Global shipping in sights as environmental review deepens
By Jonathan Saul
LONDON (Reuters) – Ocean freight costs are expected to remain high in 2022 as investors and regulators scramble to speed up decarbonization of the shipping industry and businesses grapple with green finance, sources say .
Maritime transport, which carries around 90% of world trade and accounts for nearly 3% of global CO2 emissions, is under increasing pressure from environmentalists to take more concrete action, including a carbon tax.
The International Maritime Organization (IMO), the UN’s specialized maritime agency, said it has made progress on short-term greenhouse gas (GHG) reduction measures.
But this timeline is not considered quick enough by environmentalists and a number of IMO’s 175 member countries.
“At the MEPC (IMO committee) meeting in June next year, there will be a lot of heat and pressure on regulators to make sure they are ready to negotiate a solution rather than kick the box because of misalignment or negotiation tactics. It is really not acceptable, “said Christian Michael Ingerslev, Managing Director of Maersk Tankers.
Last month, countries including the United States at the COP 26 climate summit pushed the IMO to adopt a zero emissions target by 2050.
So far, its goal is to reduce overall GHG emissions from ships by 50% from 2008 levels by 2050.
“As far as the IMO is concerned, the negotiation process in 2022 will probably be very slow and expensive,” said Faig Abbasov of the green group Transport & Environment.
“The problem lies in the very belief that a UN organization with 175 members can come together and make tough decisions to decarbonize an entire economic sector.”
The IMO said concrete progress was made in 2021 in tackling climate change, including new regulations to improve the energy efficiency of the global fleet, adding that it would “work very hard” the year next on the development of a revised GHG strategy, which will be finalized. in 2023.
“Where it is a willingness to act, then processes can move faster,” said Roel Hoenders, Air Pollution and Energy Efficiency Officer at IMO.
A proposal submitted to the IMO to create a $ 5 billion research and development fund to find the right technology to achieve the targets is still under discussion and further discussions are postponed until next year.
The impact on poorer countries like Pakistan will highlight the challenges ahead.
While the country was a small emitter of carbon, climate change had “directly and severely affected us,” Pakistan Federal Minister of Maritime Affairs Ali Haider Zaidi said.
“Developing countries cannot afford to spend on the kind of infrastructure needed and therefore developed countries need to support the process at IMO,” he told Reuters referring to the fund. of R&D.
Another hurdle is funding the way forward. Shipping will need $ 2.4 trillion to reach net zero emissions by 2050, with around $ 500 billion needed by 2030, analysts estimate.
“Certainly, European banks at least and not far behind American banks will have to meet criteria that satisfy sustainable finance,” said Tony Foster, managing director of specialist asset manager Marine Capital.
“When it comes to new assets, it will be more and more difficult to finance anything that is not fully eligible and it will be the same, perhaps even more so, with existing assets.”
Darren Maupin, founder of senior fund manager Pilgrim Global, said companies in the shipping industry were grappling with how to get funding with more ESG pressure.
“Capital scares – how to invest in a 25-year-old asset when you have no idea what IMO is going to do in five years,” Maupin said.
“The industry has a much reduced capacity to build ships and limited capital available to do so. A simple supply-demand suggests that the rates are going to be higher and that the industry will have to generate more capital to finance themselves.”
(Edited by David Evans)