Tuesday, January 21, 2020

Decarbonisation of Shipping Industry Could Cost a Trillion Dollars

New Study Estimates Eye Popping Expense to Clean Up Trade
Shipping News Feature

WORLDWIDE – According to a new study by University Maritime Advisory Services (UMAS) and the Energy Transitions Commission for the Getting to Zero Coalition, estimates that the scale of investment needed to decarbonise the international shipping industry could potentially reach an eye-popping, headline-catching US$1 trillion.

The new study shows the biggest share of investment is needed in the land-based infrastructure and production facilities for low carbon fuels, which make up around 87% of the total. This includes investments in the production of low carbon fuels, and the land-based storage and bunkering infrastructure needed for their supply.

Only 13% of the investments needed are related to the ships themselves, which include the machinery and on board storage required for a ship to run on low carbon fuels in newbuilds and, in some cases, for retrofits. Ship-related investments also include investments in improving energy efficiency, which are estimated to grow due to the higher cost of low carbon fuels compared to traditional marine fuels.

This makes the challenge of decarbonising the shipping sector a whole system challenge and not something just for the maritime sector. Given the majority of investment is on land, any R&D fund needs to enable deployment and scaling of the land-side, and not just work on equipment for ships.

According to the report, the risk is that businesses will invest in a fleet of zero emission vessel with no decarbonisation of fuel production (e.g. producing ammonia using natural gas) and then shift the emissions upstream. This means every stakeholder, including governments, fuel producers and ship owners have a stake and a responsibility in shipping’s decarbonisation.

Depending on the production method, the cumulative investment needed between 2030 and 2050 to achieve the IMO target of reducing carbon emissions from shipping by at least 50% by 2050, is approximately $1-1.4 trillion, or on average between $50- 70 billion annually for 20 years.

This estimate should be seen in the context of annual global investments in energy, which in 2018 amounted to $1.85 trillion. If shipping was to fully decarbonise by 2050, this would require extra investments of approximately $400 billion over 20 years, making the total investments needed between $1.4-1.9 trillion.

The estimate of investments required is based on ammonia (NH3) being the primary zero carbon fuel choice adopted by the shipping industry as it moves towards zero carbon fuels. Under different assumptions, hydrogen, synthetic methanol, or other fuels may displace ammonia’s projected dominance, but the study says the magnitude of investments needed will not significantly change for these other fuels.

UMAS reached these figure using data derived from its shipping model GloTraM. The model simulates decisions from a ship owner’s perspective to identify the fuel, technology and operation combinations that maximise their profits and therefore identifies the likely pathways for the sector’s evolution under a combination of macroeconomic and policy drivers.

The model includes a detailed representation of the different ship types within the global fleet, and the production pathways, their capital and operating costs, for a range of potential low and zero carbon fuels. From this, the investment implications for fleet and land-side infrastructure of the model-identified likely pathway are then obtained. Dr Tristan Smith, Associate Professor at the UCL Energy Institute and one of the authors of the report, said:

“Energy infrastructure and ships are long-life capital-intensive assets that normally evolve slowly. In the next three decades however, our analysis suggests we will see a disruptive and rapid change to align to a new zero carbon system, with fossil fuel aligned assets becoming obsolete or needing significant modification.

”Even though regulatory drivers of this system change such as carbon pricing are only starting to be debated, the economic viability of today’s investments and even the returns on recent investments will be challenged, and the sooner this is factored in to strategies and plans, the better.”

Whilst there are signs that short sea shipping may well be able to shift to electrically powered vessels, as is already happening on some ferry routes, the lengthier ocean voyages by the huge container carriers and tankers currently have no similar system in sight, despite ambitious plans being discussed over a decade ago.

Photo: The tea clipper Cutty Sark showing how it’s done.