Climate change

The maritime industry is far more efficient than many alternative modes of transportation, accounting for just 3% of global emissions while carrying up to 95% of the UK’s international trade.

Patrick Ryan, Sustainability Director, UK P&I, reviews the huge challenges faced by the international shipping community posed by climate change, not least decarbonisation. Mr Ryan argues that true partnership is needed to rise to this challenge

Partnership time for shipowners and insurers

Climate change is one of the most serious and complex challenges our planet faces today. This is a truly global issue that requires action at all levels of society. Every individual, business and industry, including shipping, has a part to play. The precise mechanisms for the decarbonisation of shipping are still being worked out, both politically and technically. But, there should be no doubt that the shipping sector will need to cut its carbon emissions in line with the Paris Agreement’s climate change targets. This will not be easy. The maritime industry is far more efficient than many alternative modes of transportation, accounting for just 3% of global emissions while carrying up to 95% of international trade but, many commentators anticipate that emissions from ships (which need to carry their energy source with them) will be harder to eliminate than some other emissions.

The International Maritime Organisation (IMO) set out its ambitions in its initial Greenhouse Gas (GHG) strategy in 2018. It targets a 40% reduction in CO2 intensity by 2030, a 70% reduction by 2050, and a 50% reduction in all GHG by 2050, all with reference to 2008 levels.

The regulatory architecture required to enforce or support these goals is still emerging. Although the specific regulatory requirements will have a great impact on how shipowners plan and carry out their operations, the scale of change needed is clear even without getting into the detail. A combination of technical and operational solutions have already been explored and some good progress has been made. By 2018, the carbon intensity of international shipping had fallen by 22% according to the fourth IMO Greenhouse Gas Study (2020). This was principally achieved by the widespread adoption of slow steaming[i] . The year 2030 is less than nine years away and, in the context of the life-cycle of a ship, there is very little time left to achieve the additional 18% reduction required by that date.

BRUTAL DECADE

achieved first, meaning further cuts in carbon intensity will become progressively more difficult. At the recent UK Chamber of Shipping Conference, industry experts referred to the next period in this process as “The Brutal Decade”, indicating the size of the challenge ahead. There is, however, cause for optimism. Existing technologies such as the use of Liquefied Natural Gas (LNG) as bunkers are becoming more common. New innovations, involving hydrogen, ammonia, fuel cells, wind technology, and even nuclear power, are being explored as part of the possible solution. As with any emerging technologies, however, there are significant questions about which solutions will be both practicable and commercially viable. Some operators are beginning to see how various operational and technological measures might be aggregated in order to achieve the 2030 reduction targets. But the situation is complicated by the long life-span of ships, which is often factored into the initial investment decisions. This means that long term targets cannot be ignored, even in the short term.

SUSTAINABLE COVER

GREEN SHIP

and operators have confidence they have the protection of suitable insurance. For insurers like the UK Club, the challenge is to ensure that as the technologies and associated risks change, suitable insurance products are provided at sustainable prices. Underwriting and claims handling services must be based on a proper understanding of the emerging risks and technologies. Insurers must also reflect seriously on the carbon emissions associated with their own operations and take suitable action to ensure their own impact is sustainable. The issue of sustainability is of course much wider than decarbonisation alone. P&I clubs are primarily insurance providers, but, they offer more than mere risk transfer. Their ongoing efforts to prevent losses and minimise their impact will continue to grow in importance. The UK Club has made “the human element” a particular focus in preventing such losses for some time. With thousands of seafarers unable to return One can imagine, for example, a new ‘green’ ship ordered home currently because of the pandemic, seafarers’ for delivery in the late 2020s which, through adoption of physical and mental health has never been more new technologies, can achieve a 50-60% reduction in carbon important. intensity (well within the 2030 targets). Whilst it will be for each and every person and By the end of a 20-25 year operating lifetime, however, business to take action to address the climate change and without significant further retrofitting and emergency, there will need to be coordination improvement, it will still be on the wrong side of the 2050 between those efforts, and on an unprecedented targets. scale. Additionally, it may not be possible to retrofit all of the The shipping industry plays a vital role within technologies required to meet the carbon reductions target, many different parts of today’s interrelated world, meaning some vessels will need to be meaning that synchronised cooperation will be retired before their planned time. needed with the global energy, trade, Quite apart from the commercial and tourism sectors, to name but challenge this poses for shipowners “The International Maritime Organisation a few. and operators, it will likely increase The challenges and opportunities the demand for sustainable ship recy- (IMO) set out its ambitions in its initial presented by this need for collective cling. This is another area in which action are great. the regulatory landscape is chang- Greenhouse Gas (GHG) strategy in 2018. In this challenging, interconnected, ing and, with the Basel Convention and fast-changing world, the need already in place and the Hong Kong It targets a 40% reduction in CO2 intensity for a strong and supportive Convention on the horizon, this will relationship between shipowners and also require careful planning and by 2030, a 70% reduction by 2050, and a their insurers will be more important management. than ever.

The challenge for those who own 50% reduction in all GHG by 2050, all and operate ships is both enormous [i]Slow steaming refers to the practice and immediate. Major action is with reference to 2008 levels.” whereby the operational speed of the required now to meet the 2030 targets ship is reduced, effectively meaning the and beyond. ship’s engine is not used at full power,

Given the substantial investments Patrick Ryan, thus saving fuel, reducing CO2 and air required in new technologies, it is more UK P&I pollutant emissions. important than ever that shipowners