Zero-Carbon on the High Seas: The International Shipping Debate at COP26 Will Be Worth Close Attention
By Amar Bhardwaj
When world governments meet in Glasgow this November for the United Nations’ COP26, a lengthy lineup of agenda items will be on the docket. One of these items in particular has potentially far-reaching consequences but has received relatively little attention: international shipping. At COP26, nations will discuss whether the International Maritime Organization (IMO), the UN agency that regulates the shipping industry, has made sufficient progress in decarbonizing the sector. The decision they make could have outsized implications for shipping sector regulation and global decarbonization.
The State of Play for International Shipping and COP26
In a globalized world interconnected by international trade, shipping is a mammoth industry. Approximately 80% of all goods are carried by sea, amounting to billions of tons of cargo per year. The sheer scale of the industry has important climate effects as well—shipping alone accounts for roughly 3% of global greenhouse gas emissions. Currently, the industry uses highly carbon-intensive fuels such as bunker fuels to power its ships. And finding a cleaner alternative is not as simple as switching the engine out for a battery, as in the case of electric vehicles. A transoceanic voyage requires large amounts of energy, and a battery of such a size would be too heavy for a vessel to stay afloat. The ships’ reliance on energy-dense fuels makes shipping one of the most challenging sectors to decarbonize.
A further roadblock to cleaner shipping is that the industry is difficult to regulate. Given shipping’s international nature and overlapping jurisdictions between a vessel’s country of registration, owner, and crew, individual nations tend not to regulate shipping. For similar reasons, shipping was not included in the emissions targets of the Paris Agreement established at COP21. The responsibility for overseeing the decarbonization of the industry instead fell to the IMO. The IMO, however, has been heavily influenced by industry interests who have watered down the body’s climate policy to protect industry profits, as documented in a recent New York Times investigation. As a result, the IMO has passed rules that could potentially allow shipping emissions to rise in the coming decades, as opposed to the global target of net zero emissions by midcentury that is supported by the findings of the Intergovernmental Panel on Climate Change. One strategy used by the regulator to avoid stringent emissions rules is to set targets for the carbon intensity of shipping, without limiting the total emissions of the industry. A carbon intensity target approved by the IMO in 2020 is expected to reduce shipping emissions by just 1% by 2050.
Against the backdrop of a reluctant regulator, the discussions to be had at COP26 on shipping will be particularly important for the future decarbonization of the industry. COP26 negotiators have the latitude to decide that IMO is not taking sufficient action and push the regulator to pursue certain emissions reduction policies. This debate at COP26 will revolve around a few key groups of nations. Middle-income countries that receive large revenues from the shipping industry, particularly China, Brazil, and India, argue that rash decarbonization policies could cause economic damage to the industry, and will support the IMO’s moderate approach to regulation. Nations that are more vulnerable to climate change, such as the low-lying Marshall Islands and Solomon Islands, will advocate for more urgent action, including a proposal for a carbon tax to shipping that the countries have been promoting. The European Union may similarly propose to add shipping to the EU carbon market, applying a cost to carbon emissions. Still other nations, including the US, Denmark, and Norway, agree that the IMO must raise its ambition, but will prefer to fund the research and development of zero-carbon technologies for shipping. When the countries come to the negotiating table with these various proposals at COP26, the outcome will have a major influence on a highly emitting global sector.
The Broader Impacts of Shipping Decarbonization
In fact, it’s not just shipping at play. the COP26 negotiations on the IMO may even have more widespread ramifications for the decarbonization of other sectors. Any resolution to ramp up IMO regulations—be it a carbon tax, emissions targets, or zero-carbon technologies—will likely require zero-carbon shipping fuels to decarbonize the industry. Since ships cannot easily be electrified, these zero-carbon fuels are the most viable avenue to reduce emissions. Zero-carbon fuels, such as hydrogen or ammonia, do not contain carbon and can be used in ships without CO2 emissions. In order to ensure the carbon neutrality of these fuels, they must be produced through clean chemical pathways such as water electrolysis powered by renewable energy. These clean pathways are currently costly and at an intermediate stage of technological development. If the technology is improved and becomes more cost-effective, however, zero-carbon fuels could be a linchpin of decarbonization across numerous contexts that are currently difficult to clean up. The fuels could be used for high temperature heat in heavy industry, for aviation and other transportation, as a feedstock for the chemical sector, or as energy storage in the electricity sector. If the shipping industry were to adopt zero-carbon fuels, it would create a large source of demand to incentivize technological innovation of zero-carbon fuels production and provide a robust market in which the fuels can achieve scale and bring down costs. The industry could then serve as a springboard for the newly cheap zero-carbon fuels to grow into the many other sectors where they are needed.
To understand how shipping could jumpstart a broader zero-carbon fuels market in this way, it is helpful to take a look at the analogous history of the solar photovoltaics (PV) industry. By 1960, the silicon solar cell existed more or less in the form it does today, but it was prohibitively expensive. Though the cost was unsuitable for the wider electricity sector, solar PV found early demand in particular markets that were crucial to the technology’s rise. Niche markets such as solar-powered consumer electronics and the space industry were willing to pay a premium for the convenience and simplicity of solar power on a relatively small scale. In addition, feed-in tariffs in the U.S., Japan, Germany, and others provided a guaranteed higher purchase price for solar electricity, bolstering solar in these economies. This demand provided a starting place where the technology could enjoy economies of scale and learning-by-doing, by which manufacturing processes became more efficient and cheaper by virtue of industry growth. The cost of solar began to drop as the fledgling industry grew into its limited starting markets, until the cost was low enough for the technology to enter the broad electricity market competitively.
A shipping industry committed to using zero-carbon fuels would create an incubating starting place for the nascent fuels to grow, just as niche markets did for solar PV. The reliable demand for zero-carbon fuels from shipping would encourage zero-carbon fuels suppliers to invest in developing and improving their production processes. In turn, mechanisms such as learning-by-doing and economies of scale would help drive down the costs of producing zero-carbon fuels. This would facilitate the expansion of the zero-carbon fuels industry into the wide range of sectors where they could be useful, enabling previously intractable emissions reductions across these sectors. Considering these pivotal impacts on the shipping industry and the wider energy system, the oft-underreported discussions on international shipping at COP26 will certainly be worth following closely.