What Do IMO’s New Climate Targets Mean for Shipping?

The world’s largest shipping companies are starting to update their fleets to reduce their greenhouse gas emissions. Maersk, the largest shipping company, received the world’s first dual-fuel methanol container ship in July 2023, and several more container ships that can run on alternative fuels are currently on order. This move comes as the industry is responsible for about 3% of global greenhouse gas emissions. In July, the International Maritime Organization (IMO) agreed to a new climate strategy that includes reaching net-zero greenhouse gas emissions by 2050. While the strategy’s language is vague, it points the industry toward a cleaner future.

The IMO strategy does not explicitly set a new fuel standard, but it sets goals to reduce greenhouse gas emissions by at least 20% by 2030, by at least 70% by 2040, and to reach net-zero emissions by 2050. The strategy also commits to implementing a greenhouse gas emissions-pricing mechanism and developing a goal-based marine fuel standard. This indicates that the industry may have an opportunity to set its own direction.

Several large shipping companies have already built or placed orders for container ships that use alternative fuels such as methanol or liquefied natural gas. While liquefied natural gas is still a fossil fuel, it is less polluting than traditional sulfur fuel oil. Methanol can be made from either natural gas or renewable sources. These purchases indicate that the industry is moving towards greener fuels and is willing to focus on emissions from fuel production as well.

One significant challenge for the maritime industry is having a sufficient supply chain available to support dual-fueled vessels. Currently, there are a limited number of ports worldwide with the necessary infrastructure to provide alternative fuels. However, with increasing demand, the supply chain for alternative fuels is expected to develop.

The new IMO strategy is not mandatory, and compliance is encouraged based on national circumstances. This allows countries that may face challenges in meeting the goals to have flexibility. Many countries, including the US, UK, Australia, and those in the European Union, are expected to work towards meeting the strategy.

However, using alternative fuels comes at a higher cost. Green methanol costs three times as much as low-sulfur fuel oil, and low-sulfur fuel oil itself is more expensive than high-sulfur fuel oil. The additional costs of using alternative fuels will be borne by cargo owners, who will pass them along to their customers and ultimately the consumers. Shipping lines will also face higher costs from the European Union’s emissions trading system.

In conclusion, the shipping industry is beginning to update its fleets for a greener future. The new IMO strategy sets goals to reduce greenhouse gas emissions and encourages compliance based on national circumstances. The industry is already moving towards alternative fuels such as methanol and liquefied natural gas. However, the higher costs of using alternative fuels will be passed on to consumers. The development of a sufficient supply chain for alternative fuels is also a significant challenge.

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