Carbon Emission Targets in the cloud of COVID-19

The Global coronavirus pandemic is an event never seen in our lifetimes, impacting lives, livelihoods and the normal functioning of society and commerce, as well as interrupting energy demand and reducing emissions. As the world continues to be on lock-down indicators show transportation, manufacturing and electricity demand is being reduced. The rollout of the International Maritime Organization’s (IMO) sulphur cap has also been overshadowed by the pandemic which is having a major impact on shipping globally. Although, ironically, air quality has improved as a result of reduced traffic.

There have also been notable intermissions with countries like the UK planning to suspend checks for compliant fuels. And, talks about nationally focused sourcing, as countries have been forced to become more self-sufficient and resourceful. In an effort to minimise the impact on their supply chain.

Global fuel demand

As an industry, we’re all shocked by the dramatic fall in fuel prices. Everyone was expecting price spikes in January rather than downward price trends. Covid-19 has reduced oil demand across the world with people staying at home, industries pausing and the need for consumer goods declining.

The International Energy Agency has forecast a 5% Y-o-Y reduction of global marine fuel oil demand; other forecasts are as high as 7 to 10%. But does this figure take into account a potential second wave of the pandemic if it isn’t squashed this year? If not, this figure could be too low.

Catalyst for change

What is certain is that Covid-19 will act as a catalyst for change as the phenomenon will have a far wider, more profound impact on global fuel oil demand for years to come. It could even reverse the drive for globalization which in itself will help reduce carbon emissions.

As it stands, consumers are becoming far more aware of lifestyle habits and the impact these have on their carbon footprint. From the production, use and end-of-life of the products/services, they consume on a daily basis such as transportation, fast fashion and food. Educated consumers will make different choices and proactively change their buying behaviours to help reduce and offset emissions.

Combine that with Covid-19 related issues such as the problematic sourcing of personal protective equipment in-country. And, the desire for countries to develop vaccines locally in an effort to avoid lengthy international queues for inoculations.

We could see a ripple effect and a gradual decline in marine fuel demand as the overall requirement for shipping goods reduces. There could be a trend away from the container sector as the volume of finished goods reduces. With a move towards bulkers, for instance, as the requirement to source raw materials and commodities for local production increases.

But what does this all mean for IMO’s 2030 and 2050 emissions targets

In the short term there will be a net reduction in shipping emissions directly due to the reduced fuel demand because of the pandemic. But even now we see the economic pressure to survive taking precedence over environmental concerns. With some operators taking advantage of the low fuel costs, by sending their vessels via the Cape of Good Hope rather than using the Suez Canal. Where the savings, even with additional fuel costs and a longer voyage, still outweigh the canal transit fees.

The cost to decarbonise shipping

Maritime transport emits around 940 million tonnes of CO2 annually, driving the cost to decarbonize shipping up to $1trn.

The Global Maritime Forum’s ‘Getting to Zero Coalition’ report includes requirements in land-based infrastructure and on-board technologies to achieve the targets. But, given the reduction in capital expenditure (capex) many will face. The investment in LNG vessels and the long-term investment in hydrogen, ammonia, electric etc; are going to become even longer-term ambitions.

This creates an opportunity for “drop-in” biofuels to replace some marine fuels and bridge the gap. Keeping the industry on the path to decarbonisation without the requirement for additional capex. There is also an opportunity for the price differential to be paid for by a new form of ‘carbon adjustment factor’. An additional surcharge passed to the ship operators to compensate for the fluctuations in the fuel prices. Very similar to the current Bunker Adjustment Factors (BAF) that has been around for many years.

The path to success

Whatever the outcome, the path to recovery from this pandemic and decarbonisation, need to go hand-in-hand. If the shipping industry is going to make positive strides to reduce CO2 then environmental regulations should be both adhered to and enforced.

It’s clear that tackling climate change is going to be financially challenging, but the industry doesn’t have much of a choice without having negative implications on the environment. There is more to do with less time to do it in.

Many should assess their fuel strategies and reconsider the options to retrofit their engines and/or use biofuels to bridge the gap.

Technology will also play a huge role in revitalizing both the economy, finding operational gains and progressing innovative ways to become greener and cleaner.