IMO’s net zero framework takes center stage
Speakers at the event in Geneva, Switzerland, held April 28-29, were particularly focused on the recent Net Zero Framework. This was adopted on April 11 by the Marine Environment Protection Committee (MEPC) of the International Maritime Organization (IMO).
This is to be formally adopted in October this year. With this, from 2027, the dry bulk shipping sector will be required to reduce, over time, the greenhouse gas intensity of the fuels they use.
Ships whose emissions exceed the set threshold will require their operators to purchase “remedial units” to offset their emissions. Ships that operate below the threshold will earn “surplus units.” These surplus units can be banked, transferred between vessels, or pooled.
The role of EU regulations in dry bulk shipping
But in addition, the dry bulk shipping sector has been adapting to EU regulations. This includes the very similar Fuel EU regulations as well as the EU’s Emissions Trading Scheme.
Some speakers at the conference felt that the variety of applicable laws and the consequent lack of clarity were counter-productive.
“The disparity between regulations is probably slowing down the process, because clearly having one law to read and to work with [would be] much easier than different laws,” Salvatore Castellano, freight trader at COFCO International, said on a conference panel.
“We will need to see how the EU is going to respond, [and] whether they will keep the promise to get rid of Fuel EU once there is a similar global system in place,” John Xylas, chairman of Intercargo and chief executive officer of Ariston, said.
Future fuels in the dry bulk shipping industry
A major issue highlighted at the event was the uncertainty about which future fuels or strategies would best adapt to new laws while also being practical for the shipping industry.
Lars-Christian Svensen, CEO of 2020 Bulkers and Himalaya Shipping, said that his company believed that there was a strong case for the use of liquefied natural gas (LNG).
Noting the contrast with ammonia as a marine fuel, he said on a panel that “the LNG technology is ready. The infrastructure around it is ready. You can fuel energy in China, Singapore, Malaysia, the US [or] Rotterdam. And with the tanks that we have, we can go from China to Brazil, back to China and down to Singapore before we need to bunker again.”
“We’re more conventional,” John Michael Radziwill, chairman of CTM, said on the same panel. “We’re big believers in slow sailing as the best way to decarbonize right now.”
A multi-faceted approach to decarbonization
Massimo Giovannini, managing partner with TST Group, spoke on a different panel. Giovannini said: “I think that the industry should invest in carbon capture [and] biofuels.” He also thought that the EU’s ETS was “the right direction to go, provided that some of the money – which I can confirm – is going back to the industry [to aid the transition].”
Eman Abadalla, supply chain director at Cargill Ocean Transportation noted this uncertainty. Abadalla said, “I don’t think anybody, including myself, has that crystal ball to say, okay, which zero carbon fuel is going to be the answer for dry bulk vessels?”
Others suggested that a multi-pronged approach was the likely outcome.
“We are a big industry,” Svensen said, “and I think we need a lot of technologies and assistance to get to the net zero [result] that we’re all praying for. So I think we need to ‘slow steam’. We need the ammonias. We need the LNGs. We need carbon capture for those who can commercialize and make it tradable at the end of the day.”
Economic barriers to sustainable dry bulk shipping
Several speakers also noted that, in an already inflationary environment, the uncertainty around future fuels and regulations was increasing the cost of shipbuilding and deterring new investment in the global fleet.
Paul Pathy, president-designate of shipowners group BIMCO, put forward the following example. Say someone orders a ship to be built at a cost of $40-45 million. It would require a charter rate of $20,000 per day for the next 25 years. But that is not sustainable when the current charter rate is $10,000 per day. So a ship buyer has no choice at the moment but to wait. And there’s the additional complication that nobody knows what the new fuel might be.
Intercargo’s Xylas broadly agreed. “New-building today is speculative,” he said. “And the reason it’s speculative is because you don’t know what the lifetime of your new-build [vessel] is going to be.”
Milena Pappas, head of Oceanbulk Maritime, suggested that the uncertainty risked creating a future supply crunch for Capesize vessels.
“You have uncertainty. What is the new engine? What are the new fuels?” she said. “Then you have the legislation, the IMO – that is actually more lenient than we expected. So that also gives a little more time for conventional engines [in] conventional vessels [to be used] economically. So I don’t think there’s going to be a rush [for new vessels] right now, because the [shipbuilding yard] slots are not there, and the prices are very expensive.
“But at some point,” she said, “there definitely will be” a need for new vessels, given the aging profile of the current fleet.
Balancing industry priorities and decarbonization goals
Other conference delegates also had concerns that the pace of change being set by the IMO was too fast.
“I think we have missed the point in our industry,” Xylas said. “We tried to become green ahead of everyone else. Shipping is responsible for about 800 million tonnes of CO2 [per year], out of the 36 billion tonnes of man-made CO2. That’s less than 2%, but we still want to be ahead of the remaining 97% – and that doesn’t really make sense.”
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