The Maritime Decarbonization Conundrum

Op-Ed By Rear Admiral Nadeau (US Coast Guard, Retired) Efforts to decarbonize the maritime industry are underway. The shipping industry has faced and overcome significant hurdles in the past. Just two years ago, we were on the cusp of “IMO 2020” and the implementation of the global fuel sulfur cap. Many were worried about the implications, and some predicted it would cause great turmoil. But in retrospect, and in comparison to the challenges we face today, IMO 2020 seems so easy. 

Where are we?

COP27 just ended.  Headlines highlighted the creation of a “loss and damage” fund, new green corridors, clean energy hubs, and other maritime initiatives, as well as the increasing scrutiny and skepticism about ‘greenwashed claims’ and ambitious plans that lack details.

Initial goals and targets have been set and the clock is ticking, but the global regulatory landscape is still evolving. The 79^th session of IMO MEPC will kick off on December 12^th and member states from all over the world will gather again to discuss levels of ambition for decarbonization, goals and targets to eliminate GHG emissions from shipping, life cycle analysis of alternative fuels and “well to wake” impacts versus “tank to wake” impacts, and additional measures to supplement CII and EEXIregulations, which kick in on 1 January 2023.  Meanwhile, the EU continues its independent efforts to implement maritime decarbonization measures in its “Fit for 55” package.

Unlike previous challenges, the maritime industry can’t solve this one on its own. There is no silver bullet.  There are some technical hurdles that still must be overcome, but engine manufacturers are confident they can develop combustion engines that run on LNG, methanol, ammonia, hydrogen, and other fuels. However, the availability of carbon-neutral ‘green’ fuels that have been sourced and produced in a sustainable fashion remains an immense challenge.

Given their compatibility with existing vessel equipment and port infrastructure, biofuels are an attractive option. But there is not a sufficient supply of sustainable biomass to produce enough biofuel to meet the global maritime demand, especially when competing with the aviation industry. Carbon capture and storage technology needed to permit sustainable use of existing fossil fuels remains quite expensive and energy intensive and may never be 100% effective. Production of clean-burning e-hydrogen and e-ammonia requires huge amounts of renewable electricity. In addition, e-methanol and e-LNG also require sustainable carbon from biogenic sources or direct air capture. 

Absent a miraculous breakthrough in chemistry or science, wide availability of carbon-neutral green fuels will require the wide availability of renewable energy produced from solar, wind, hydro, nuclear, or other sustainable sources. And they won’t be cheap. In addition, enormous investments in infrastructure are needed to accommodate the transition to new fuels. A recent study from DNV estimates that in order to decarbonize shipping by 2050 more than $100B may need to be invested in vessels and onshore infrastructure annually. Depending on the fuel pathway chosen, the total CAPEX could be over $2T.

Lastly and most importantly, though often overlooked or understated, the ability to safely handle some of these fuels on ships and in ports remains an area of great concern.

What do we know?

The regulations will change. IMO will continue to work on its agenda, but the pace of action may remain slower than most would like, and progress will probably be difficult. Any changes or revisions will likely be aimed at accelerating decarbonization while also ensuring it is a ‘fair and just’ transition that does not have ‘disproportionately negative impacts’ on the least-developed countries and small island developing states. Stakeholders remain committed and the demand for decarbonization will only intensify.

The U.S. strategy will change and evolve. As was recently announced by the U.S Department of State, DOE, DOT, EPA, and HUD will release a “transportation sector decarbonization blueprint” in early 2023 and then develop a “U.S. maritime decarbonization strategy” for the domestic maritime sector; however, we don’t yet know what this plan will contain or look like.

Global factors impacting the transition will change, but it is difficult to predict how. Russia’s invasion of Ukraine and the seismic shift in the energy markets and trading patterns demonstrate that we can’t rule out ‘black swan’ events, our assumptions are not always right, and our best plans could be derailed overnight. 

What don’t we know?

We don’t what will result from IMO’s efforts to revise the ambitions and strategy, develop mid and long-term measures, and incorporate the life cycle assessment and “well to wake” impacts of alternative fuels. 

We don’t know the timeline for achieving consensus and implementing any new mandatory requirements.  

We don’t know what impact global inflation and other contemporary events may have on decarbonization of the maritime sector. 

Lastly, we don’t know when renewable carbon-neutral fuels will be readily, reliably, and globally available for all commercial vessels. 

What should vessel owners, operators, charterers, and other industry stakeholders do now?

That all said, don’t despair. I’m an optimist and remain confident that we will all get through this. It won’t be as easy as reducing sulfur emissions and implementing IMO 2020, but we will successfully decarbonize the maritime industry. Here are some actions all stakeholders should consider taking at this time:

1. Focus on efficiency. Better efficiency will lower the energy intensity of vessel operations regardless of what fuel is used. Pursue effectivedesign measures to increase the efficiency of propulsion machinery, electrical machinery, and hull and propeller. Similarly, pursue operational measure such as optimum speeds and weather routing to reduce fuel consumption. “The greenest fuel is the fuel that you don’t use.”

2. Get involved. Engage others like never before. Watching from the sidelines is not a good option. We all need to be in the game and doing our part. Connect and network with industry peers, clients, customers, equipment suppliers, and service providers. Membership in the Blue Sky Maritime Coalition (www.bluesky-maritime.org/ ) and similar groups connect stakeholders across the entire value chain and provides a means for engagement. 

3. Collaborate. Within your industry segment, across segments, and across industries. Collaborate across the entire value chain and ecosystem of energy providers, fuel producers, bunker suppliers, ports, engine and fuel system manufacturers, vessel designers, shipyards, shippers, banks & financing, labor and seafarers, P&I clubs, regulators, and other stakeholder groups. Create and sustain an open, transparent dialogue that seeks to identify areas of mutual interest and benefit.

4. Develop a personalized compliance strategy. Every company’s decarbonization journey will be unique. The approach to decarbonization for a short-sea ferry operator will probably be much different than the strategy pursued by a company operating a fleet of tankships engaged in the spot market. Understand your risk profile, your threats, and your opportunities. Determine what a successful decarbonization transition looks like for you and your company.  Map out the problem, identify your key factors, your corporate ESG goals, your recapitalization plan, your major influencers, your enablers, and catalysts, and build a personalized strategic framework to help you determine when and how you will make critical decisions. 

5. Consult and connect with outside experts.  The challenge of decarbonization deserves the best possible analysis, planning, and preparation. Seek insight from consultants, advisors, and experts outside your organization. Get fresh ideas and perspectives. Have others challenge your thinking and assumptions to ensure your compliance strategy and decision framework are as robust as possible.  

6. Stay informed and adjust. Actively monitor the landscape and adjust and update your strategy and framework as new information becomes available, existing standards are revised, new regulations are promulgated, technology advances and matures, alternative fuel infrastructure is developed, and financing and incentives evolve. Use your compliance strategy to navigate the sea of change that continues to emerge and apply your decision framework to introduce structure and order in this chaotic and dynamic environment.

7. Know when to act and do so. These are challenging times for senior leaders faced with these critical decisions. Complete the preparation necessary to give you the confidence to act decisively. Not everyone can be a “first mover” or early adopter. At this time, it may be best for some companies to exercise ‘strategic patience’ and preserve their options and decision space. Though some may be best served by waiting until the viability of different potential solutions becomes clearer, all companies should remain prepared to capitalize on technological developments, partnerships, grants, tax incentives, and other options to offset any additional operational risk and cost associated with decarbonization. Don’t miss windows of opportunity to make significant advances on your personal decarbonization journey with relatively low risk.

John Nadeau ([email protected]) serves as a senior advisor and maritime consultant to owners and operators of commercial vessels, port facilities, and other maritime stakeholders. Recent areas of emphasis include decarbonization and alternative fuels, offshore wind and fossil fuel production, and corporate safety culture assessment. Before retiring from the U.S. Coast Guard in 2021 with 32 years of service, Rear Admiral Nadeau was the Commander of the USCG’s Eighth District, where he led 4,500 personnel and was responsible for all Coast Guard operations in a large region spanning 26 states that included the ports of Houston, New Orleans, Corpus Christi, Port Arthur and Mobile, and all waterways from the Florida panhandle to the U.S./Mexico border, the Gulf of Mexico and Outer Continental Shelf, and the Mississippi, Ohio, and other western rivers. He also served as the Coast Guard’s Assistant Commandant for Prevention Policy and the senior executive for Coast Guard regulations, policy, and programs to promote marine safety, maritime security, and environmental stewardship.

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