UK needs £75bn for its shipping sector to transition to zero

Approximately £75bn ($89.9 bn) of investment over the coming three decades will be required for the UK’s domestic maritime sector to transition to net zero, a report produced by Marine Capital with the support of UMAS and Lloyd’s Register (LR) estimates.

Illustration; Image by Offshore Energy

Hence, attracting new sources of capital to invest in new vessels and shoreside infrastructure will be key to the industry’s energy transition.

The report, “UK Domestic Shipping: Mobilising Investment in Net Zero”, identifies funding mechanisms that can be applied immediately to unlock untapped investment capital to finance this transition, without waiting for the introduction of carbon pricing or the selection of a ‘winning’ zero-emission fuel solution.

The key role to provide viable funding could be played by institutional investors, who together represent over $80 trillion in assets, the report said, adding that government support would be needed to help them overcome some of the hurdles currently impeding their participation.

Commenting on the pathways for institutional investors to deploy capital some of the key choices include equity investments in companies, debt financing, public-private partnerships, as well as real asset ownership.

Some of the key barriers and risks to institutional capital include low familiarity and iften negative impression of the sector when it comes to shipping and clean maritime technologies, while for ports the level of familiarity is higher.

These also include uncertainty regarding future demand for and supply of clean fuels, lack of clarity over the evolution of the policy and regulatory environment and limited access to funding by many stakeholders. Identifying areas of priority will be key to the sector’s successful navigation of the net zero pathway over the coming two decades.

Domestic shipping accounts for approximately 1 % of the UK’s total GHG emissions and the sector is included in UK’s net zero plans by 2050. The domestic fleet is responsible for the bulk of these emissions spearheaded by ferries and Ro-Ro vessels, which account for 10% of vessels but are sources of 50% of emissions from the domestic and short sea fleets together with offshore service vessels. As informed, given the UK’s planned expansion in offshore wind projects, vessels that service this market are also good candidates for targeted measures.

In assessing the appropriate measures and structures that could be applied to the UK’s domestic maritime sector, the report also considers the lessons that can be learned from other comparative regimes, including initiatives such as Green Corridors.  

Shipping’s decarbonisation presents many challenges. Domestic shipping is enormously diverse, so merely getting to grips with that diversity was a key element in framing the report. We have highlighted, through case studies, financial mechanisms which can facilitate the participation of institutional capital, particularly in the large-scale fleet renewal that is required. The report clearly indicates how progress can be made now and the support which government can provide to unlock this investment,” Tony Foster, CEO of Marine Capital Ltd, said.’

“The UK domestic and short sea fleets’ structures of ownership and operation are ill-prepared and ill-suited to the rapid transition to new energy and technologies that are needed.,” Akash Kapur of UMAS said.

“The suggestions for new investors, novel ownership structures and coalitions, in combination with much greater clarity and regulation from government, provides a pathway for shipping to align with UK’s net zero objective.” 

“The coming three decades will need to see a significant shift towards large-scale investments into new and retrofitted vessels in domestic fleets, zero carbon fuel production and bunkering infrastructure, alongside their associated supply chains, which can span across multiple related industries across the world,” observed Dr. Carlo Raucci, Decarbonisation Consultant, LR Maritime Decarbonisation Hub. “These are deep, long-term commitments requiring a coordinated approach by both government and the industry to mobilise investments from external sources of capital.”

Jos Standerwick, CEO of Maritime London, who chaired the working group that highlighted the need for this report said the report clearly evidences where the barriers to new capital entering the market exist and how the UK government can provide assurance to unlock investment.

In conclusion, to enable the flow of private capital the UK government needs to draw in an investment community with clear regulatory and policy instruments combined with cohesive strategies that encourage and incentivize the commercialization of promising technologies and build skills in clean energy.