Climate Iceberg Threatening International Shipping Lines

International shipping is one of the world’s most undervalued sectors, as it is transporting 90% of total global physical trade. At the same time, mainly due to the use of rather unclean sources of fuel, the sector is also spewing out as much CO2 as France and Germany combined each year. With its new regulations the IMO steps up its efforts to improve the shipping vessels’ carbon efficiency and footprint.

With a strong message, the IMO has now put in place a 50% emissions reduction target by 2050. The targets are green, but as some international shipping organizations, such as the Danske Rederier, already warned the measures will not be applicable and reach the set targets. As Maria Skipper Schwenn of Danske Rederier said, “the regulations are a stumbling block for a real transition to carbon neutrality because they don’t reward ships for performing well”.

The IMO measures are meant to hit not only its 40% reduction target for 2030, but increase the total level for 2050. Where main criticism of the sector is that vessels already have achieved most of the set savings, as since 2008, which is the goal’s baseline year, ships have gotten bigger, better designed and slowed down, meaning much of the required savings have already been achieved. Taking this into account, most of the former targets were in reach for 2030.

The real risk or target at present is the fact that now overall shipping emissions need to be cut. Having more efficient ships, as is increasingly the case, will not reach these targets anymore, not due to the vessel emission, but mainly due to evergrowing and booming international trade and transport. If the IMO would like to comply with the the Intergovernmental Panel on Climate Change (ICPP)’s 1.5 degrees Celsius scenario, man-made CO2 output needs to almost halve, versus 2010, by 2030. This will include an outright cut of vessel emissions.

Analysts agree that if the IMO wants to reach 50% cut in greenhouse gas emissions by 2050, almost the total fleet need to switch to zero-emission fuels. The latter is a fairy-tale as they don’t exist at present on commercial scale. In a statement made by the Global Maritime Forum, it is assessed that this would cost around US$1 trillion in investments.

Regulatory demands will be supporting this, as the EU already is expected in 2021 to propose rules to put a price on emissions from shipping, likely by bringing maritime transport into its emissions trading scheme. . Several large players, such as Maersk Tankers and commodities trading giant Trafigura, are supporting the latter approach already. It however is not expected that the IMO will soon put in place the same legislation. Some new legislation is expected from the IMO in June 2021.

NGOs, activist investors and governments however are now threatening a new kind of approach, based on the “Divest Hydrocarbon Fuels” approach. Warnings have already been given that inn light of the success reached with oil and gas companies, activists are planning to target international shipping lines and owners.

This will not reach the same impact as with oil and gas, but the threat of divestment from banks and finance companies supporting global shipping, could be a real crisis scenario. International maritime trade and shipping both are heavily dependent on large banks and ship insurers that provide low cost financing to shipping companies.

If now parties are able to force them to include environmental conditions to the requirements or costs, survival of several giants is at stake. Scenarios are already discussed between shareholders, NGOs and activists, that a list of potential targets, such as Berkshire Hathaway, Blackrock, Bridgewater Associates, Goldman Sachs, Nordea, Bank of America Merrill Lynch, are targeted. These financial giants all have positions in shipping and shipping finance.

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