Navigating a Sea of CO2


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By Alastair Stevenson, Head of Digital Analytics

 

Maritime greenhouse gas emissions, accounting for approximately 3% of global CO2 emissions, have come under increased scrutiny in recent years, not least following the 2015 UNFCCC Paris Agreement. Several recent reports, including the 4th IMO Greenhouse Gas Study, have indicated an increase in maritime CO2 emissions in recent years. Marine Benchmark’s shipping statistics, spanning over 10-years of AIS data complemented with a suite of proprietary algorithms and other information, is uniquely positioned to support detailed bottom up emissions analysis.


Analysis show that, between 2011 and 2019, international AIS-tracked maritime CO2 emissions rose at an average annual rate of 2.1%, or 18% in total, to just under 800mt CO2 annually. This is broadly in line with the latest IMO data through 2018. During the first nine months of 2020 the CV-19 pandemic has weakened emissions growth about 2% 2019 levels. 

 

International emissions continue to be dominated by the ‘big three’ vessel types, which together account for 82% of international emissions. Between 2011 and 2019, tankers, bulkers and container vessel emissions grew at 3%pa, 2%pa and 0%pa, respectively. This is well below the 4% increase in capacity over the same period.


The disconnect between fleet capacity growth, measured in deadweight terms, and emissions growth is highlighted in the following chart for the global fleet.

 

 

This wedge has been driven by several positive factors, including:


• Slower steaming speeds;
• Penetration of eco ship designs into new building;
• Increasing share of LNG fuel vessels; and
• A move towards larger vessels where improved economies of scale have also reduced fuel consumption per tonne transported.


These positive factors have lowered the carbon intensity of the shipping industry and brought the IMO’s dual goal of reducing CO2 emission per transport work by 40% between 2008 and 2030 tantalisingly close. Indeed, the latest IMO greenhouse gas study showed that some measures of international shipping’s carbon intensity have already declined by more than 30% since the baseline year of 2008.


Yet, despite these improvements, it is clear that aggregate CO2 emissions have resisted decline. On the contrary, the outright growth in international maritime CO2 emissions over the past decade, roughly 18% in total, will make it more difficult for the IMO to achieve its 2050 goal of halving international shipping CO2 emissions relative to 2008 levels. It may also prompt the introduction of more stringent regional emission regulations, notably in Europe, and thereby create a more complex regulatory framework. 


The current CV-19 pandemic has added much uncertainty to maritime sector demand, with global economic growth falling sharply in 2020, reducing seaborne trade and CO2 emissions. The following chart, directly reflecting shipping activity, illustrates the increase in CO2 emissions in January and February, relative to 2019, followed by year-on-year declines as the pandemic took hold.

 

 

The effects of CV-19 have not been equal across shipping, with the cruise sector, passenger ferries and containers being hit particularly hard. Emissions from other sectors have been less dramatically impacted, partly due to continued expansion in fleet supply, but also some positive trade developments.
This suggests that the short-term outlook for shipping emissions will largely reflect macroeconomic demand and remain heavily influenced by CV-19. Consensus macroeconomic forecasts, predicated on expectations of vaccine availability, suggest that global demand will rebound strongly in 2021 and resume previous trajectories. 


At the same time, relative to the existing global shipping fleet, the newbuilding orderbook is at its lowest in decades, as owners are faced with major uncertainties over (1) the outlook for world trade (exacerbated by this year’s pandemic), (2) the environmental regulatory environment and (3) the pace at which new ship designs, utilising alternative fuels, can be developed. The overall current lack of newbuilding investment across vessel types is set to compound supply-side trends established during the past ten years which, as shown in the following chart, has reduced fleet turnover.

 

 

The combination of low newbuilding deliveries, and a potential rebound in demand, implies limited scrapping activity over the next couple of years and, therefore, an ageing fleet. As more older vessels remain on the water, the implication is that CO2 emissions are more likely to track fleet growth as the efficiency gains witnessed over the past decade taper. This is because (1) the new eco-ship designs entering the fleet will represent an historically low proportion, (2) emission gains from slower steaming are exhausted and (3) the use of LNG as a transitory fuel remains small relative to the global fleet.

 

Such a prospect serves to highlight the importance of this month’s meeting of the IMO Marine Environment Protection Committee. Their deliberations will not only help to determine whether a downward trend in the shipping industry’s absolute levels of CO2 emissions can be established before 2030, but also whether the shipping industry faces a potential supply shock later in the decade as the fleet ages and newbuilding investors await technological breakthroughs.

 

For more information, please contact Alastair.stevenson@ssy.co.uk

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