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Trillions of dollars risk being stranded without a global R&D fund to decarbonize

Trillions of dollars could be misallocated if member states of the International Maritime Organization (IMO) fail to back an industry proposal for a global $5 billion research and development fund in order to de-risk the massive investment needed to decarbonize shipping.

Ocean Bird; Image courtesy: Wallenius Marine

The call was made by the International Chamber of Shipping (ICS) following the publication of a report on the decarbonization challenge, detailing the scale of investment required for the sector to abandon fossil fuels.

The fourth propulsion revolution will need to see the development of new fuels along with novel propulsion systems, upgraded vessels and an entirely new global refuelling network, the report said.

It comes days ahead of the IMO Marine Environment Protection Committee meeting (MEPC 75), which will take place on 16-20 November 2020. The agenda of the meeting is expected to include the proposed fund as well.

To remind, in December 2019 shipping associations across the maritime sector submitted a proposal to the IMO for the establishment of a $5 billion fund, with the core funding set to be collected via a mandatory R&D contribution per tonne of fuel oil purchased for consumption.

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The support for a carbon levy or R&D collection is building up in the sector with industry majors like MSC, Trafigura, and BW Group backing the initiative.

The IMO needs to step up and introduce a market-based measure to help bridge the enormous investment needed to accelerate the development of zero-carbon projects.

Otherwise, the EU is likely to move forward with including international shipping in its Emissions Trading System (ETS), as it grows impatient with the IMO progress.

The proposed EU measure has been met with a lot of pushback from the industry bodies, which insist the solution for greener shipping must be created on a global level ensuring a level playing field.

A regional measure could result in trade disputes and tit-for-tat measures, derailing global talks on CO2 reduction at IMO.

Having in mind that shipping financing has been on a downturn and the impact of the COVID-19 pandemic on availability of financing topped with the fact that global economies are facing a recession, a global fund to help bridge the investment gap to switch to alternative fuels and zero-emission technologies seems more important than ever.

Operational challenges ahead

There are several promising solutions being debated by the market at the moment, including ammonia, hydrogen, and batteries to power global fleets. However, the production and scale of availability of these fuels are yet to be ramped up in order to become viable alternatives.

Therefore, in the next decade, the sector will have to embark on a major research and development mission to overcome the current production and supply chain barriers.

The report examines three alternative fuels in more detail, including green ammonia, hydrogen and fuel cells, and batteries.

Green ammonia has been identified as one of the most promising low-emission fuels, with the IEA predicting that its use for shipping will reach 130m tonnes by 2070, twice as much as was used worldwide for fertiliser production in 2019.

However, it is less energy-dense than oil, meaning ships will consume up to five times as much fuel by volume. Ammonia production would have to rise by 440 million tonnes – more than treble current production – requiring 750 gigawatts of renewable energy.

This means that shipping alone would consume 60% of the world’s current renewable energy production of 2,537 gigawatts.

Hydrogen emits no carbon but its current commercial production emits large amount of the GHG, negating its green credentials. However, research is underway to prevent this.

Similar to ammonia, fuel density is poor, and a new bunkering system would also be required. Hydrogen use could reach 12 million tonnes in 2070, equivalent to 16% of 2019 global maritime bunker demand and 16% of today’s global hydrogen use.

There is also the option of switching to nuclear fuels, which are a proven technology that could be readily applied to many merchant ships in order to eliminate CO2 emissions completely. Only a small nuclear reactor would be required, with a life of many years, removing the need for ships to refuel or carry bunkers. Russia successfully operates a number of nuclear ice breaking vessels in the Arctic.

Nevertheless, it is currently assumed that widespread use of nuclear fuels is unlikely to be viewed as politically acceptable by the majority of governments, due to concerns about safety and security.

Harnessing the power of the wind is becoming a viable option thanks to new technology, and wind-assisted propulsion could complement systems that use zero-carbon fuel.

The report said that the recently developed rigid wing sails and kites, as well as the Flettner rotors, could be further developed to provide a secondary zero-carbon propulsion system for ships or even primary propulsion on some routes. Existing retro-fitted wind systems can only currently supply 5–10% of a ship’s energy requirements, but these are likely to be further optimised.

Finally, when it comes to fuel cells and batteries – the battery challenge is just as great: a typical container vessel would require the power of 10,000 Tesla S85 batteries every single day meaning that it would require 70,000 batteries in order to sail for a week. Wind power could complement electric vessels, although the current view is that they will only be viable for short-distance trips, but this could change with increased R&D.

Hence, the upscale of these and other infant technologies need to be provided with centralized funding in order for the sector to be able to identify and develop the zero-carbon technologies of the future, the chamber pointed out.

A quantum leap needed

A quantum leap in decarbonised technology similar to the switch from sail to steam over a century ago is required if shipping’s current CO2 reduction targets are to be achieved. However, we do not have the same luxury of time to transform,” ICS Secretary General, Guy Platten said.

“The proposed R&D fund will lead to the introduction of zero-emission ships across the maritime sector by 2030 and beyond. We, therefore, urge the IMO to back the proposal, which will have such wide-ranging benefits for shipping, and the global transport sector more broadly.

“The scale of the financial challenge is as great as the technical challenge. We need certainty and action to avoid the approaching financial iceberg as we set course for a zero-carbon future.”

The International Association of Dry Cargo Shipowners (INTERCARGO), one of the proposers of the R&D fund, voiced support to the IMO in approving the new mandatory measures that were developed by the 7th session of the Intersessional Working Group on Reduction of Green House Gas Emissions (GHG) from Ships (ISWG-GHG 7) on 19-23 October 2020.

The measures deliver a dual approach, addressing both the technical and operational actions to equip the world merchant fleet to deliver the industry’s GHG commitments.

“The measures will bring the industry closer to achieving the ambitions set out in IMO’s strategy adopted in 2018. No other global industry has made such a pledge. The ambition of the Initial IMO GHG Strategy, which among other aims to reduce the carbon intensity of international shipping by 40% by 2030 compared to 2008, has been substantiated with both mandatory measures already in place and additional measures proposed for adoption as soon as possible,” the association said.