How the Oil-Guzzling Shipping Industry Is Trying to Clean Up

(Bloomberg) -- Shipping’s global regulator is pushing the industry that carries more than 80% of world trade to achieve net zero greenhouse-gas emissions by mid-century.

Getting there will mean transforming a sector that’s still almost exclusively powered by fossil fuels and accounts for about 3% of human-made carbon dioxide.

What’s the state of play?

While companies are ordering ships that can run on alternative fuels such as methanol, and dipping into emission-cutting technologies like wind and hull-cleaning robots, the overwhelming majority of the fleet is still burning lots of oil. Attacks by Yemen’s Houthi militants in the Red Sea area have forced carbon-spewing ships to take longer routes, adding millions of tons of pollution. Sanctions on Russia and drought in the Panama Canal have also pushed cargo-carriers to sail further.

Getting a clear picture on emissions from ships isn’t straightforward, partly because there are different ways of measuring them. The International Maritime Organization, the industry’s global regulator, put the sector’s overall carbon emissions in 2018 at more than a billion tons in its most recent greenhouse gas study. The United Nations agency also publishes figures based on fuel consumption.

What could replace oil?

The fuels that may replace today’s oil-based propellants must slash emissions, have enough power to propel gigantic vessels around the globe and be price-competitive. Here are the main candidates:

Methanol
- Pros:
  - Clean versions can dramatically cut emissions
  - Has already attracted significant investment from shipping companies including A.P. Moller-Maersk A/S
  - Is liquid at ambient temperature, helping make it relatively easy to store and handle
  - Clean versions can be made using agricultural and food waste (bio methanol) or by combining green hydrogen with CO2 (e-methanol)
- Cons:
  - Limited supply of clean versions
  - Less energy-dense than oil-derived fuel

Ammonia
- Pros
  - Doesn’t emit carbon dioxide — it contains no carbon
  - Can be made using green hydrogen and nitrogen from the atmosphere (e-ammonia)
  - Can also be made using natural gas (blue ammonia)
- Cons:
  - Potential nitrous oxide emissions, a potent greenhouse gas
  - Highly toxic for people and marine life

Biofuels
- Pros
  - Can substantially lower greenhouse gas emissions
  - Already produced and used in shipping
  - Relatively easy to store and transport
  - Can be used to power existing engines
- Cons:
  - Supply is a potential barrier, with competition from other sectors, including aviation

Liquefied Natural Gas
- Pros:
  - Well-known, generally available, lower carbon-emitting alternative to oil-based fuel
  - Some ships already run on LNG
  - There’s also the potential for lower CO2 emissions from so-called bio-LNG and e-LNG
  - See also: Maersk Changes Its Tune on LNG With Big Ship Order (1)
- Cons:
  - Still a fossil fuel and only cuts CO2 emissions by approximately 20% versus oil-based marine fuel
  - It causes emissions of methane, a super-pollutant

Nuclear
- Pros
  - Zero emissions
  - Requires much less frequent refueling
  - Some vessels already run on nuclear, including submarines
- Cons
  - Regulation needs updating
  - Negative public perceptions

How are regulators trying to drive decarbonization?

In July 2023, the IMO set a series of non-binding targets for cutting emissions. They’re a significant step forward from an earlier 2018 plan, but still fall short of clear alignment with the 2015 Paris Agreement goal of restricting global warming to 1.5 degrees Celsius above pre-industrial levels.

The IMO is working on new rules in pursuit of its emissions goals: a phased reduction in the GHG intensity of ship fuel, and the world’s first global, mandatory charge on GHG emissions, expected to come into force in 2027.

Meanwhile, shipping is now subject to the European Union’s Emissions Trading System, which requires payment for carbon emissions. Progress is also being made on Green shipping corridors — specific routes where zero-emission shipping is supported by the public and private sectors.

What else is the industry doing?

As of June, about half of ships on order — measured by gross tonnage — will be able to run on alternative fuels including LNG, according to ship-classification society DNV. Maersk is one of several shipping companies that have ordered methanol-capable vessels. The Global Maritime Forum, a not-for-profit, helped develop the Poseidon Principles, a framework for assessing the climate alignment of ship finance portfolios. In the most recent report, 29 out of 30 institutions fell short of the IMO’s emission cutting targets.

Big customers of the industry have started to use some of their clout: Last year, companies including Amazon and IKEA issued a tender for container shipping services using close to zero-emission fuels, which was won by Hapag-Lloyd. Trading giant Trafigura selected Daphne Technology’s emissions-measuring system for deployment on an LNG carrier, and Cargill has been experimenting with sails — so-called WindWings made from steel and composite glass. There’s also the possibility of fitting ships with carbon capture technology. At least one such system was installed on an Eastern Pacific Shipping tanker.

But the industry still has a long way to go: More than 90% of the world fleet runs on conventional fuel — which is almost all oil-based — when measured by gross tonnage, according to DNV.

What’s next for shipping?

The IMO will keep working on measures to cut emissions, with its Marine Environment Protection Committee gathering for a week of talks in London starting Sept. 30. Meanwhile, the EU’s FuelEU Maritime regulation, requiring emissions reductions relative to energy use, comes into force in 2025. The bloc’s ETS is also set to ratchet up and to eventually include methane and nitrous oxide. On the other side of the Atlantic, US senators last year introduced bills aimed at reducing pollution from shipping.