Shipping Industry Decarbonisation and the Imperative of a Robust Regulatory Framework
By Dr. Ebenezer Onyeagwu
As the world races towards achieving a net-zero economy by 2050, in line with the United Nations Sustainable Development Goals (SDGs) and the Paris Climate Agreement, decarbonising the shipping industry has become a significant consideration for stakeholders. While the shipping industry is a key growth enabler due to its crucial role in global trade and the supply chain, its heavy dependence on fossil fuels significantly contributes to the global carbon footprint. According to the United Nations Conference on Trade and Development (UNCTAD), the shipping industry accounts for up to 90 per cent of international merchandise trade by volume. However, the industry emits around 1 billion tonnes of carbon dioxide (CO2) annually, representing about 3 per cent of global greenhouse gas (GHG) emissions. Without deliberate actions towards decarbonisation, emissions from the industry could rise by 250 per cent, constituting over 10 per cent of global GHG emissions by 2050.
Consequently, the International Maritime Organisation (IMO) – the United Nations agency responsible for regulating the global shipping industry – has launched a GHG reduction strategy for the industry. The initial strategy was adopted by the IMO’s Marine Environment Protection Committee (MEPC) during its 72nd session in April 2018 and later revised in July 2023. The latest IMO Strategy on the Reduction of GHG Emissions from ships aims to reduce emissions by approximately 30 per cent by 2030 and 80 per cent by 2040 compared to 2008 levels, ultimately reaching net-zero GHG emissions by 2050 in line with the global net-zero GHG emissions agenda. However, progress in decarbonising the shipping industry has been slow. At the 54th Annual Meeting of the World Economic Forum (WEF) held from January 15th to 19th, 2024, in Switzerland, stakeholders identified a lack of viable alternative fuels and inadequate infrastructure as key factors hindering progress. These challenges are largely underpinned by the absence of a robust regulatory framework.
Indeed, uncertainties relating to the scope of existing and new regulations are delaying the required investments in alternatives to fossil fuels and infrastructure needed for the decarbonisation of the shipping industry. According to UNCTAD estimates, decarbonising the world’s fleet by 2050 could cost $8 billion to $28 billion annually, with an additional $2 billion to $90 billion required each year in carbon-neutral fuel infrastructure. Without clear, consistent, and enforceable regulations, shipowners and investors are hesitant to commit substantial capital to new technologies and infrastructure upgrades. In turn, the lack of investment slows the development and deployment of innovative technologies essential for reducing emissions, creating a bottleneck in the industry’s transition to greener practices. Thus, a robust and well-defined regulatory framework would provide clarity and stability, enabling confident investment and accelerated progress towards a sustainable, low-carbon future for the shipping industry.
Furthermore, fragmented regulatory requirements/frameworks across different regions exacerbate the shipping industry’s challenges. For instance, the European Union (EU) has the Emissions Trading System (ETS) and Fuel EU Maritime initiatives, an emissions cap-and-trade system that aims to reduce GHG emissions by limiting certain sectors of the economy, including shipping. Whilst such regulations geared towards emissions reduction are commendable, the global nature of shipping necessitates uniform standards to ensure that efforts towards decarbonisation are cohesive and effective. Implementing differentiated rules, whether by the country of the flag, region, or any other basis, creates a fragmented regulatory landscape, complicating compliance for international shipping companies. Such inconsistencies not only increase operational costs but also undermine efforts to establish a level playing field, where all stakeholders are equally committed to reducing their carbon footprint. Thus, a robust regulatory framework that considers the global nature of shipping will ensure uniform standards and guarantee that efforts towards decarbonisation are cohesive and effective.
In conclusion, a robust regulatory framework is required to foster a supportive environment for the decarbonisation of the global shipping industry. With a robust regulatory framework in place, shipowners and investors can confidently allocate resources towards low-carbon technologies and alternative fuels, knowing that their investments align with global mandates. However, establishing such a framework hinges on effective collaboration among stakeholders. By working together to create and enforce a robust regulatory framework, the world can drive significant progress in decarbonising the shipping industry, ultimately achieving the ambitious goals set forth by the IMO and contributing to a net-zero future.
Dr. Ebenezer Onyeagwu is the Group Managing Director/CEO of Zenith Bank Plc and Chairman of the Body of Banks’ CEOs in Nigeria.
This opinion was first published in the Zenith Economic Quarterly Vol. 20 No. 2 April 2024, in his column “CEO Insight”.
