As the shipping industry is responsible for around 2-3% of global carbon emissions, its contribution to climate change cannot be ignored. But the global shipping industry finds itself facing substantial challenges as it works to meet ambitious decarbonisation targets. Moody’s has explored this in depth: why can’t shipping decarbonise now?
The financial agency’s report points out how the shipping industry is still struggling to reduce its carbon footprint. This despite regulatory pressures and the growing urgency to tackle climate change. Moody’s described the difficulties in depth, focusing on the shortage of sustainable fuels and the long, expensive process of transitioning to greener vessels.
Shipping needs to decarbonise
The industry still depends on traditional bunker fuel and liquefied natural gas (LNG). This means that the vast majority of vessels are still powered by fossil fuels. This undermines efforts to cut emissions significantly in the near future.
At present, roughly 90% of commercial vessels use bunker fuel, a highly polluting energy source. The remaining 10% are mostly powered by LNG, a cleaner but still fossil-based alternative. LNG does emit less carbon dioxide (CO₂) than marine diesel when burned, but its full life cycle emissions remain a subject of debate. Even looking ahead to 2029, a significant proportion of new ships, more than 70%, will continue to rely on these traditional fuels.
Combining the order book with today’s fleet – in other words, not scrapping older vessels – would result in a maritime industry where more than 90% of the fleet burns fossil-based fuel in 2029. What’s more, Moody’s reports that only around half of vessels shown to use green fuels in the expected fleet are ‘methanol/ammonia ready’. This means engines require expensive and time-consuming upgrades following delivery.
Maersk’s decarbonisation dilemma
Danish shipping giant Maersk provides a telling example of the difficulties shipping companies face in moving towards greener operations. Maersk had long been sceptical about LNG. They view it as only a partial solution to decarbonisation, given its fossil fuel origins. However, the company has recently ordered 50 to 60 dual-fuel ships that can run on LNG.
This shift in strategy highlights the main challenge in shipping’s decarbonisation: the lack of readily available sustainable fuels like methanol. Sustainable methanol, which is seen as a potential green alternative to fossil-based marine fuels, remains in short supply.
According to Moody’s, there simply isn’t enough of it available to meet demand. And this shortage will likely persist for the next decade, if not longer. This forced Maersk to adjust its strategy, despite its ambitious environmental goals. They include a 35% reduction in emissions by 2030 and 96% by 2040.
Why shipping can’t decarbonise now?
Moody’s calls the absence of globally-coordinated regulations for reducing absolute carbon emissions, in conjunction with insufficient incentives for shipping companies and their customers to boost demand and production of green fuels, “credit negative” for the shipping industry.
The UN’s International Maritime Organization (IMO) is setting carbon emission reduction targets for 2030 and 2040. So there is a pressing need for shipping companies to modernise their fleets. This despite the lack of significant penalties for noncompliance.
However, investing in new ships – such as those equipped to run on methanol or ammonia – could ultimately prove disadvantageous in 15 years’ time if the fuel type becomes unavailable. “Without policies to stimulate demand and production of green fuels, the shipping industry will struggle to decarbonise in any meaningful way,” Moody’s says.
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