IFC GREENING TRANSPORT ISSUE NO. 1 Setting Sail Towards Zero Emissions in Shipping By Maria López Conde, IFC T here has been significant progress over the past year towards the creation of a more sustainable shipping The shipping sector emits industry. After years of minimal regulatory change in the sector, both the International Maritime Organization 1 billion tons of carbon dioxide (IMO) and major shipping companies have advanced pledges per year, representing about to decrease their environmental footprint. What will those 2.5 percent of global changes mean for investment in the sector? greenhouse gas emissions. The shipping sector emits 1 billion tons of carbon dioxide per year, representing about 2.5 percent of global greenhouse gas (GHG) emissions. Cargo ships, which carry about 80 But there was a breakthrough in April 2018. After years percent of global trade, are powered by bunker fuel—a thick, of negotiations, the IMO reached an agreement to cut the sulfur-laden petroleum distillate that is usually cheaper and shipping industry’s carbon emissions by at least half of dirtier than regular fuel. To put it in perspective: if it were 2008 levels by 2050. a country, shipping would rank as the sixth largest GHG Six months after that, 34 shipping industry leaders in- emitter in the world—higher than Germany—according cluding executives from Cargill, Gaslog and AP Moller- to the International Council on Clean Transport. Maersk committed to reduce carbon emissions by at least Attempts to regulate the industry’s emissions have his- 50 percent by 2050. Their call to action also emphasized torically faced opposition because of the importance of the need to ramp up technological and business model shipping to global trade and economic growth. The shipping innovation to meet those goals. industry, like aviation, was excluded from the 2015 Paris AP Moller-Maersk, the largest container shipping com- Climate Agreement partly due to the difficulty in attributing pany by capacity in the world, took it a step further in emissions to individual countries. December 2018 when it announced plans to reduce net carbon emissions to zero by 2050. Maersk’s pledge also propulsion power. Maersk Tankers is testing Norsepower’s called for increased spending in research and development. sails on an oil tanker. However, although expected to reduce Describing it as an “existential exercise” for the company, fuel use by 5-15 percent, rotor sails might not be suitable for Sørren Toft, Maersk’s COO, told the Financial Times that all types of ships as they require clear decks to work and, the entire supply chain of engine makers and shipbuilders depending on the design, may need to be retracted into a need to contribute to find carbon-free options for shipping. bulkhead in severe weather. For its part, Airbus is currently “We will have to abandon fossil fuels. We will have to find investing in the SeaWing, an automated kite that reduces a different type of fuel or a different way to power our shipping fuel costs by 20 percent. From 2021, Airbus said assets,” Toft said. it plans to use the SeaWing on cargo ships that deliver its aircraft parts in Europe. In-Demand Technology While the shipping industry is aiming for total decar- This shift has opened up a new avenue for investment in bonization in the long term, a more immediate concern eco-friendly technologies in the maritime sector. Many involves the IMO’s sulfur cap. The new rule will ban ships shipping companies and start-ups are actively searching from using fuels with a sulfur content above 0.5 precent for innovative solutions that tackle environmental costs. unless they are equipped with scrubbers to clean up sulfur Some are examining new fuel sources such as liquefied gas emissions. The current cap on sulfur, whose emissions natural gas (LNG), biogas made from fish, or hydrogen and have been linked to asthma and premature deaths, is at 3.5 ammonia, into which Maersk is reportedly looking. Others percent, and the new rule is expected to affect 70,000 vessels are experimenting with electric ships and battery-powered globally. With the cap set to go into effect in January 2020, solutions, such as those being piloted for barges in Europe—the shipping firms are scrambling to either invest in scrubber so-called “Tesla ships.” Though battery-powered engines technology, which removes the sulfur as the fuel burns, have been viable on the roads, no such solutions exist for or get access to nearly sulfur-free fuel. Some countries, deep sea vessels traveling long distances… yet. (There has including the United States, have called for the cap to be been some progress on that front: China successfully tested phased in to give the industry more time to fully comply. a super battery that powered a 2,000 metric ton electric boat for 80 kilometers in 2017). Investment Opportunities Other efforts at greening shipping have focused on effi- The need for new technologies to make fleets more sustainable, ciency, such as futuristic sails and other ship designs that as well as compliant with changing industry standards, reduce fuel use, although most of these innovations are has created investment opportunities in the green shipping still at the development stage and aren’t yet operational. space. In 2014, IFC, a member of the World Bank Group Finland’s Norsepower and others are developing rotor sails and a leading investor in emerging market transportation, to increase energy efficiency by providing auxiliary wind provided the world’s second largest container shipping company, the Mediterranean Shipping Company (MSC), introduction of new species to foreign waters, with serious with a $150 million loan to increase operational efficiency ecological and economic consequences. IFC’s $70 million and reduce fuel use. The project entailed retrofitting 140 loan helped the company install 150 water treatment systems vessels to improve the ships’ hydrodynamics by replacing aboard its ships to stop the transfer of invasive species that propellers and bulbous bows. Those changes reduced fuel can travel in ballast water. IFC’s support helped MSC pursue consumption by 10-12 percent and saved an estimated 1.2 an environmentally-motivated project faster than it could million to 1.5 million tons of CO2 per year—the largest otherwise, allowing them to catalyze a trend in the industry GHG reduction by an IFC investment to date. by adopting IMO standards before they went into effect. A year later, IFC again supported MSC as it complied with Environmental standards and regulation will continue the IMO’s Ballast Water Management Convention, which to drive investment and technological innovation in the established standards for the management of ships’ ballast shipping sector in the future, creating more opportunities water, which is added to hulls for stability when traveling for impact. This is why development institutions are stepping without cargo. That water is then released thousands of up their support of green shipping. In 2017, the European miles from where it was collected, sometimes resulting in the Investment Bank launched its Green Shipping Financing Programme, which provides facilities for environmental- ly-focused retrofits through European banks. The program’s Environmental standards first deal was an investment in France-based Brittany Ferries’ and regulation will continue first LNG-powered ferry, which is scheduled to set sail to drive investment and in late 2019. There will be continuing opportunities to technological innovation in support the greening of the shipping sector in the years to come—including through fleet upgrades, LNG or LPG the shipping sector in powered ships, scrubbers, and wind sail technologies that the future, creating more will be needed at scale across the sector as GHG abatement opportunities for impact. becomes the norm and as shipping keeps sailing toward zero emissions. n International Finance Corp 2121 Pennsylvania Ave., N.W., Washington, DC 20433 +1 (202) 473-7646 | www.ifc.org/infrastructure