By Ulf Bergman
The US envoy on climate, John Kerry, called on the International Maritime Organization (IMO) earlier in the week to up its game on climate change. The current IMO goals on maritime emissions aim at a reduction of 50 per cent by 2050, compared to the levels seen in 2008. However, Mr Kerry suggested the IMO should be steering the industry towards zero emissions by that year instead. This represents a complete change of course by Washington compared to the previous administration and puts the weight of the world’s largest economy behind considerable more ambitious environmental targets. It could potentially represent a complete game-changer for the shipping industry, depending on how much leverage the American administration actually can exert in coming negotiations at the IMO. The decision-making process at the UN organ is often catering for the slowest movers in the convoy, with many changes being watered down. The most recent proposal from the IMO on decarbonisation was criticised by NGOs and maritime organisations as vague and unambitious. However, with Washington allied with the nations arguing for more swift action, there is considerable scope for the more rapid advancement of the environmental agenda.
Much hinges on what can be achieved in terms of negotiations before the current emissions goals are due to be reviewed in 2023, but also on the rate of technological developments for propulsion and fuels. As of yet, there is no obvious silver bullet that can deliver a zero-emission solution or at least a substantial reduction. There are some fuels, such as hydrogen and ammonia, that are widely expected to be part of the package that will deliver zero-emission shipping in the coming decades. However, these propulsion fuels have yet to prove themselves as viable commercial and practical alternatives, with development work is still in the fairly early stages. Additionally, new fuels will require new production facilities and infrastructures to be constructed so that they can be used commercially in shipping.
LNG is commonly perceived as being part of the decarbonisation process by many in the shipping industry, as a bridging fuel. While it has many cheerleaders, it also has its fair share of detractors due to the fact it is still a fossil fuel and is believed to contribute to climate change. The World Bank has also recently recommended against countries continuing to invest heavily in LNG bunkering infrastructure because it could extend the use of the gas as fuel.
Shipowners have long bemoaned the lack of clarity on the direction of future environmental regulations, which have also put many off from ordering new tonnage. There have been concerns that vessels ordered today would become obsolete well before the end of their economic life. The new ambitious stance from the Biden administration may speed up the process of clarity, but it could also mean that the current breed of vessels will become non-compliant considerably faster. If the American move proves successful and the new, stricter, targets are phased in between 2023 and 2050, new vessel designs and propulsion technologies will have to be found in the next few years. Hence, the case for ordering new tonnage in the near term may weaken further for some shipowners, especially as current newbuilds may face extensive investments in propulsion conversions during their life span.
Assuming new stricter rules are announced, under American leadership, in 2023, there could potentially be a window of opportunity to invest in new tonnage before that. Vessels ordered/delivered before such an announcement could potentially have a longer grace period. Nevertheless, it is unlikely that there will be a stampede of dry bulk shipowners heading for the shipyards, as recent ordering sprees of container vessels and tankers have limited the availability of delivery slots ahead of 2023 and has also raised the newbuilding prices. Hence, the well-publicised story of a historically thin orderbook for dry bulk vessels could remain the narrative for some time. With only a limited number of vessels expected to join the global dry bulk fleet in the next few years, the supply side is likely to remain tight and provide continued support for freight rates.