Decarbonisation Technology - November 2023 Issue

principles and criteria that should be considered: • The measures should effectively promote the energy transition of shipping and provide the world fleet with the necessary incentive • The measures should contribute to a level playing field and a just and equitable transition • They need to consider the impacts of measures on states, including developing countries, in particular the least developed countries (LDCs) and small island developing states (SIDS). Considering these principles and criteria, we can put forward a number of more concrete considerations that can be used to arrive at an optimised basket of measures as defined in the strategy. The measures should steer the energy transition, and the word transition is very relevant. It describes a process over a period of time and not a sudden step change. This is logical, as the transition requires the introduction of new fuel production and new engine technologies. This process that takes time, with a need to develop experience before going into the large-scale roll-out of the new technologies. The introduction of new technologies typically follows an S-curve with relatively slow initial growth in the application of the new technology, followed by a ramp-up period. To foster this process, a combination of measures can and should be put in place that gradually disincentivises the use of conventional technology and incentivises the application of the new technologies. It is rather important that the disincentivising of conventional technologies does not happen in a brutal, sudden way, as that would have an immediate important effect on the cost of shipping and may lead to an unacceptable impact on states. Rather, a modest initial disincentive with a pre-announced timeline for increasing the disincentive would do the job. It would provide a clear signal that conventional technology will be phased out while leaving sufficient time for the industry to adjust and avoid a major increase in shipping cost, for example by further focus on energy efficiency measures. Incentives for the new technologies, on the other hand, will need to be substantial initially. The need for incentives should decrease over time as experience is gained, technologies are improved, and economy of scale helps to bring down the cost of alternative fuels.

To maintain a level playing field, measures will be needed that effectively close the cost gap between conventional fuels and zero and near-zero GHG fuels. While there may be ways to do this through a combination of levies and subsidies, a strong business case could also be created by allowing compliance with the GHG standard within a pool of ships. In this way, the higher cost of an alternative fuel used in one vessel could be covered by the pool, effectively spreading the cost over a number of vessels that continue to use conventional fuels while meeting the GHG standard on a pool basis. The EU’s recently adopted FuelEU Maritime regulation includes such a mechanism (Council of the EU, 2023). Availability of near-zero carbon fuels A further critical question concerns the availability of alternative fuels in sufficient quantities to allow the shipping industry to meet the IMO targets. A study commissioned by IMO to look into the feasibility of different decarbonisation pathways concluded that full decarbonisation by 2050 is feasible through a realistic sustained annual fuel production growth rate, provided measures to create the demand are put in place promptly (Michael Campbell, 2023). On the other hand, a recent study by DNV has looked into this question and concluded, based on a comprehensive mapping of currently announced projects, that demand for shipping could amount to 30 to 40% of global carbon- neutral fuel production in 2030 (DNV, 2023). Other industry sectors will be competing for these fuels as part of their decarbonisation efforts. This means that a supply shortage could occur, leading to high market prices. It may, therefore, be desirable to consider a mechanism that caps the maximum fuel cost, at a level that is high enough to encourage the switch to low- and zero-carbon fuels, but such that the impact on shipping costs and, consequently, the impact on states remains acceptable. Again, the EU’s recently adopted FuelEU Maritime regulation includes such a mechanism. European countries have developed a proposal that would introduce similar concepts at a global level to IMO. Focusing on the technical element of the proposed IMO mid-term measures should hold


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