The only way that shipping companies can be competitive in the future shipping market is to prepare their operations and their fleet towards the green transition. The regulations for the vessels, new fuels, emission trading and demands of customers and financiers require deep understanding of technical and operational alternatives.
In 2023, the International Maritime Organization (IMO) set a goal of reducing greenhouse gas emissions of shipping to approximately zero by 2050. Also, in July 2023, the European Parliament decided on the maritime Fit for 55 package, which will regulate the carbon content of shipping fuels, fuel distribution and taxation and include shipping as part of the emissions trading system.
Regulations
The first international regulations to reduce shipping’s greenhouse gases was made over a decade ago (EEDI). In 2011, the IMO set goals by which the structure of new ships must be designed so that ships’ fuel consumption and, thus, greenhouse gas emissions are reduced. In 2021, the IMO set a similar requirement also for the existing ships (EEXI).
In 2021, the IMO approved CII – i.e., the Carbon Intensity Indicator. According to CII, the ship must reduce certain amounts of greenhouse gas emissions per transport performance. All these regulations tighten gradually, forcing shipping companies to be more and more energy efficient.
The energy efficiency improvement methods for vessels include: modification of hull parameters; propulsion system optimisation; hybrid propulsion system and alternative energy sources, like shaft generators and steam turbines; periodic cleaning of the hull, optimisation of the engine and propellers; waste heat recovery; cold ironing; hybrid battery-diesel propulsion; fuel-cells; wind power; solar photovoltaic system; and hydrogen cells. Finally, energy can be reduced also with the operational measures like slow steaming, route optimisation and trim optimisation.
The EU has also set a goal that the annual calculated carbon content of the fuel used at sea should decrease. This FuelEU Maritime means that part of the fuel used must be carbon-free, in which case biofuels or other new non-fossil fuels such as methanol are used. This regulation is also gradually tightening, and it is likely to impact shipping significantly.
Among new, alternative fuels electricity is the most likely solution for short trips, but different hydrogen-based fuels, like methanol and ammonia, are planned for longer trips. Currently, ships are often built with engines that can use several fuels. Multi-fuel engines usually use fossil liquid fuel, but they can also use gas, LNG or other liquids such as hydrogen or its derivatives; or electricity.
Market incentives
This year, a market-based control tool started, the ETS, which stands for Emission Trading System. ETS means that after each year, an operator must surrender enough allowances to cover its emissions; otherwise, heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another operator short of allowances. In 2024, the shipping companies must purchase allowances for 40 per cent of their emissions. The situation will tighten in the following years, and in 2027, rights must be purchased for 100% of emissions.
Results
It has been shown that the energy efficiency of new vessels has improved substantially after companies have adapted to EEDI regulations. Simultaneously, the investments have saved money for the shipping companies. In fuel side, electrifying vessels can be in many cases financially advantageous, but other non-fossil fuels are likely to become more expensive than present fossil fuels.
In summary, the new environmental regulation system has many sides. The energy efficiency methods decrease the costs of shipping, while switching to the new non or low carbon fuels in most cases increase the shipping costs. In addition, the Emission Trading Systems gives the shipping companies freedom to choose between decreasing the emissions or buying new allowances.
As a final remark, shipping companies face a situation where more and more ship financiers want the ships they finance to be productive and competitively operational for decades. This means that it is not any more easy to get financing for the old-fashioned non-energy efficient vessel able to run only on fossil fuels.
The only way that shipping companies can be competitive in the future shipping market is to prepare their operations and their fleet towards the green transition. The regulations for the vessels, new fuels, emission trading and demands of customers and financiers require deep understanding of technical and operational alternatives.
This article has previously been published in Baltic Rim Economics 3/2024.
Photo: Kaj Hagros
Tales of Talsinki 