Analysis: Maritime insetting needs stronger fuel criteria to spur decarbonization

Voluntary insetting schemes in the maritime industry could play a pivotal role in facilitating shipping’s decarbonization during the critical pre-regulatory period, so long as they incorporate ‘robust safeguards‘ that lead to the uptake of long-term fuel options, a new analysis by UCL Energy Institute and UMAS suggests.

According to the organizations’ latest study, titled “Role of insetting in supporting shipping’s energy transition”, insetting schemes could ‘boost’ the energy efficiency and act as the pillars of support for both the energy and fuel technology transition in maritime transport.

The analysis has spotlighted that schemes like book and claim, for instance, have the potential to provide ‘significant’ opportunities by stimulating value chain thinking and offering early market signals during the emergence phase of the energy transition.

“The emergence phase of shipping’s energy transition requires ambitious voluntary action, and insetting schemes offer one mechanism to deliver this. To realise this potential, schemes must be grounded in the latest available science, governed by reliable third parties, and designed to promote scalable, long-term decarbonisation solutions,” commented Nishatabbas Rehmatulla from the UCL Energy Institute.

Per UCL Energy Institute and UMAS, such schemes could mobilize private investment into low and zero-emission solutions before compliance-driven measures take the reins. In this sense, the report has put forward that early movers can become innovators and early adopters, and that this practice could facilitate subsequent mass market adoption of new, cleaner fuels and sustainable technologies.

As disclosed, now that the International Maritime Organization’s (IMO) Net Zero Framework (NZF) has been greenlit, there is a soaring expectation that shipping’s energy transition will be driven by regulation.

However, if the Life Cycle Assessment (LCA) guidelines now under development at the IMO continue to tie NZF compliance strictly to the physical fuels and energy used onboard ships, it could create a disconnect, UCL Energy Institute has stressed.

As explained, voluntary insetting schemes—which allow companies to offset emissions within their own value chains—would then be operating on a different accounting basis for greenhouse gas (GHG) emissions than the one recognized by the IMO. Consequently, the maritime industry could direct its efforts toward regulatory compliance, with the IMO NZF acting as the “clearest signal for investment” by early adopters.

Should that be the case, the study shared that voluntary insetting would have only a narrow window of opportunity to make a ‘meaningful’ impact, specifically by encouraging the early adoption of long-term decarbonization solutions. Yet, even that potential hinges on the schemes being backed by strong safeguards to ensure their effectiveness.

That said, per UCL Energy Institute’s and UMAS’ report, presently, only a small portion of maritime transport’s energy use is covered by ‘well-designed’ insetting schemes, making it difficult to pave the way for transformative investments, such as multi-million-dollar e-fuel production investments.

While maritime insetting does promise opportunities, the analysis shows that risks also abound. Per the study, there are several key risk areas that need to be addressed to ensure the schemes deliver “real value” and have the best chance of long-term success.

As divulged in the study, a growing body of research suggests that private or non-state efforts are often failing short of their goals, whether in delivering real emission cuts, ensuring proper enforcement, or setting robust environmental standards that can inform regulation.

Additionally, current schemes are said to often lack clear guidance on defining value chain boundaries, which the study claims can be tackled by using GHG Protocol guidance restricting insetting boundaries to “within the value chain, not adjacent to it”, as well as the Smart Freight Centre Book & Claim methodology, which recommends transactions be restricted by mode.

In terms of verification, UCL Energy Institute underscored that there are limited examples of “transparent and universal standards”, which has led to concerns about emission accounting integrity. The study recommends the usage of third-party verifiers to ‘transparently’ report the verification process used. As noted, adopting the GHG Protocol for Project Accounting could also offer enough information for reviewers to examine the reliability of GHG reduction claims.

What is more, as elaborated in the report, insetting schemes available now mostly rely on traditional fuel choices like biodiesel due to their relative ease of use as a drop-in fuel and cost-effectiveness; still, scalability constraints due to limited supply and competing demand from other hard-to-abate sectors remain a challenge.

As UCL Energy Institute has revealed, the focus on transitional fuels carries risks of a technological lock-in and diverting from investing in scalable zero-emission fuels (SZEFs), like green hydrogen and ammonia, which are seen as ‘critical’ for long-term decarbonization. The institute here recommended that maritime insetting schemes should set up guardrails that promote the adoption of fuels that are both scalable and zero/close to zero emissions.

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