Shipping Sector Faces ‘Significant Decarbonization Challenges’: Few Alternative Fuel Options, High Costs

Large shipping vessel at port

(Credit: Unsplash)

by | Nov 29, 2023

According to a recent report from Sustainable Fitch, the maritime shipping industry is struggling to decarbonize as alternative fuel options are reportedly economically unviable and remain in early stages of development.

While many shipping companies have made net-zero commitments for 2050, the report expresses concerns over the lack of short-term decarbonization plans and suggests increased green bond issuance and policy incentives towards sector-wide emissions reductions.

Maritime transport, which accounts for about 2% to 3% of global emissions and covers around 80% of global trade volume, has faced rising pressures from companies looking to decarbonize their supply chains. The industry also faces risks associated with climate change-caused weather events, further increasing costs and requiring adaptation investments.

Compared to road, rail, and especially air shipping, maritime shipping is currently the least carbon-intensive shipping option. This may reportedly lead to companies increasing the use of maritime shipping as they switch away from the other, more carbon-intensive options in the near term. The report explains that shipping companies working to decarbonize may experience a competitive advantage as demand increases.

Despite its low comparative emissions, however, maritime shipping is still considered one of the most technologically difficult industries to decarbonize, according to the report.

The Global Maritime Forum estimates that $1 trillion to $1.9 trillion in investment will be required to ultimately decarbonize shipping.

Incentives May Accelerate Decarbonization as Shipping Companies Lag on Emissions Commitments

Alternative fuels, such as methanol, hydrogen, and ammonia, are considered the best option at present for decarbonizing the industry, but retrofitting ships to enable them to use such fuels along with the high price of fuels themselves makes companies reluctant to make the switch.

Some policies have been put into place that will penalize companies failing to meet emissions reductions, such as the new International Maritime Organization standards. The European Union is also establishing regulations that would include financial penalties for surpassing certain emissions limits. Specifically, shipping companies transporting fossil fuels will need to consider the long-term effects of transporting coal, oil, and natural gas as demand decreases and penalties target fossil fuel shipments, the report said.

Partially due to the high costs associated with alternative fuels, shipping companies have been slow to make short-term targets towards net zero goals. The report explains that shipping companies have also been slow to issue green bonds that could finance emissions reductions toward these goals.

Increased issuance of green bonds, transition bonds, or sustainability-linked bonds may help address the high costs associated with emissions reductions. Including shipping in green taxonomies and frameworks, such as the EU Taxonomy for Sustainable Activities, may also encourage maritime shipping decarbonization.

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