COP26 and its impact on Shipping

Insights / / London

It was a privilege to be in Glasgow in early November to attend ZESTA’s Ship Zero Conference, an event coinciding with the 2021 United Nations Climate Change Conference (COP26), and taking place within the framework of the UN Decade of Ocean Science for Sustainable Development (2021-2030). COP26 concluded with the Glasgow Climate Pact, which has been agreed by all the 197 participating countries. The Pact aims to keep limiting global warming to 1.5C above pre-industrial levels, but recognises that limiting global warming to this target requires rapid, deep and sustained reductions in global greenhouse gas emissions (GHG).

With the oceans playing a central role in regulating the Earth’s climate, and the maritime sector being responsible for about 3% of global GHG, shipping has been high on the agenda at COP26, where governments, the private sector and civil society identified actions and commitments for decarbonising shipping.

These are some key takeaways arising out of COP26 affecting the maritime sector:

1. Zero emissions by 2050

Even though the industry as a whole is already under great pressure to comply with the International Maritime Organization (IMO)’s progressively tightening emission standards, there is a consensus in the sector that the current targets of reducing annual GHG by at least 50% compared to 2008, by 2050, are inadequate.

In the lead-up to COP26 a Call to Action for Shipping Decarbonization had been signed by more than 200 companies and organizations. The Call to Action includes a request for the IMO to set a target for zero emission shipping by 2050. A similar Declaration on Zero Emission Shipping by 2050 has been signed by 14 countries during COP26.

The Secretary General of the IMO has acknowledged at COP26 that shipping must raise its environmental targets, but whether the 174 IMO member states will be persuaded to agree to a revision is yet to be seen. The current revision of the GHG targets is due in 2023, but there is increasing pressure for this to be addressed during the forthcoming IMO Marine Environment Protection Committee (MEPC) meeting scheduled in London next week, between 22 and 26 November 2021.

The Glasgow Climate Pact further provides that, to keep the 1.5C target achievable, emission reduction plans are to be revised yearly. The wheels are already in motion for the coming years, COP27 will take place in Sharm El Sheikh, Egypt, in November 2022. The United Arab Emirates (UAE) has been selected to host COP28 in 2023.

2. The future of fuels

In the Glasgow Climate Pact, the 197 countries have committed to accelerate efforts towards the phase-down of unabated coal power and inefficient fossil fuel subsidies. Even though there was a last minute dilution in the text from “phase out” to “phase down” of coal and fossil fuel subsidies, it is nevertheless very significant to note that for the first time ever a COP document makes explicit reference to coal and fossil fuels in this way, sending a clear signal on the future of coal.

Significantly, more than 100 countries have also announced a global partnership to cut emissions of the greenhouse gas methane by 2030 (the Global Methane Pledge); this is likely to have a significant impact on the LNG sector too.

In terms of alternative sources of energy, the technical experts operating in the maritime sector agree that there is no single solution. Different energy sources are likely to be used on ships depending on the needs, such as hydrogen, batteries, wind, methanol, and clean technology retrofits may be installed on existing vessels during the transition.

From leading companies to start-ups, some shipowners are already moving in this direction, by developing innovative new builds or by re-fitting their existing fleet. A.P. Møller – Mærsk announced they will introduce a series of 8 large ocean-going container vessels capable of being operated on carbon neutral methanol by 2024. However, the adoption of new zero-emission technologies on a larger scale will require infrastructure, the adoption of new systems by the market, sufficient investments and a clear regulatory framework.

Over 20 countries signed the Clydebank Declaration during COP26, pursuant to which the signatories have pledged to create emission-free corridors that will encourage the development of alternative fuels. The plan is for at least six green shipping corridors to be launched by 2025, and to see many more corridors in operation by 2030. The hope is that such initiative will push the development and investment in the necessary zero emissions infrastructure and technology, and appears to be an essential initiative to support the first movers. In this context, the First Movers Coalition, is also of relevance. This partnership between the World Economic Forum, the US Special Presidential Envoy for Climate John Kerry and over 30 global businesses was launched during COP26.

3. Supporting Seafarers

The “Just Transition Maritime Task Force” was created during COP26 to support seafarers and their communities through the energy transition, by focusing on the development of new green skills, identifying best practice across the value chain and providing policy recommendations for an equitable transition with a specific focus on developing economies.

The founding members of the taskforce are International Chamber of Shipping (ICS), representing shipowners, the International Transport Workers’ Federation (ITF), representing seafarers and port workers, and the United Nations Global Compact, the world’s largest corporate sustainability initiative. Other influential UN organisations include, as formal partners, the International Labour Organization (ILO) and the IMO.

4. Financing the transition

The change required in the maritime sector is historical, structural and very significant. Innovation will be key to solving the problem of emissions in the industry, and partnerships between established firms and promising startups are likely to create viable solutions for decarbonising the sector. This will all require a massive financial investment on various issues, such as energy storage, new technologies and infrastructure.

The new industry players in the market, such as innovative technological startups, are likely to secure the liquidity they need to grow outside of traditional ship finance sources. For example, SAILCARGO INC’s first emission-free cargo ship, Ceiba, aims to be the world’s largest, active, clean ocean-going cargo vessel, and the project started via crowdfunding.

The Poseidon Principles, developed by a number of banks in collaboration with leading shipping industry players, provide a framework for integrating climate considerations into lending decisions to promote international shipping’s decarbonisation. This is a prime example of the traditional financial institutions’ commitment in this context, which at present often translates into financing the adoption of clean retrofit technologies on commercial vessels.

IMO regulations are critically necessary for a global scaling of this energy transition. The IMO is due to review the IMO Maritime Research Fund (IMRF) proposal to form a USD 5 billion Research & Development programme at its next MEPC meeting. The IMRF is deemed by many to be an essential means to ensure zero-carbon technologies as soon as possible and make zero emissions ships by 2050 a realistic goal. The shipping industry is pushing for the IMRF to be in place by 2023.

A carbon levy is also on the agenda, but the industry perception is that this will not be a particularly useful market instrument once zero carbon technologies are available for ships to transition to, and that’s why the focus is firstly on the urgent approval of the IMRF.

COP26 and ZESTA’s Ship Zero Conference reinforce that there is a significant part for shipping to play in limiting global warming. The Glasgow Climate Pact has set the momentum for increasing the maritime industry’s decarbonization goals, putting pressure for greater progress at the upcoming IMO Marine Environment Protection Committee.

Alberta Longanesi Cattani

Alberta Longanesi Cattani Senior Associate

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