Supply Chains and Transportation

How green stimulus measures could fuel the decarbonization of shipping

shipping container port trade logistics bunker fuel decarbonization green stimulus energy

Policymakers should invest in shipping’s green transition when deciding on policies and stimulus measures to kickstart the global economy. Image: Ronan Furuta/Unsplash

Johannah Christensen
Managing Director, Global Maritime Forum
Anthony Robert Hobley
Executive Fellow, Strategic Engagement, Centre for Nature and Climate, World Economic Forum Geneva
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Decarbonizing Energy

This article is part of: Race to Zero Dialogues
  • Governments' response to the health and economic consequences of the coronavirus is an encouraging sign that they can tackle climate change, too.
  • When deciding on policies and stimulus measures to kickstart the global economy, policymakers should invest in decarbonizing shipping.
  • By decarbonizing shipping, we can unlock a global energy transition.

We are in the middle of a global health crisis that will have severe consequences for people around the world. What this pandemic has shown us in such a terrifying way is that we need to rebuild our economies, so they provide us with jobs and a society that is secure, resilient and safe. How can we minimize the harmful effects on the fight against climate change?

We have built our economies – our societies – in a way that too often ignores science and our dependence on the natural world. COVID-19 has infused a renewed confidence in science and appreciation of how vulnerable our economies are at a global level.

People do not want to be back here in another systemic crisis in 10 years’ time – whether the cause is a pandemic, climate change, biodiversity loss or inequality. People want society to be transformed in a way that’s more secure, more resilient – safer. We’re calling it the Great Transformation. What that means is "building back better." Stimulating sustainable growth – not decline. Stimulating resilience – not vulnerability.

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This creates an appreciation that the fight against climate change is an important part of what it means to “build back better” so it will not be a victim of the pandemic outbreak. The climate reports from the UN Intergovernmental Panel on Climate Change still speak their clear language, highlighting "the urgent need for the development of concrete actions that halt the worst effects of climate change.”

Governments around the world have demonstrated the ability to respond decisively to the immediate health and economic consequences of the virus. This represents an encouraging sign that climate change can be tackled by the world community.

As policymakers formulate policies and stimulus measures to kickstart the global economy, they have a unique opportunity to rebuild a better, more sustainable, more resilient economy by taking the long-term impacts of investments on the climate into consideration. Lessons of the coronavirus tell us that there is a need for a resilient and future-proof strategy to shape a sustainable future to avoid another global emergency with destructive and irreversible consequences on human wellbeing.

International shipping is a critical infrastructure sector, yet the industry has been hesitant to call for economic support. It is not possible for the industry to suffer through the greatest drop in trade the world has ever seen while also investing unilaterally in the future of decarbonized shipping. Governments can and must play an important role in incentivizing large-scale demonstration projects required to drive down costs and accelerate the technology development of zero-carbon vessels. Supporting the replacement of domestic vessels with zero-carbon alternatives would be one way to create sustainable jobs, by both reducing domestic emissions and preparing shipyards for future demand for zero-emission deep sea vessels once demand starts picking up post-COVID-19.

Leaders can find inspiration in a study by the Energy Transitions Commission and UMAS for the Getting to Zero Coalition. It looks at the cumulative infrastructure investment that is needed for shipping to make a radical shift to zero-carbon energy sources required to halve the industry’s greenhouse gas emissions by 2050.

Total investments needed to achieve IMO decarbonization targets and investments needed to fully decarbonize shipping by 2050
Total investments needed to achieve decarbonization targets and fully decarbonize shipping by 2050 Image: UMAS/Energy Transitions Commission/Getting to Zero Coalition

Depending on the production method, the infrastructure investment needed between 2030 and 2050 to halve international shipping’s emissions amounts to approximately $1-1.4 trillion, or an average of $50-70 billion annually for 20 years. This amounts to 2.7%-3.7% of the 2018 global investment in energy of $1.85 trillion, which is commensurate with shipping’s use of fuels.

The study also reveals that shipping’s decarbonization to a large extent will take place on land. The biggest share of investment is needed in the land-based infrastructure and production facilities for low-carbon fuels, which make up around 87% of the total. Only 13% of the investment needed is related to the ships themselves.

Public investments targeted at the land-based infrastructure that can boost shipping’s green transition will lead to positive effects that go beyond the maritime industry.

Shipping’s decarbonization has the scale to unlock a global energy transition. The falling costs of zero-carbon energy technologies will make alternative fuels increasingly competitive. The price of costly electrolyzes that are used to turn renewable electricity from wind, sun and water into low-carbon fuels are calculated by McKinsey to fall by six times if only 2.5% of the global fleet convert to these new "electrofuels”.

Shipping’s consumption of fuels is estimated to be around 250-300 million tonnes every year – approximately 4% of the global oil demand. This means that shipping has the potential to increase confidence among suppliers of future fuels and thus be a catalyst that brings scale to the deployment of low-carbon fuels for the broader energy transition, unlocking the market for these fuels across a range of industries and other hard-to-abate sectors.

Shipping’s decarbonization should leave no country behind. Investment in the land-based energy infrastructure could also bring substantial development gains. If shipping becomes a reliable source of demand for low-carbon fuels, it has the potential to drive investment in energy projects in developing and middle-income countries with access to abundant untapped renewable resources. A study by the Environmental Defense Fund Europe estimates that solar panels covering less than 1% of the Sahara Desert would generate enough electricity to produce low carbon fuels to power the entire international shipping fleet.

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What's the World Economic Forum doing about the transition to clean energy?

This is what people are asking for – they have realised that we have built a society on sand and they want it to be built on firmer foundations. Governments are at a crossroads. They have a historic opportunity for a Great Transformation, by building back better from the current crisis and steering the world in a more sustainable direction. The Ambition of the Getting to Zero Coalition resolutely supports this vision: to have commercially viable ZEVs operating along deep sea trade routes by 2030, supported by the necessary infrastructure for scalable zero-carbon energy sources including production, distribution, storage and bunkering.

The big mistake made during the 2008 financial crash was that governments and businesses generally rebuilt back in the same way as before. They didn’t take the opportunity for a Great Transformation, to build back better. Let’s not make that mistake this time. That’s why we need the Great Transformation in the maritime sector right now.

The Getting to Zero Coalition has been endorsed by governments of 14 countries. We invite others to join the conversation about how we can accelerate shipping’s green transition while taking into consideration the technological and economic impact on trade and developing states.

This article was first published in TradeWinds.

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Supply Chains and TransportationEnergy TransitionHealth and Healthcare SystemsForum Institutional
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