vital pillar of the EU energy policy.
a tool that records the external costs of GHG emissions The EU ETS remains the largest GHG trading scheme
for damages, such as loss of buildings and infrastructure that operates not only in the EU but also in Iceland,UK
from flooding, diseases from heat waves and droughts, Liechtenstein and Norway. Currently, many countries (all
and vegetation damage, tied to their sources through a 27 countries in the EU, Norway, Liechtenstein, Iceland,
price, i.e. a price from the emission of carbon dioxide.27 China, UK) and companies have adopted this scheme
It comes in different types, such as ETS, carbon tax, with the aim of reducing climate change wherein carbon
offset mechanism, results-based climate financing is the main cause.
(RBCF) and internal carbon pricing, with ETS and carbon
tax being the most discussed. Different institutions In 1997, the third session of the UNFCC adopted the
such as DGB Financial Group are bringing out logical and Kyoto Protocol at the Conference of Parties in Kyoto,
feasible tools to help price carbon emission.28 Japan. The objective of this convention was to make
industrialized nations and economies transform and

27 https://carbonpricingdashboard.worldbank.org/what-carbon-pricing
28 https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/004/918/original/CDP_India_Second_
Handbook_on_ICP.pdf?1580233115

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 The Pathway to Green Shipping 22

decrease the emission of GHGs in accordance with adipic and glyoxylic acid and glyoxal and perfluorocarbon
the agreed individual targets. Kyoto Protocol simply from the production of aluminum. Finally, the third phase
asks industrialized nations and economies to adopt set aside 300 million allowances in the New Entrants
policies and actions to help mitigate climate change and Reserve (NER) to sponsor the distribution of innovative,
report periodically. The European Commission adopted carbon capture and storage through the NER 300
this convention in 2003 and launched it in 2005 after program and renewable energy.
presenting a green paper with ideas on how to design
the EU ETS. Since its launch, the EU ETS has evolved The new phase, which is the fourth phase, started this
and undergone four stages. year (2021) and ends in 2030. This phase aims at helping
industries and the power sector to solve innovation
It was all learning by doing in the first phase, which and investment problems of the low-carbon movement
commenced in 2005 and ended in 2007. The EU through various low-carbon funding strategies. Another
decided to make ETS properly to help meet the Kyoto bedrock of this phase is to strengthen the EU ETS as
Protocol target. The first phase aimed at covering only an investment driver by escalating the rate of its annual
carbon emission from power generators and energy- reduction in allowances to 2.2% as of 2021. Additionally,
intensive industries and giving most of the allowances to it seeks to reinforce the EU’s mechanism established
businesses for free. Failure to comply with the scheme in 2015 to limit the excess of emission allowances in
resulted in a 40 euro per ton penalty. At the end of the the carbon market in order to improve the EU ETS’s
first phase, the EU ETS had successfully established a resilience to future disruptions.
price for carbon, free-trade emission allowance through
the EU and an infrastructure to monitor, report and verify The EU ETS operates on a cap and trade system. It
the emission from various businesses. allows its users to trade emission units to reach their
emission targets and is being debated on to include
The first commitment period of the Kyoto Protocol the maritime sector in the EU to help steer the industry
corresponded with the second phase of the EU ETS, toward a greener environment. The scheme is engulfed
which stated that the countries under the EU ETS by a cap that is set on an amount of specific greenhouse
had a solid emission reduction target to meet. This gases that can be emitted. Companies and businesses
phase featured the bottommost cap on allowances get or purchase emission allowances that are traded,
(around 6.5% lower than the first phase), and included as needed, among themselves. Contrary to this, they
other states (Iceland, Liechtenstein and Norway) and can also get a finite size of foreign credits out of the
the aviation sector. Additionally, another greenhouse emission-saving projects globally. Companies are
gas (nitrous oxide) emission was introduced and the required to turn over enough allowances to shield all the
proportion of free allocation decreased to almost 90% emissions they use annually; else huge fines are inflicted
with an increased penalty fee of 100 euro per ton. on them. On the brighter side, the excess allowances
Finally, the second phase permitted businesses to that are idle to a company can be stored for future needs
purchase international credits amounting to 1.4 billion or sold to another company. Allocation of allowances of
tons of CO2 equivalent. This shows how the phases of the EU ETS is done on two bases, i.e. auctioning and
the EU ETS kept developing. allocation. The European Commission estimated that
57% of the total allowance were auctioned between
In the third phase, the scheme underscored the single 2013 and 2020.29
wide cap for the EU on emission applied in place of
the previous system of the national cap, auctioning of
the automatic method for assigning allowances and
harmonized allocation of rules applied to free allowances.
It also featured the inclusion of more sectors and gases,
such as carbon dioxide from power and heat generation,
energy-intensive sectors such as oil refineries and steel
industry, nitrous oxide from the production of nitric,

29 https://ec.europa.eu/clima/policies/ets/allowances_en

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23 The Pathway to Green Shipping

During the third phase after the trial, and second phase, global aviation sector, enough time to implement the
where data was absent, auctioning became the default measure globally. When the proposal was initially made
method of allocating emission allowance. Auctioning to integrate aviation into the EU ETS, there was an
allows businesses to purchase an increasing proportion international resistance from some airline associations
of allowances. The goal of auctioning is to ensure through their countries opposing the scheme.
that transparency, harmony and non-discrimination is
attained. Businesses in the EU that generate power are In 2009, US carriers, through Airlines for America, sued
required to purchase all their allowances at auctions. the EU for its integration of ETS into the aviation sector.
According to the EU, auctioning is the most transparent This was on the basis that the EU ETS in aviation was
method to allocate resources and allows polluters to be illegal under the international law. The US carriers lost
responsible. Auctioning is done on different platforms, the case in 2011 as the European court ruled in favor of
such as the common platform, EEX platform, and the the EU, stating that the coalition is in accordance with
United Kingdom platform; WebICE. In the aviation the international law. Following this development, the
sector, which was recently introduced in the EU US passed a law (the Thune Bill) prohibiting US carriers
ETS, only 15% of the total allowance allocation were from complying with the EU ETS when operating in
auctioned.30 So far, among the included sectors in the Europe. The bill is currently valid but not yet activated.
EU ETS, only the power generation sector (electricity The unwillingness of some nations to agree to the
generation/power plant companies) purchases all their EU ETS prompted other first and third world nations
allowance without any free allocation. to also oppose it. For instance, one nation wanted to
withdraw from buying aircraft from the biggest aircraft
Besides the power generation sector, free but manufacturer in Europe even after making a non-
diminishing allocation is given to the integrated sector. refundable down payment due to EU ETS. After the
As of 2020, 43% of the allowance were allocated for European aircraft manufacturer raised its concern to
free. Power generation businesses located in Bulgaria, the government heads in Berlin, London and Paris, the
Cyprus, the Czech Republic, Estonia, Hungry, Lithuania, European Commission waived its independent right
Poland and Romania under Article 10c of the EU ETS toward all airlines’ integration into the EU ETS, which
Directive were required to give a diminishing number of led to the proposal of ‘stop the clock’ on aviation ETS in
free allowances to existing power plants until 2019. In November 2012. The ‘stop the clock’ law on the aviation
the fourth phase of the EU ETS, only Bulgaria, Hungary ETS applies to only airlines operating in the European
and Romania are required to still use the free allocation Economic Area (EEA) airports. In 2013, despite the
under the same article. As of 2020, the manufacturing resistance from other countries and airline associations,
sector received 30% of the free allocation while the aviation ETS included all intra flights in the EU. As a
aviation sector received 82% of the free allocation.31 result, all flights leaving and arriving in the EU are to
submit a report on their emission during their operation
1.1 A case of how the EU ETS prompted annually. In their response, countries like China, India,
the integration of the offsetting scheme Russia and Saudi Arabia prohibited its airlines from
into the global aviation sector complying with it.
The aviation industry accounts for a significant Four years after the EU’s implementation (2016),
proportion of CO2 emission. As of 2019, this industry the ICAO came to an agreement on a solution for
produced 915 million tons of CO2 globally. Despite its global measurement to handle the carbon emission
rising levels of emission, aviation was excluded from in international aviation starting from 2021. The
the Paris Agreement and the Kyoto Protocol. This raised measurement sets out the goal and vital design
questions why it was not integrated in the EU ETS. In elements of a global scheme, which also serves
2012, the EU integrated ETS into the aviation industry as a plan for the execution of work on carrying-out
at the end of the second phase of the scheme. This modalities.32 The Carbon Offsetting and Reduction
regulation applies to all flights operating in the EU. Scheme for International Aviation (CORSIA), which is
The EU ETS initiative was implemented in the aviation based on a Global Market-based Measure (GMBM)
sector to give the ICAO, a UN body that regulates the system, aims to reduce carbon emissions by asking

30 https://ec.europa.eu/clima/policies/ets/auctioning_en
31 https://ec.europa.eu/clima/policies/ets/allowances_en
32 https://ec.europa.eu/clima/policies/transport/aviation_en#:~:text=In%20October%202016%2C%20the%20International,international%20aviation%20as%20of%20
2021.

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 The Pathway to Green Shipping 24

airlines to offset their emission from 2021. Airlines to offsetting and MRV. Non-participating states (State C
are required to monitor their emissions on every or D) are not subject to offsetting but they still need to
international route and offset the emission on routes be monitored, reported and verified. Domestic air flights,
included in the scheme — by buying permitted units of humanitarian aircrafts, firefighting operations, rotor craft,
emission produced by projects that reduce emission in medical and smaller aircrafts are excluded from CORSIA.
other sectors like renewable energy. For compliance, Figure 8 and 9 show the differences of how the EU
the airlines are required to have tradable certificates ETS and CORSIA operate. The scheme contributes to
or permits allowing them the right to emit one ton of the goal of the Paris Agreement and operates in three
CO2 or carbon credits. The carbon credits will likely phases. The pilot phase runs from 2021 to 2023, while
come from programs or projects that are required to the phase one and two will run from 2024 to 2026 and
reduce emission, or from reduction mechanisms like 2027 to 2035, respectively. The pilot and phase one
UNFCC’s Clean Development Mechanism. Though are voluntary for all countries; however, CORSIA will be
this is considered a global measure, it only applies to mandatory for all international airlines from 2027. As of
international airlines that fall under ICAO as they are only September 2020, 88 states (see Table 3) out of ICAO’s
responsible for international air flights. As seen in Figure 193 member states have agreed to voluntarily participate
9, participating countries moving from their state (State in the scheme; however, big states like China, India,
A) to another participating country (State B) are subject Brazil and Russia are still resistant to it.

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25 The Pathway to Green Shipping

Figure 8: Illustrates how the EU ETS for Aviation works while Figure 9 describes how
CORSIA works together with its phases

EU ETS for...
Aviation Stationary sources
Air transport CO2 emissions
(Geographical Scope
Compliance at
carrier level Other ETS sectors*
Not subject to Subject to
EU ETS EU ETS

Tradeable allowances
Emission to be purchased from
Non- Not
EEA surplus other sectors
EEA covered
Central European
15% auctioning electric power exchange
3% special reserve
Not Not Covered
95% of
covered covered (incl. domestic)
average
emissions
2004-2006 82% free allocation
(”Cap”) accordig to
Non- Not
EEA benchmark
EEA covered

*Energy activity (combustion

Fully outside EU ETS scope installations with rated thermal
input > 20 MW, mineral oil
Governmental & military flights; Search and rescue, firefighting and humanitarian flights; refineries, coke ovens), Production
VFR flights; circuit flights; Training flights; Scientific research flights; Flights of aircraft and processing of ferrous metals,
with a MTOM below 5,700 kg; PSO routes within outermost regions or where the Mineral industry (cement clinker,
capacity offered does not exceed 30,000 seats per year; small operators (<243 flights / glass and ceramic bricks) and
<10,000 tons of CO2 p.a. pupl, paper and board activities.

Scope of EU ETS: international and national aviation in the EEA, e.g. flights from Berlin to Paris or Berlin to Munich

Participating in CORSIA Within Fully outside

Not participating in CORSIA CORSIA-Scope CORSIA-Scope

STATE STATE
Offetting +MRV
A B

Emissions from...
MRV only MRV only MRV only
Country level

...domestic flights*
STATE STATE
MRV only
C D
...small operators (<10,000 t
Pilot Phase Phase 1 Phase 2 CO2 p.a.)
(2021-2023) (2024-2026) (2027-2035)
Voluntary participation of some Mandatory participation of all states
80 states representing almost 77% whose carriers account for >0.5% of ...small aircraft (<5.7 t MTOM)
of Int’l RTK* Global RTK in 2018

= x
Offsetting ’ individual
Operator's ...medical, humanitarian, and
requirement emissions on Growth factor firefighting operations
@ carrier level covered routes
Carrier level

Growth factor Min 20% individual Min 70% individual ...military and Governmental
CO2 emissions operations*
growth on
CORSIA-routes 100% sectoral
Min 80% sectoral Min 30% sectoral
between
2019/2020 baseline *Outside scope of Chicago
and reporting year Convention
2021 - 2029 2030 - 2032 2033 - 2035
References: Assembly Resolution A39-3, Paragraphs 10/11/13; ICAO CORSIA website
(”CORSIA States for Chapter 3 State Pairs”) | *Participating states as of 6 May, 2019
Scope of CORSIA: international aviation between participating states, e.g. flights from Berlin to NYC or from Berlin to Paris

Source: https://www.mdpi.com/2071-1050/11/20/5703/htm

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 The Pathway to Green Shipping 26

Table 3: Voluntary Participants in CORSIA Offsetting Scheme from January 2021

Afghanistan El Salvador Kenya Republic of Korea

Albania Equatorial Guinea Latvia Republic of Moldova

Armenia Estonia Lithuania Romania

Australia Finland Luxembourg Rwanda

Austria France Madagascar San Marino

Azerbaijan Gabon Malaysia Saudi Arabia

Belgium Georgia Malta Serbia

Benin Germany Marshall Islands Singapore

Bosnia and Herzegovina Ghana Mexico Slovakia

Botswana Greece Monaco Slovenia

Bulgaria Guatemala Montenegro Spain

Burkina Faso Guyana Namibia Sweden

Cameroon Honduras Netherlands Switzerland

Canada Hungary New Zealand Thailand

Costa Rica Iceland Nigeria Turkey

Côte d’Ivoire Indonesia North Macedonia Uganda

Croatia Ireland Norway Ukraine

Cyprus Israel Papua New Guinea United Arab Emirates

Czechia Italy Philippines United Kingdom

Democratic Republic of the Jamaica Poland United Republic of Tanzania

Congo

Denmark Japan Portugal United States

Dominican Republic Kazakhstan Qatar Zambia

Source: https://www.icao.int/environmental-protection/CORSIA/Documents/CORSIA_States_for_Chapter3_State_Pairs_Jul2020.pdf (

CORSIA does not automatically replace the EU ETS in An assessment of the EU ETS in the aviation sector
aviation but rather complements it. This means some indicates that though the free allowance allocation
airlines, starting January 2021 will be subject to both keeps decreasing, airlines should be able to handle it.
the EU ETS and CORSIA. Is this fair for these airlines Also, since the EU has integrated ETS into its emission
operating in the EU? reduction strategy, it will be difficult to eliminate the
initiative; however, international flights (not the airlines)
Albeit differences in the EU ETS and CORSIA, the operating in the EEA could be excluded, subjecting them
similarities make it look like ICAO built its scheme based to only CORSIA.
on the EU ETS. This raises the question how the EU
can influence IMO’s decision by setting an example in
including the shipping sector into the EU ETS. Is this
possible? Will all states agree to it?

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27 The Pathway to Green Shipping

1.2 Merits and demerits of EU ETS being Reporting & Verification (EU MRV) system for vessels,
integrated in the shipping industry both in the EU and internationally, can be used and not
just in the regional space as the cap set by the EU for
Though a thorough proposal on how shipping emission emitters can be revised to see the achievement of the
will be included has not yet been established, the EU’s policy goal. Additionally, CO2 emission will economically
proposal of including the maritime sector in ETS is a decrease and possibly trading will be permitted with
slice of a bigger pie on a global scale. However, there different carbon markets due to the price determination
are other regulators, e.g. the UNFCCC, across the globe of carbon by the market and will have the potential
that are also adopting to address shipping emission. This to restore the uptake of alternative fuels and other
is making it difficult for the shipping industry to agree to innovative technologies to aid emitters in accomplishing
the EU’s proposal on the basis that shipping is a global their needed carbon emission limits. These, among
system and should not be skewed by regional regimes. others, are some of the brighter features of EU’s idea
The industry is in favor of IMO’s strategy and is looking of integrating ETS into the shipping sector. However,
forward to its revision in 2023. IMO’s revision in 2023 maritime EU ETS can lead to a dispute between some
should be clearer to help stakeholders in the shipping first-class nations, which can potentially result in
industry know where they are steering their ‘greener extended trade conflicts. The shipping industry argues
decisions’ toward. The aim of the EU ETS in the maritime that this application, which has already been implanted
sector is to yield returns that will be reinvested in research in local aviation in the EU, has not made any reduction
innovations to help develop better alternative climate- in emission and wonders how effective it will be in the
neutral inventions for the industry. The goal sounds maritime sector. Moreover, it opens risk and undermines
good but is it fair for shipping industries operating in the most of the regulations of IMO, which is the official
European community? Does it not look like if the EU is body governing the maritime industry. The EU ETS in the
successful, these shipping lines operating in Europe will shipping industry can lead to distortion due to increasing
incur most of the cost in driving the industry toward a leakage of carbon and calls for uncertainty of carbon
greener environment? Is this not supposed to be global emission prices due to factors of demand and supply.
regulation since shipping is a global entity? Finally, accurate data is difficult to obtain, which will
make ETS in shipping a bigger problem, at least for the
There are always two sides to a coin, and integrating start. During the first phase of the EU ETS, the prices
the EU ETS in shipping is no exception. In favor of of allowances fell to zero due to the absence of reliable
this regulation is an argument that since the EU has data. How will the EU approach this data problem? Will
successfully been able to set up many successful and it adopt a ‘learning by doing’ approach in the EU ETS
track record implementations for issuing carbon permits pilot phase as well? Table 4 summarizes the merits and
and platforms for trading, it will be able to make this demerits of the EU ETS in the maritime sector.
work. The existing implementation of EU’s Monitoring,

Table 4: Summary of merits and demerits of the EU ETS in the maritime sector

Merits Demerits

The existing implementation of EU’s Monitoring, It can lead to a dispute between first and some third
Reporting & Verification (EU MRV) system for vessels, world nations, which can potentially result in a trade
both in the EU and internationally, can be used. conflict.

The EU ETS has already set up many successful and track The shipping industry argues that this application, which
record implementations for issuing carbon permits and has been implanted in local aviation in the EU, has not
platforms for trading. made any reduction in emission. This raises the question
of how effective it will be in the maritime sector.

A cap set by the EU for emitters can be revised to see the It opens risk and undermines most of the IMO
achievement of the policy goal. regulations.

The EU ETS has the potential of restoring the uptake of It calls for uncertainty of carbon emission prices due to
alternative fuels and other innovative technologies to aid factors of demand and supply.
emitters in accomplishing their needed carbon emission limits.

CO2 emission will economically decrease and possibly The EU ETS in the shipping industry can lead to distortion
trading will be permitted with different carbon markets due to increasing leakage of carbon.
due to the price determination of carbon by the market.

The absence of reliable emission data can lead to decrease

in prices of allowances and competition disadvantages.

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 The Pathway to Green Shipping 28

1.3 How can ETS in shipping be calculated? EU has a good idea and it is right in saying that the
shipping industry needs to pay for its emission. How
The EU wants the maritime industry to be forceful into does it now plan to execute this idea? Even though
steering their industry towards sustainability. That is why reduction of CO2 emission is highly discussed these
for the exclusion of vessels weighing less than 5,000 days, are the relevant authorities not in a haste to make
gross tons loading and unloading at any EU member an implementation that will only affect a small proportion
state should be monitored and reported. Monitoring, of companies that operate on a global scale? For a fair
Reporting & Verification (MRV) is so far the proposed global treatment, the EU can join forces with other
tool that will be used to measure carbon emission in the continents or states to push IMO into implementing
EU territory in case it succeeds in integrating ETS into a price on carbon emitted by vessels. We suggest
the shipping sector. the best way to curb this problem is if IMO can work
together with governments of nations to impose a
Annually, shipping lines need to submit an emission
carbon tax in the shipping sector.
report to a recognized MRV shipping verifier. The data
of monitoring their vessels’ carbon emissions, fuel 1.4 Implementation of a carbon tax
consumptions and other activities such as distances
covered by the vessels, cargos carried per voyage Although the EU ETS has been in existence since 2005
and time at the sea are to be collected in an emission and has been successful, carbon tax has also been
report. The emission report will then be submitted to there since 1990 as a type of carbon pricing to help
the European Commission and the flag state (where the minimize the output of GHGs and carbon dioxide into the
vessels are registered). Thereafter, each vessel calling at atmosphere.34 In response to climate change, Finland
any EU port would have to come along with a document was the first to implement carbon tax in January 1990. 35
of compliance issued by THETIS MRV and it may be Its idea relied on the carbon content of fossil fuels. In
called for inspection by the member state’s authorities. respect to the carbon tax, the government sets a tax rate
and emitters who fall under it (except those exempted)
There is no global regulation yet on how to integrate are bound to pay the set amount for every ton of CO2
carbon pricing into the shipping industry and IMO is they emit. When it was implemented in Finland, the
the only organization that can help make shipping pay wood and raw material industry was exempted while the
for its emission globally since it is the international natural gas sector had an affordable tax treatment. The
body governing the maritime sector. In March 2018, price at the start of its implementation was 1.12 euro
IMO adopted a data collection system (DCS)33, which per ton CO2, and gradually it increased as there were
is similar to EU’s MRV system to some extent. IMO’s consistent reforms in 1997, 2007 and 2011. In 1997, the
data collection system calls for large vessel owners to tax evolved into a combination of carbon tax and energy
participate in global shipping and report on their fuel tax with a price charge of 18.05 euro and 66.2 euro per
consumption to the flag state of the vessel. A yearly ton CO2, respectively. Due to its early implementation,
outline report to the MEPC is produced upon the the Finnish government has announced that Finland will
reporting of the data collected by the flag states. This be carbon neutral by 2035, which is earlier than IMO’s
has no correlation to the integration of carbon pricing into targeted year. Currently, countries such as Singapore,
the shipping industry. However, since it already has this Argentina, and Japan, to mention a few, have also
regulation in place, which is in accordance with EU’s way implemented a carbon tax with a price of $5, $10 and
of measuring ETS in the maritime sector, it is possible for $2.8 (JPY 289), respectively.
IMO to globally impose carbon pricing on shipping.
IMO can adopt different mechanisms to help steer
Though the shipping industry may see this as a huge shipping into a greener environment but the solutions do
cost inflicted on it, the industry should also know that it not rely only on IMO. It calls for the involvement of the
emits a lot of CO2, which pollutes the environment. IMO entire value chain of the shipping industry to help reach
needs to move fast on imposing a levy on this industry. the goal. In view of that, what are shipping lines doing to
Whichever way it may be, the shipping industry needs to help reach this goal? What have they done in the past?
pay for its emission before regulators take matters into What are their future plans as well toward carbon zero
their own hands. emission?

33 https://www.europarl.europa.eu/RegData/etudes/BRIE/2019/642224/EPRS_BRI(2019)642224_EN.pdf
34 https://www.investopedia.com/terms/c/carbon-dioxide-tax.asp#:~:text=The%20tax%20is%20designed%20to,the%20goal%20of%20environmental%20protection.
35 https://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/05/FINLAND.pdf

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 Milestone 6: Including
sustainability into the
business model of
shipping companies
Let us take a dive into the implementations of some and has been set up to work with specialized and inter-
shipping lines around the globe and where they are now. disciplinary people from around the world to develop
ideas on ways to achieve decarbonization, create chosen
Shipping lines around the globe are strategizing toward alternative decarbonization fuels and technologies.
emitting less CO2 or permanently cutting emission. Additionally, this decarbonization centre intends to help
Currently, some are retrofitting their vessels with in the creation of commercial, regulatory and financial
alternative technologies, testing zero-emission vessels paths to allow transformation.
or researching on better alternatives to contribute
toward the green shipping deal. Even though there are Earlier in this publication, it is mentioned that vessel
various technologies that most organizations believe recycling is a part that most shipping companies refuse
will help with decarbonization, some still believe that to integrate in their value chains, but Hapag-Lloyd has
there needs to be more research in order to get a good overlooked this additional cost and integrated it to attain
view on how to attain carbon zero emission. By 2030, a sustainable environment. In managing lower emission,
the goal of Maersk Line is to operate carbon-neutral it is taking measures that will increase the efficiency
vessels using fuel alternatives and other ship technology of its fleet. In doing so, it has converted some of its
in order to attain their carbon-zero emission goal by vessels into climate-friendly vessels by using LNG. In
2050. It is also looking to heavily invest into the solution addition, it is currently testing biofuels that have cooking
of decarbonization by improving technical and financial oil as an ingredient and reducing the consumption of
viability. In previous years, Maersk has invested heavily bunkers, which it believes limit its costs. Planting trees
in getting energy-efficient solutions through multiple to reduce GHGs, using less disposable paper on board
engineers. Recently, it partnered with other important and repairing instead of replacing are some of the few
industry stakeholders to set up a non-profit research measures the company has taken toward building a
center that will aid in the research of new fuel types and sustainable maritime environment.
technologies. The center is not limited in its operations

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 The Pathway to Green Shipping 30

Based on its previous implementation of technological New-build and retrofitting programs seem to be one
innovation, vessels operation improvement and of the vocal focus of MSC as well. Between 2015 and
mobilization, CMA CGM was able to reduce its carbon 2018, its new implementations resulted in a carbon
emission by a total of 6% in 2019. 36 Since 2008, it emission reduction of 13% per transport work.37 One of
reduced carbon emission by 48% per TEU-km. CMA its latest largest container ships contributes to energy
CGM’s voluntary target is to reduce the GHG by 50% efficiency with a bow design shape by limiting hull
by 2030. The target set by the IMO is to reduce GHG by resistance. To be able to adapt to future changes, in case
40% by 2030. It pledged in 2020 to be carbon neutral research and development conclude on zero fuel, the
by 2050. The company also launched new 23,000 vessel is equipped with a hybrid exhaust gas cleaning
(TEU) LNG-powered vessels in 2020 as a short-term, system.
economic-friendly technology. Contributing to carbon
neutrality, its goal is to include 10% alternative fuels Looking at the various shipping line goals toward carbon
by 2023 in its energy supplies. Together with Energy neutrality, retrofitting, research and development,
Observer, it seeks to tour around and experiment on the alternative fuels and zero emission vessels are common
first hydrogen-powered ship with the aim of developing among them.
energy solutions based on solar, tidal and wind power
and hydrogen.

36 https://www.cma-cgm.com/news/3143/the-cma-cgm-group-heads-towards-carbon-neutrality-by-2050
37 https://www.msc.com/lbr/news/2019-december/msc-confirms-long-standing-commitment-to-reducing

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 Summary
and outlook
The adoption of alternative fuels will likely be driven Almost all the hydrogen and fuel cell technologies at
by regulations from international bodies, fuel prices, present are highly dependent on public funding.
technological developments, availability of alternative
fuels and development of infrastructure. The pace of As usual, many ports are waiting for clarity from
development for the alternative fuels, such as biofuels governments or specialized agencies on policies and
from waste biomass and hydrogen from water using regulations on the alternative fuel types because the cost
renewable energy, must be accelerated. Maritime associated with the new infrastructure is huge. Industry
applications of renewable sources such as solar and stakeholders are still uncertain on which fuel tanks to
wind are developing, but it is unclear whether they are a invest in. Since there is no regulation or standards on
feasible solution for deep sea sailing. The energy sector is hydrogen by IMO, no shipping companies want to switch
not only seeking alternative solutions to lower emissions to hydrogen as an existing fleet. IMO needs to bring
but also meeting the rising demand for energy. certain policies promoting hydrogen when it revises
the initial GHG strategy in 2023. Hydrogen will likely
IMO’s sulphur cap regulation is a major change for the play a vital role in meeting the shipping sector’s targets.
global maritime industry. Many players in the industry Countries with abundant and cheaper renewable energy
recognize that LNG is the current fuel solution to leverage are likely to produce green hydrogen, which will be
the requirements imposed by new regulations. There transported far and wide.
has been a significant development in the deep-sea new
builds embracing LNG as an alternative fuel, considering The COVID-19 pandemic has a great impact on
that the infrastructure needed to support LNG is rapidly decarbonization of shipping. There has been suppression
growing. LNG will be the best short-term alternative for on investments for the research and development of new
larger ships with consistent routes that operate in the technologies. Shipyards are facing issues in newbuilding
major trade lanes, as well as for large cruise ships. or conversion projects due to unavailability of labor force
and disruption in supply materials. Maritime emissions
Hydrogen is competing with LNG and other alternative have reduced due to less trade and travel, but it may be
fuels for shipping as a zero-emission-fuel solution. a temporary effect. The policies and stimulus measures
Unlike other alternative fuels, hydrogen seems to be the drawn by governments and regulatory bodies to support
promising solution for the transportation industry including the global economy, which is severely affected by the
shipping. There is a significant push by regulators, ongoing pandemic, should lead toward more resilient
governments and operators in signing for investment in economy and future-proof suitability. Since the industry
hydrogen technologies. A number of tests and practical is facing a huge loss due to affected trade, governments
applications have taken place in heavy commercial must play an important role by incentivizing sustainable
vehicles and buses using fuel cells across the world; projects, accelerating the technology development of
hence, scaling up the technology to shipping will be much zero-carbon shipping and preparing ports and shipyards
easier, provided proper infrastructure. for future demand for zero emission.

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 The Pathway to Green Shipping 32

Investors need to invest in shipping companies whose We believe that IMO’s data collection system for vessels
business practices align with sustainability goals. The can be a starting point. IMO already has a policy where
effects of ESG are appreciated as it continues to grow in vessels report to it annually. Its data collection system is
businesses and filters out sustainable companies. ESG similar to EU’s MRV system, which the EU plans to use
should not be the sole responsibility of investors but also in measuring the EU ETS in shipping if it is successful
a responsibility of companies to know the environmental, in implementing it. MRV can also be a tool for IMO to
social and economic impact of their operations in order monitor emitters. Additionally, carbon levies seem to
to implement the required regulations in place. Since the be the most immediate effective remedy for shipping
maritime industry is a large capital-intensive sector, there emitters. They can be imposed on global shipping, which
is no difference in integrating ESG into this sector. It is many believe is the easiest way in making shipping
mentioned earlier that the shipping industry is exposed pay for its emission globally. Since most sectors in the
to different ESG risks and challenges ranging from the shipping industry are campaigning for sustainability,
construction stage of vessels, through its trading and embracing carbon levies will not be a stress, burden or
finally to the recycling stage. It is the duty of the shipping tough task for them.
industry to sustain the ocean since it covers 70% of the
earth’s surface and is the operator of this environment. To move forward, sustainable technologies should be
narrowed down to easily help the industry have a head
IMO has aided in the cover of most of the environmental start on how to retrofit and build sustainable vessels to
issues through legislation and regulations. Even meet its sustainable goals. Handling data sharing secrecy
though not all the environmental issues that shipping in the industry should be addressed to aid progression
has impacted are touched on, there is constant and across the maritime ecosystem. This will turn the data
annual improvement. The same argument cannot rich industry (shipping) into a data smart industry due
be made for the social aspect of ESG. The impact of to the technological developments that will arise from
shipping in the social aspect varies from sea to shore. data sharing. Moreover, the shipping industry needs to
Even though regulatory measures are already in place, rethink its business models and strategies. The traditional
further regulations and support are still needed. The method of working should transition to digital methods;
most complicated area for ESG implementation is the only then will there be great and innovative ideas leading
governance sector. The governance structure does to the growth of the industry. Since some believe that the
not promote culture transparency in the industry. It is idea of alternative fuels is far-fetched, investment should
important that shore-based protocols, procedures and be made in research and development in coming up with
policies serving corporate bodies are performed and the best alternative among these numerous suggestions
interpreted into procedures that can be conformed to on for sustainable shipping in the nearby future. Until a better
board and at shore. alternative to decarbonization is introduced, the shipping
industry should prepare itself to embrace carbon levies if
The aviation industry in the EU is already paying for its they are implemented.
emission, which triggered the ICAO to bill global aviation
since the start of 2021. It is essential and fair that the The succession to all these great ideas is not subjected
global shipping industry, which accounts for 2–3% of to just one sector of the entire industry. It calls for
the global emission, also pays for its emission. Shipping collaboration across the entire supply chain to lead the
will continue to contribute to climate change since it is industry into a sustainable, effective and efficient sector.
an integral part in connecting the world through trade,
unless measures are taken to eradicate or limit it. IMO The shipping industry is heading toward a digital and
is doing its best in implementing efficient and effective sustainable transformation. Business models within the
ways to make shipping environment-friendly; however, industry shall keep this into consideration. Besides, the
its strategies are not pushing enough. Therefore, the EU shipping industry needs to recognize the value of its data.
is taking matters into its own hands and discussing on Respective ambitious goals can only be achieved once the
integrating ETS into shipping. The mere proposal by the industry operates in a data smart environment.
EU should push IMO to take more actions into making
shipping environment-friendly, else other institutions or
continents/states will do their job for them.

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 Contact us
Monique Giese Dr. Steffen Wagner
Global Head, Shipping Global Head, Transport & Logistics
KPMG in Germany KPMG in Germany
E: moniquegiese@kpmg.com E: SteffenWagner@kpmg.com

Juliana Boatemaah
Consultant, Shipping
KPMG in Germany
E: jboatemaah@kpmg.com

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