Market dynamics and energy demand
Rising energy demand is a key issue for the shipping sector, with increasing trade leading to increasing demand. Factors such as global gross domestic product (GDP), as well as trade and manufacturing sector activity have been the key drivers shaping energy demand in the international shipping sector to date. As the adoption of energy efficiency (EE) measures in international shipping increases, the nexus of GDP, trade and energy demand may decouple progressively. However, given the pivotal role of international shipping in the global economy, the role of EE has limitations in terms of carbon reduction potential; hence the key role renewable energies will play in decarbonising this sector by mid-century.
Starting now, energy efficiency needs to be promoted and effectively embraced. Not only will this result in an immediate reduction of carbon emissions, but it can also potentially result in important energy savings and thus increase monetary revenue for shipowners and operators. From a technological perspective, renewable energies are competitive. Indeed, renewable energy costs have been falling at an accelerated rate. For renewable energy-derived fuels to become the prime choice of propulsion, further cost declines are needed, particularly in renewable energy supportive technologies (e.g. electrolysers and hydrogen storage). In this context, sectoral decarbonisation can be accelerated and ambition can be raised beyond the climate goals by fostering investment in the production of renewable fuels. For this purpose, adopting relevant and timely co-ordinated international policy measures is greatly needed. It also requires stakeholders to develop broader business models and establish strategic partnerships involving energy-intensive industries, as well as power suppliers and the petrochemical sector.
The International Maritime Organization (IMO) indicates that by 2050 maritime trade could increase between 40% and 115% in comparison to 2020 levels. At present, about 99% of the energy demand from the international shipping sector is met by fossil fuels, with fuel oil and marine gas oil (MGO) comprising as much as 95% of total demand (IMO, 2020a). If no actions are taken, IMO has flagged that GHG emissions associated with the shipping sector could grow between 50% and 250% by 2050 in comparison to 2008 emission levels. Clearly this broad range of projected GHG emissions flags a level of uncertainty in terms of how will the sector evolve over the next 30 years. Nonetheless, even the lower-level band of GHG emissions increase is an area of great concern in terms of global warming.
Another area of concern is that international shipping emissions fall outside national GHG emission accounting frameworks. To address these concerns, this report maps out a path to a decarbonised maritime shipping sector. Its primary focus is the analysis of a pathway to a mitigation structure that will limit global temperature rise to 1.5 degrees Celsius (°C) and bring CO2 emissions closer to net zero by mid-century. In support of the global efforts to decarbonise the shipping sector, this report includes an update on IRENA’s previous work in the field of shipping. To this end, this report analyses the market dynamics of the shipping sector and the latest trends regarding trade volumes, associated energy demand and carbon emissions. Additionally, the report evaluates the technology readiness of the renewable fuels suitable to the shipping sector followed by an analysis of long-term energy scenarios in which a pathway towards the deep decarbonisation of the shipping sector by 2050 is examined and tailored recommendations to accelerate the decarbonisation of the shipping sector are proposed.
MARITIME TRADE DYNAMICS
Between 80% and 90% of international trade is enabled through maritime means, i.e. bulk and container carriers, as well as oil and chemical tankers. Together, these types of vessels account for 20% of the global fleet, but they are responsible for 85% of the net GHG emissions associated with the shipping sector (IRENA, 2019a). International cargo shipping activity is correlated to a certain extent with the global economy, as it provides a logistical downstream service to the production and allocation of goods and energy vectors. Thus, historical global GDP developments and trade volumes of goods tend to be analysed to estimate the intensity of the nexus of economic growth, maritime trade and subsequent energy needs. Since 2000, global GDP has grown at an average rate of about 3%. However, due to the financial crisis of 2008, between 2008 and 2009, the average growth rate dropped significantly to -1.5%. Thereafter, the economy bounced back (World Bank, 2020).
Figure 1 shows that in recent years, the maritime trade of main bulks and trade from tankers grew at a slow pace, while the trade of dry bulks (i.e. minor bulks), containerised trade and residual general cargo dominated the global trend. Together, between 2010 and 2018, these key cargo groups presented an average annual growth rate of 3.42%. However, aligned with the performance of the global economy, trade volumes over recent years have grown at a slower pace, from 4.09% in 2017 to 2.70% in 2018. Geopolitical factors such as the trade tensions between some of the largest world economies has been identified as one of the key factors disrupting global maritime trade. Import restrictions and tariff increases involving North African and West Asian countries have also been identified as decelerating factors of maritime trade in recent years. The COVID-19 pandemic has exacerbated these trends where the United Nations Conference on Trade and Development (UNCTAD, 2020a) noted an overall fall of 4.1% in marine transport and trade by the end of 2020.
While the 2008 financial crisis may shed some light on how the economy will perform as the world recovers from the COVID crisis, uncertainty remains about the performance of the global economy post-2020. Assuming adequate and wellfocused policy support comes from governments around the world, as economic activity normalises, it is projected that global GDP will grow by 5.8% in 2021 (IMF,
2020). However, it is uncertain how the COVID pandemic will affect the global economy when discussing different future trends. The net impact to the shipping sector, particularly to maritime trade volumes, is also under discussion. If the global economy bounces back at a 5.8% rate in 2021, it is likely that net global maritime trade will follow this trend and continue growing at an annual rate close to about 3.5%. Thus, enabling the use renewable energy fuels and implementing EE measures to avoid a rapid growth in GHG emissions are of prime importance.
The key motivations for building larger ships greatly depend on the application of the vessel. Larger ships need less energy to move a given amount of freight over a given distance. Therefore, vessel size reflects an economy of scale practice applied by shipping manufacturers and shipowners, thus maximising profits by becoming more efficient. Understanding the average age of the fleet serves as a proxy to estimate when most new-builds will be commissioned. Thus, it indicates the level of urgency needed to develop sustainable shipping alternatives, avoid stranded assets and kick-off the shift to manufacturing net-zero and carbon-zero vessels. A ship’s technical lifetime usually ranges from 25 to 30 years. Based on their theoretical lifespan and as illustrated in Figure 4, VLS and LS need to be replaced
by 2030. However, to achieve this target, first movers operating on renewable fuels will need to be commissioned much earlier.
Not surprisingly, although LS and VLS represent around 20% of today’s global fleet, together these vessels are responsible for about 85% of net GHG emissions associated with the shipping sector (IRENA, 2019a). In 2018, the fuel mix for international shipping included 79% HFO, 16% MDO, 4% LNG and less than 0.1% methanol. Therefore, this report primarily focuses on the decarbonisation of
international maritime shipping, which is mostly composed of LS and VLS.
NAVIGATION ROUTES AND BUNKERING INFRASTRUCTURE
Ports are essential for the global economy, with 80-90% of trade accounted for in shipping. To mitigate GHG emissions in the shipping sector, it is vital to focus development on the supply chain and logistics infrastructure. As stated by the European Seaports Organisation (ESPO, 2018), there are 12 key types of port infrastructure that are identified through investment. These 12 elements can be further divided into two base infrastructure categories, terminal infrastructure and operational equipment (Table 2).
Port location plays an important role in shipping logistics, requiring access to large quantities of land located near a major manufacturing district and/or access to raw materials. Key container ports globally include Los Angeles, Rotterdam, Shanghai and Singapore. The top ten busiest container ports internationally are predominantly based in China, with Shanghai being the leading port (WSC, 2018). In 2018, Shanghai accounted for 42.01 million TEU (twenty-foot equivalent unit)4 in container trade, followed by Singapore with a total of 36.60 million TEU (WSC, 2018). Furthermore, 20 ports are responsible for 45% of the global container trade (UNCTAD, 2019).
(UNCTAD, 2020c). Decarbonisation in these key ports can dramatically decrease CO2 emissions from shipping infrastructure. As with port locations, shipping lanes are vital in optimising trade routes. Geographical boundaries are an important consideration in plotting ship trajectories, and certain key global maritime routes provide access between the international industrial regions globally. The most important global routes are the Panama Canal, the Straits of Malacca and the Suez Canal (see Figure 11).
The Panama Canal provides direct access between the Atlantic and Pacific oceans without circumnavigating Cape Horn. In 2019, the Panama Canal reported 13 785 ship passages and a total of around 229 million tonnes of goods (Georgia Tech, 2020). The Suez Canal is in Egypt, which connects the Mediterranean and the Gulf of Suez. This canal provides a direct route between the Atlantic and Indian oceans, allowing shorter trade routes for Europe and Asia. The Strait of Malacca is an important route that connects the Indian Ocean and the Pacific Ocean. This route is vital for trade between all the island nations in the Pacific and provides a shorter route for trade from the Middle East.
In the process of decarbonising the international shipping sector, decarbonisation measures and opportunities at ports need to be acknowledged. For instance, enabling cold ironing (CI) would significantly drive down fossil fuel consumption during docking hours provided the electricity provided is from 100% renewable sources. While CI infrastructure is not widespread across the globe, it is expected that over the coming years several ports will develop shore power infrastructure. In parallel, attention needs to be given to port and terminal handling infrastructure and to port vessels. However, while it is important to address the origin of these emissions, it should be noted that such emissions are not accounted for as international shipping but rather as domestic navigation, potentially making
them subject to more stringent measures such as the California Air Resources Board (CARB) restrictions in California. For further detail and information on decarbonisation measures and opportunities at ports.
RENEWABLE FUELS AND TECHNOLOGY READINESS
› In 2019, the average costs of HFO and LNG fluctuated around USD 41 per megawatt hour and USD 19/MWh. Advanced biofuels can be immediately harnessed by the shipping industry; current technological readiness allows for fuel blends of up to 20% without engine modifications, although tests have been conducted using a maximum blend of 30%. Production costs ranges for advanced biofuels are similar among the various alternatives, i.e. USD 72/MWh to USD 238/MWh. Avoiding the use of food crops for biofuels is critical. Therefore, the use of waste fats, oils and greases is essential to produce fatty acid methyl ester (FAME) biodiesel and hydrotreated vegetable oils (HVOs) that do not hinder food security or land availability. Biomethanol from lignocellulosic biomass is another potential option.
Technological readiness of fuel and engine
FAME is a popular biodiesel due to its shared similar properties with fossil fuel diesel. This form of biofuel is produced from fats, oils and greases (FOGs) that are recycled from waste, which can come from a wide range of sources such as food production waste from factories, restaurants and households, or oil seeds such as rapeseed and palm seed (ETIP, 2020). At the current state of the technological
readiness, fuel blends of up to 20% do not require any engine modification in a ship (ICCT, 2020). However, if used as a drop-in fuel,5 furthermore, additives are required in the fuel system to prevent bacterial growth and lower pour point. To date, only trials have been completed using FAME blends, with a maximum of 30% being used by a vessel funded by the Mediterranean Shipping Company (Biofuels International, 2019). Also important to note that 100% methanol engines are a
proven technology; hence, new ships can easily rely 100% on biofuels.
However, DME has the lowest energy density in comparison with other liquid biofuels at 21.24 GJ/m3 Among biofuels, there are various degrees of emissions released dependent on which feedstocks are used. Figure 14 shows that advanced biofuels (those that use second-generation feedstocks) produce overall lower life cycle emissions than first-generation feedstock biofuels. Indeed, all biofuels negate emissions compared with conventional fuels such as HFO, LNG and MGO, while FAME, HVO and FT have similar energy densities to these fuels.
Technological readiness of fuel and engine
Methanol can be used today as a ship fuel in an ICE. Currently, methanol can be used in two types of ICEs, in four-stroke and two-stroke engines, and this technology is quite well developed (DNV GL, 2019b). Many commercial ships have been retrofitted with methanol engines. These engines have been installed in eleven new chemical tankers operated by Waterfront Shipping, Marinvest and MOL, with another eleven on order. These vessels are dual-fuel methanol engines with 10 megawatts (MW) of total power. Other commercial examples include Stena Lines’ Stena Germanica, which was retrofitted with a dual methanol/diesel engine and has a total energy output of 24 MW (Ming Liu, 2019). In total, there are nine examples of commercial methanol-fuelled ships globally (ICCT, 2020). Further research is being conducted, and the expansion of a methanol-fuelled fleet is planned in the near future to target GHG emission reduction goals by 2050 (Balcombe et al., 2019). Despite the success of using methanol fuel in ship engines and its commercial availability, the technology is still in development (Ming Liu,
2019), and existing vessels are required to replace fuel injectors and the fuel supply system. In terms of the engine itself, newly developed two-stroke engines made by well-known engine manufacturers can operate perfectly with methanol.
In the production of methanol, there are multiple pathways. The current method of producing methanol uses coal, which is referred to as brown methanol, and NG, referred to as grey methanol (IRENA, 2021a). These production methods are the most carbon intensive and are not sustainable for the future of methanol production. The ideal production method for methanol is green methanol production, which is split between e-methanol and bio-methanol. E-methanol is produced from sourcing H2 from electrolysis powered by renewables and utilising renewably sourced CO2 from BECCS and direct air capture (DAC) (IRENA, 2021a). Bio-methanol is produced using biomass gasification and reformation. The
feedstock for this method is usually forestry and agricultural waste and by-products, biogas from landfill, sewage, municipal solid waste, and black liquor from the pulp and paper industry (IRENA, 2021a).
IRENA’s analysis includes four energy scenarios for 2050. The primary focus comprised the analysis of a 1.5°C Scenario.7 This chapter builds on IRENA’s REmap methodological approach, in which scenarios are aligned with IRENA’s World Energy Transitions Outlook (2021b), and analyses a mitigation pathway to limit global temperature rise to 1.5°C.
The active adoption of energy efficiency (EE) measures will be critical to reduce energy demand and thus CO2 emissions in the immediate term. In comparison to 2018
levels, a Base Energy Scenario (BES) and Planned Energy Scenario (PES) imply a net energy demand of 12.4 exajoules (EJ) and 11.8 EJ, respectively, by 2050. The IRENA 1.5°C Scenario pathway comprises a lower demand for maritime transport services combined with the successful adoption of EE measures, resulting in a final demand about 1.5 times less, i.e. 7.9 EJ, by 2050.
For 2018, the reported activity level stood at 60414 billion tonne-miles. Under a BES behaviour that follows a historical trend, it is expected that activity levels by 2050 would grow by about 90% in comparison to 2018 levels, while for PES and TES scenarios, activity levels would grow by about 80% and 62%, respectively. In contrast, the 1.5°C scenario considers a growth of about 56% in comparison to 2018 levels. Having presented activity level projections results, it is important to note that in the long term there are several complex drivers influencing final activity levels of the shipping sector and thus energy demand. For instance, large trade initiatives such as China’s Silk Road Economic Belt, also known as the One Belt One Road (OBOR), will influence the future dynamics of the shipping sector. Simultaneously, as the world embarks on a total decarbonisation of the economy, the activity and energy
demand from oil and gas (O&G) tankers will decline. Circular economy principles and consumers favouring locally produced goods will also lead to a decline in the activity level of the shipping sector and thus less energy demand.
Figure 31 clearly depicts that significant efforts will be needed to foster the use of renewable fuels, including biofuels, green H2 methanol and particularly green ammonia, in the decarbonisation pathway leading up to 2050. In the short term, LNG is expected to play a role in curbing the use of fuel oil and MGO, but biofuels are also expected to play a key role. In 2020, the share of biofuel in the energy
share was below 1%. However, in recent years the use in biofuel has flourished, with an average increase of about 30% per year. Overall, the 1.5°C Scenario implies that from now until 2050, the use of advanced biofuels in the shipping sector would have to grow at an a.a.g.r. of about 9%, thereby reaching an end use of around 1 EJ in 2050.
LNG will likely have a role in reducing sulphur emissions and, to some extent, reducing carbon emissions associated with the shipping sector. However, results from PES indicate that an LNG pathway would result in as much as 746 Mt of CO2 by 2050. In contrast, the 1.5°C Scenario, which proposes a pathway with a 70% share of renewable fuels, would result in 144 Mt of CO2, thoroughly supporting
the decarbonisation of international shipping by achieving an emission reduction of 80% in comparison to 2018 levels (see Figure 31). Overall, the decarbonisation pathway analysed in this report would be achieved by four key measures: i) indirect electrification by employing powerfuels; ii) employment of advanced biofuels; iii) improvement of vessels’ EE performance; and iv) reduction of sectoral demand
due systemic changes in global trade dynamics. Figure 32 displays the estimated roles of these four emission reduction measures.
ENABLING ACTIONS TO RAISE THE DECARBONISATION AMBITION
IRENA 1.5°C Scenario represents a mitigation pathway to limit global temperature rise to 1.5°C and bring CO₂ emissions closer to net zero by 2050. Moving from nearly zero CO₂ emissions to net zero requires a 100% renewable energy mix by 2050 Achieving such a condition is uncertain due to scalability issues including the ability to deploy sufficient renewable infrastructure such as renewable power plants, biorefineries and e-fuel production plants (i.e. ammonia and methanol). Furthermore, end-use sectors besides shipping also have ambitious CO₂ reduction targets. Accordingly, end-use sectors risk competing with each other as they try to meet their increasing demand for renewable fuels. For instance, the shipping, aviation and road freight transport sectors are likely to compete with each other
on the task of acquiring green H₂-based fuels, but the aviation and road transport sectors have a higher payment capacity than the shipping sector.
SUMMARY FOR POLICY MAKERS
The International Maritime Organization’s (IMO’s) Fourth GHG study 2020 reported that in 2018 global shipping energy demand accounted for nearly 11 exajoules (EJ), resulting in around 1 billion tonnes of carbon dioxide (CO2) (international shipping and domestic navigation) and 3% of annual global greenhouse gas (GHG) emissions on a CO2 -equivalent basis. Fossil fuels. i.e. heavy
fuel oil (HFO), marine gas oil (MGO), very low-sulphur fuel oil (VLSFO) and, more recently on a small scale, the use of liquefied natural gas (LNG) currently provide up to 99% of the sector’s final energy demand. International shipping enables 80-90% of global trade and comprises about 70% of global shipping energy emissions. If the international shipping sector were a country, it would be the sixth or seventh-largest CO2 emitter, comparable to Germany.
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