Climate change in the shipping industry

With 90% of global trade moved by sea, shipping is a major contributor to climate change. The International Maritime Organization dummy (IMO) [1] estimated that the industry’s greenhouse gas emissions grew by 10% between 2012 and 2018, while the industry’s share of global anthropogenic CO2 emissions grew slightly to almost 3%, about the same volume as Germany. It also forecasts that ‘business as usual’ could see emissions increase by up to 50% by 2050 due to the growth in shipping trade.

The race to decarbonize shipping is now underway. In 2018 the IMO called for a 40% cut in greenhouse gas emissions (compared to the 2008 baseline) across the global fleet by 2030, and at least a 50% cut by 2050. Last year, the IMO also adopted short-term measures aimed at cutting the carbon intensity of all ships by at least 40% by 2030. However, these targets do not go far enough, and the IMO plans to revise its greenhouse gas strategy by 2023.

The EU, which is aiming for climate neutrality by 2050, says it will dummy set greenhouse gas reduction targets [2] for the maritime transport sector (shipping emissions represent around dummy 13% [3] of the overall EU greenhouse gas emissions from the transport sector). Last year, the US also set out its plans to reduce greenhouse gas emissions by around 50% by 2030, which included the transport sector. dummy Nine big companies [4] including Amazon, Ikea and Unilever have pledged to only use zero-carbon ships by 2040.

Achieving the IMO’s 50% cut in emissions, let alone the more ambitious targets required to meet the Paris Agreement goal of limiting global warming to well below 2 degrees Celsius will require huge investment in alternative fuel and more efficient shipping. The scale of investment required to meet the IMO 2050 target is estimated at dummy $1-1.4 trillion [5]. To fully decarbonize shipping would require a further $400mn of investment over the next 20 years.

A growing number of vessels are already switching to liquefied natural gas (LNG), while a number of other alternative fuels are under development, including ammonia, hydrogen and methanol, as well as electric-powered ships. Cargo vessels and tankers are also experimenting with wind power, using kites, sails and rotors to supplement traditional propulsion. Wallenius and Alfa Laval, for example, have proposed a car carrier that uses wings and a specially designed hull to reduce emissions by as much as dummy 90% [6].

While there are plenty of innovative ideas on the drawing board, there is not yet an obvious technical solution available that will get the industry to 2050, according to Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.

“LNG alone will not get the shipping industry to where it needs to be by 2050, while alternative fuels like hydrogen and biofuel are only ever likely to be partial solutions. The industry needs to come together and fund research and development for alternative fuels, propulsion and ship designs. IMO 2050 is a challenging target, but collectively I believe the industry can find solutions,” says Khanna.

The shipping industry needs to make use of alternative fuels and technology to start reducing its emissions right away. “Continuing to increase emissions while waiting for better alternatives is not the path to take,” says Khanna.

“Decarbonization will transform the shipping industry over the coming decades, which will in turn change the risk landscape. As the industry plots its course through the transition, it will need to ensure risks are contained within acceptable limits. As we have seen with the development of container shipping, there can be unintended consequences with innovation,” says Justus Heinrich, Global Product Leader Marine Hull at AGCS.

• A growing number of vessels are being built or converted to run on liquefied natural gas (LNG) and biofuel, including some large container ships. Further ahead, a number of projects are underway to test a range of alternative fuels, including ammonia, hydrogen and methanol, as well as onboard carbon capture technology. Maersk, for example, is to run eight methanol-powered container ships from dummy 2024 [7]. 
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• “When different fuels are introduced, it raises questions for insurers as alternative fuels are largely untested over the long-term,” explains Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS.
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• In January 2020, the International Maritime Organization (IMO) introduced a new lower limit on sulphur content in shipping fuel. “The switch to low-sulphur fuel seems to have been well managed so far, and has not led to high frequency losses,” says Chopra. “However, there have been multiple claims from sister vessels for engines that have not worked well with low-sulphur fuel. We remain watchful of how these new fuels affect engines over their life span.”

• The development of new fuels such as hydrogen and ammonia will take time, so in the meantime ship owners are being encouraged to switch to existing lower-carbon fuels, like LNG and biofuel. The first dummy large bulk carriers [8] to use LNG entered service in 2022 while LNG powered ro-ro vessels and tankers are under construction, LNG group dummy SEA-LNG [9] says 90% of new car and truck carriers that will enter the market in the coming years will be dual fuel LNG. CMA CGM is to test biofuel on 32 of its container ships this dummy year [10].
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• The transition to alternative fuels will bring heightened risk of machinery breakdown claims, as new technology beds down and as crews adapt to new procedures, explains Captain Anastasios Leonburg, Senior Marine Risk Consultant at AGCS: “The move to low-sulphur fuels was a big leap, but the shift to biofuel will be a big difference. The impact of biofuels on older vessels has yet to be seen.”
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• “We now see more and more vessels powered by LNG, but this fuel requires storing at low temperatures, and crews will need to obtain new skills and knowledge. Biofuel blends have been approved for use by manufacturers, but only tested over a limited duration. We have yet to see how these new fuels will work over the long term,” adds Randy Lund, Senior Marine Risk Consultant at AGCS.