Lookout on the I.M.O. Sailing Up the Clyde to Glasgow

The greening of shipping, as well as other transport modes, is a major theme for the first half of 2021, happily- stealing headlines from 2020’s steady diet of bad news.

Maritime carbon reductions have now gained mention in the White House’s late April virtual Climate Summit, with the Biden administration voicing support of “…global efforts to achieve net-zero GHG emissions no later than 2050,” whereby “…the United States is committing to work with countries in the International Maritime Organization (IMO) to adopt a goal of achieving zero emissions from international shipping by 2050 and to adopt ambitious measures that will place the sector on a pathway to achieve this goal.”

The precise implications for shipping of Biden’s stance are unclear. Ambition is one thing and does not always translate into future reality. However, at the United Nations’ climate confab- COP 26, coming up later this year in Glasgow, the U.S. is expected to take a leadership role; indeed, “climate change” is a signature issue for the Biden administration.

We don’t know precisely where the broader group will come out on the maritime front, butut it is important to remember that the IMO, in 2018, had tried to align its objectives with those of 2015’s COP 21- the Paris Accord on Climate Change.

In the IMO’s late 2018 “Initial Strategy” (where the alignment was discussed) paths were mentioned for carbon intensity, and actual GHG emissions, as follows: “…to reduce CO2 emissions per transport work (that’s the carbon intensity part), as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008”; and “that total annual GHG emissions from international shipping should be reduced by at least 50% by 2050 compared to 2008.”

Bottom line, the IMO’s targets in the “Initial Strategy”- with trajectories for the 2020’s, affirmed late last year at a virtual meeting of its Marine Environmental Protection Committee (MEPC 75), may need to be super-charged in the upcoming MEPC 76 meeting, set for June 2021. The idea is that MEPC 76 would produce energy efficiency and carbon intensity targets that would be adopted, two years hence, into international law – through inclusion in the International Convention for the Prevention of Pollution from Ships (MARPOL).

Getting the numbers down is a tall order, to say the least, one that gained some height last week, it would seem. Indeed, in the just released IMO Fourth Greenhouse Gas Study (2020), the data (derived from a rigorous analysis of the world merchant and fishing fleet’s AIS tracks) show that emissions of CO2, (but also smaller proportions of nitrous oxide, and methane all converted back to CO2 equivalent) were still on an upward trajectory during 2012 to 2018, rising from 977 million tons to 1,076 million tons – with 794 million and 940 million tons coming from deepsea shipping.

The news is not all bad. Carbon intensity, or “transport work,” measured by “AER” (Annual Efficiency Ratio, the milepost for ship finance’s “Poseidon Principles”) and “EEOI” (Energy Efficiency Operational Indicator, the numeraire of the commodity movers’ “Sea Cargo Charter”), saw big improvements. Carbon intensity reductions ranged between 20% and 32% (depending on the exact segment and metric) between 2008 (when there was little slow steaming) and 2018, with the rate of annual reductions now pegged at between 1% and 2%.

The IMO’s study, replete with numerous graphs and charts, is ponderous at times. It points to a high proportion of propulsion from Heavy Fuel Oil (HFO) in 2018, but notes a growing role for lower sulfur fossil fuels. Towards the conclusion of the Executive Summary, the authors note: “Applying all the potential mitigation measures selected to all newly built ships from 2025, CO2 emissions reduction in 2050 can achieve both the mid-term and long-term levels of ambition specified in the Initial IMO Strategy…”, as the recent upward spurt turns downward.

This is all well and good. However, over the past year, shipping has seen optimistic demand/supply outlooks based on the low order book; analysts point to uncertainties about future fuels and propulsion. With Glasgow on the horizon, one can only wonder whether the IMO targets will see further tightening, and how, exactly, “ambitions” induced by COP26 might drive the introduction of new de-carbonized fuels.

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