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Clarity is Still Lacking For Ship Owners After IMO Meeting

Ship owners have to contemplate their future plans after an inconclusive meeting last week at the IMO. While some issues were addressed, no major breakthrough took place in the fuels arena. In its latest weekly report, shipbroker Gibson said that “this week the IMO agreed short term measures to address climate change. For many, it was felt that these measures lacked the ambition needed to reach the IMO’s goal of reducing total GHG emissions by 50% and carbon emissions by 70% by 2050. The short-term measures will see even stricter newbuilding designs adopted via the energy efficiency design index (EEDI), the Ship Energy Efficiency Management Plan (SEEMP) and new measures called the Energy Existing Ship Design Index (EEXI) and Carbon Intensity Indicator (CII). Combined, these measures are intended to improve vessel design and operational efficiency. Logically this makes sense; extract every drop of efficiency out of the existing fleet and ensure newbuild efficiency continues to improve. However, under IMO protocol the new rules will not enter into force until late 2022 at the earliest. What is really needed is clarity on what the IMO’s medium and longterm measures will look like to give owners the confidence to invest in the next generation of vessels. However, for this the industry will need to be patient with the IMO pledging to address these measures before 2023, with entry into force not expected until the second half of the decade”.

Source: Gibson Shipbrokers

According to Gibson, “what shape these measures will take is up for debate, but several key issues need to be addressed. One of which is carbon pricing. Many industry bodies, regulators, and even individual market players are calling for carbon pricing to be introduced to incentivise uptake in green technology; however, so far, the IMO is yet to address this issue. Nonetheless, the matter is of critical importance. Hydrocarbon based fuels are likely to remain cheap compared with the greener alternatives meaning that in pure economic terms, zero emission/low carbon fuels are never going to make financial sense without some form of incentive. Biofuels, including bio-LNG and bio-MGO are expected to price at a significant premium to conventional fuels, whilst green ammonia and hydrogen will also be significantly more expensive, even if costs fall over time. Carbon taxes might be the only way to make future fuels more competitive”

The shipbroker added that “the other elephant in the room is emissions from LNG which has been heralded as a transition fuel. LNG is lower carbon, low SOx and NOx, as well as emitting lower particulate matter. However, when total GHG emissions from the full supply chain are accounted for, emissions can be higher than conventional fuels. A study by the International Council on Clean Transportation showed that over a 20-year timeframe, there might be no climate benefits in using LNG when upstream and downstream emissions are accounted for. This is down to the fact that methane traps 86 times more heat in the atmosphere than CO2 over a 20- year time period. However, over a 100-year timeframe, the maximum life cycle GHG benefit of LNG is a 15% reduction compared with MGO, and only when high pressure dual fuel engines are used, and upstream methane emissions are well controlled. Competing studies do of course show differing results. A study by thinkstep on behalf of Sea\LNG found that the use of LNG as a marine fuel led to a GHG reduction of 21% over the entire life cycle from well to wake, depending on the engine technology installed”.

Gibson concluded that “clearly the debate as to whether LNG should be used as a transition fuel or not rages on. Proponents of LNG argue that LNG dual fuel engines could be retrofitted to use cleaner burning fuels such as green ammonia and hydrogen as and when they become commercially viable, although such a move would incur retrofitting costs. Engine manufactures will also continue to improve methane slip, yet it is emissions from natural gas extraction, liquefaction and transport which cannot be controlled by the shipping industry. What the industry needs right now is clarity as to where LNG sits within the IMO’s climate goals and the likely shape and form of its medium and long-term goals. Until the industry has more guidance, the best thing many owners can do is nothing, although this is exactly the opposite of what is needed to address climate change”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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