Safety and Shipping Review 2021:
The environmental picture

The shipping industry broadly acknowledges the need to reduce emissions, although progress has been slow. The IMO GHG Strategy of 2018 set ambitious targets to halve emissions from international shipping by 2050 and reduce carbon intensity by 40% by 2030, and 70% by 2050. A revised GHG strategy is due to be adopted in 2023.

With momentum gathering behind international efforts to tackle climate change, the industry is likely to come under increasing pressure to accelerate its efforts, according to Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.

“The shipping industry will need to step up a gear in its efforts to reduce emissions. A huge investment in research and development is required if the industry is to meet the challenging targets being set by the IMO and national governments. Today’s existing fleet and technology will not get the shipping industry to the IMO’s GHG target of a 50% cut in emissions by 2050, let alone the more ambitious targets being discussed by national governments,” says Khanna.

Ahead of the UN’s COP26 climate change summit in November 2021, shipping industry emissions are coming into sharp focus. The UK government recently added shipping to its plans for a 78% cut in GHG emissions by 2035. In April, the US called for the IMO to target net-zero [2] emissions by 2050, and said it would consider domestic measures to cut emissions from shipping.

In October 2020, the IMO’s [3] Intersessional Working Group on Reduction of GHG Emissions from Ships pushed ahead with its GHG-cutting strategy, approving amendments to the pollution prevention treaty MARPOL. Due to be adopted by the IMO in June 2021, the amendments pave the way for a carbon-intensity rating for vessels above 5,000 gross tonnage, as well as adding further technical and operational carbon-intensity reduction requirements for all ships. 

In addition to tougher emissions targets, growing Environmental, Social and Governance (ESG) reporting requirements will increasingly affect shipping. Investors, banks, insurers and customers will require information on the environmental impact of shipping companies. Going forward, shipping companies will be required to demonstrate their environmental impact when seeking investment, accessing financing and arranging insurance.

“Demand for green investments is rising and a growing number of financial institutions, including insurers, have committed to reducing their environmental impact, including through their investments, underwriting and lending activities. Insurers are increasingly subject to ESG reporting requirements, which will require insurers to incorporate ESG principles and the green credentials of vessels into underwriting,” says Justus Heinrich, Global Product Leader Marine Hull at AGCS.

According to the IMO, short-term options for reducing GHGs include operational changes – such as speed optimization – and the use of biofuels, as well as initiating research into alternative low-carbon and zero-carbon fuels. Potentially, the industry could face a carbon t ax, or a levy on emissions – the Marshall Islands and the Solomon Islands [4] have called for the IMO to impose a levy on carbon emissions by ships from 2025.

In April 2021, a group of prominent shipping organizations called on world leaders to bring forward discussions on the development of market-based measures to incentivize the industry to reduce greenhouse gases and adopt green technologies and fuels. The group, including the International Chamber of Shipping, BIMCO and the World Shipping Council, submitted a proposal to the IMO to expedite the development of market-based measures (such as a global carbon tax on shipping fuel), as well as accelerate research and development efforts for zero-carbon technologies.

According to the ICS [5], the industry needs to invest billions of dollars in the development of zero-emissions ships and fuels – such as those based on ammonia and hydrogen, as well as a wider roll-out of electrification – at speed and scale. A group of shipping organizations and maritime nations have asked the IMO to establish an International Maritime Research and Development Board to help develop green shipping technologies.

According to the IMO, the carbon intensity of the shipping industry as a whole improved by 20% to 30% between 2012 and 2018 – due to the increased size of vessels, as well as design and operational improvement – although the pace of reduction has slowed since 2015. Going forward, the IMO [6] says it will be difficult to achieve the 2050 GHG reduction ambition through energysaving technologies and speed reduction of ships alone. A large share of the total amount of CO2 reduction will have to come from the use of low-carbon alternative fuels.

Meeting GHG emission-cutting targets will require substantial investments in research and development and big changes in ship design and propulsion, which will have implications for risk and supply chains, says Khanna.

“I would expect ships to be significantly different in 20 years’ time, in terms of design and fuels. However, an understanding of the risk needs to be central to the transition to low-carbon shipping. As we have seen with large container ships, developments that do not focus on risk can lead to unintended consequences and increased exposures, with a wider impact on supply chains,” says Khanna

Since January 1, 2020, the cap on the sulphur content of ships’ fuel oil was cut to 0.5% (from 3.5%). Known as IMO 2020, the mandatory limit is expected to reduce emissions of harmful sulphur oxide (SOx) emissions from shipping by 77%, which should bring huge environmental and health benefits.

Vessels have several options to comply with IMO 2020, namely switching to low-sulphur fuels or the fitting of so-called scrubbers, which remove SOx from exhaust gases for vessels using heavy marine fuel. However, open loop scrubbers, which discharge sulphur contaminated wash water into the sea, face restrictions and bans in many ports and waters, including the US, Europe and parts of Asia. A number of ports and countries, including the US Coast Guard, say they plan to rigorously enforce IMO 2020, and could detain ships or impose large fines for vessels found in non-compliance. 

In the last five years, cargo traffic along the NSR has grown [12] almost fivefold, reaching 33 million tons in 2020. Last year there were 64 voyages on the NSR compared with 37 in 2019. Overall, shipping activity in the Arctic has grown 25% in the six year period 2013 to 2019, while the distance sailed by vessels in the region increased by 75%, according to the Arctic Shipping Status Report [13]. In 2019, 977 vessels entered the IMO Arctic Polar Code area. Bulk carrier activity, in particular, has increased significantly (the distance sailed increased by 160% during the six-year period) with the increase in iron ore extraction in Canada. In future, Russian officials have predicted that cargo traffic along the NSR could increase to 100mn tons by 2030.

The increase in Arctic shipping is made possible by the year-on-year reduction in sea ice. Data from the US National Snow and Ice Data Center shows the average Arctic sea ice extent decreased to 4.3 million sq km in 2019 from 6.1 million sq km 10 years earlier.

The grounding of the container ship Ever Given and blocking of the Suez Canal has also added to the case for shippers using the NSR, which can shave 4,000 nautical miles off traditional Asia to Europe shipping routes. However, climate change-concerns may also hamper development. A growing number of companies, including major manufacturers and shipping companies, have pledged not to ship goods through the Arctic Ocean on the grounds of the potential environmental impact.

In a bid to ensure Arctic shipping develops safely and environmentally, a mandatory code for ships operating in polar waters (the Polar Code) entered force in January 2017. It sets standards for vessel design, construction, equipment, operational, training, search and rescue, and environmental protection activities for ships operating in Polar waters.

Sailing in Arctic waters poses a number of risks, including unpredictable and extreme weather conditions, long periods of darkness, and the remoteness of the shipping routes from infrastructure and emergency response services. In the event of an accident, such as a grounding or a fire, the cost of salvage and environmental impact could be considerably higher than in non-Arctic waters, says Heinrich.

There is also currently a lack of good data on Arctic shipping, in particular detailed navigational charts and hydrography, according to Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS.

“The industry will need to find new ways to manage Arctic risks. In my career there has never been a new shipping route, so the challenges are mind-boggling. We need to actively collect voyage data and change the mindset of seafarers. Polar shipping requires a much more proactive approach to risk management. We need a new framework for data, technology and training, and not just wait to study casualties if this is to become a viable and safe shipping route,” says Kinsey.