The International Maritime Organization (IMO) has officially backed the adoption of alternative fuels as a strategy to help address climate change. But the transition won’t be easy. Currently, they are more expensive than other fuels, which means an incentive structure might be needed to encourage shipping lines to make the switch.
That might be a little premature, because it’s currently quite difficult to measure the value and impact of such choices. That’s why the first step towards the adoption of alternative fuels is better data, enabling the industry to better assess the cost and impact.
The alternative fuel challenge
The IMO’s Maritime Environment Protection Committee (MEPC) recently revised its greenhouse gas strategy in a move that has divided the shipping sector. It is the first time MEPC has put forward concrete reduction targets. Some believe the revisions do not go far enough and IMO failed to show leadership in maritime decarbonisation, while others argue this is the first practical step needed to instigate meaningful change.
Regardless, MEPC 80 makes clear the IMO’s position that the adoption of alternative fuels is required to address climate change, and this will be a complex process. A recent survey from McKinsey found that two-thirds of shipping companies already have a view on what their fuel usage will look like in 2030 and 2050. The consensus is that there is no silver bullet, and we will see instead a complex portfolio of many alternative fuels.
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Contrary to popular belief, there is enough shipyard capacity and new engines to support the adoption of alternative fuels. The remaining bottleneck is the supply of these fuels and the logistical infrastructure required to bring them from production to bunker to the ships. As a result, these alternative fuels are hard to source and much more expensive than traditional fuels.
Clearly the elephant in the room is money — and who will pick up the tab for the price difference?
What gets measured gets managed
As always, the answer is nuanced. Since shippers are as price conscious and competitive as ever, it’s unlikely they will flock to more expensive alternative fuels. The hope then is that a global carbon levy will kick start the adoption of alternative fuels and propagate across the industry. However, there are many challenges to the adoption of such a levy, which could unfairly penalize developing countries, where traditional fuels will likely remain cheaper for longer. Another thorny question would be how the proceeds from the levy would be used.
With no global levy in sight, customers may have little incentive to adopt alternative fuels. The benefits are difficult to measure, and the availability and on time performance metrics are unlikely to be better, despite the additional expense.
If adopting alternative fuels does not present measurable value for customers, they could fall victim to a classic chicken and egg situation. If shipping lines and customers do not adopt the alternative fuels, then there is no impetus for producers to make them in quantities that would bring the price down. If price differential remains high, there is no incentive for adopting alternative fuels. The key question is how to incentivize and reward the early adopters of alternative fuels?
This starts with being able to measure the value and impact of such choices so that those early adopters can be rewarded. To quote management guru Peter Drucker, what gets measured gets managed.
Lack of data
Unfortunately, this itself is a challenge for the shipping industry. Measuring value and impact across global supply chains requires access to data. Yet the very nature of global trade is that disparate, competing market participants are forced to work with each other, often while doing what they can to avoid sharing data. Fuel producers and bunkering agents are reluctant to share data transparently. Even shipping lines in alliances are unwilling to share operational data between themselves.
There is no incentive within the industry for participants to share accurate, timely and relevant data since operational data is commercially sensitive. Data localisation laws also present another hurdle when data needs to be shared globally. The European Union is perhaps the most impactful in driving the need for data sharing through regulations such as EU ETS. But it is China, the world’s largest exporter and a key source for renewable energy, which is likely to be the source of the lion’s share of relevant data.
Across the industry, we have a vast landscape of data siloes with little alignment or trusted collaboration. If customers cannot get the source data from their service providers who are charging them a green premium, this void creates the risk for unverified claims and worse still, greenwashing.
Breaking down data siloes
Piecing together the data necessary to measure the impact for alternative fuels is something of a minefield. The industry as a whole needs to break down data siloes, build connections to verified data and enable trusted data exchange.
GSBN — a not-for-profit independent technology consortium with a mission to support the shipping industry’s shift towards digitalisation — can help. We focus on developing a neutral, blockchain-enabled data infrastructure that is designed to enable trusted data sharing among stakeholders. Solutions like ours not only serve as a standardised source of immutable data, but also help to verify and audit emissions footprint claims on the road to full maritime decarbonisation.
A book and claim system is a good example of the value of independence. This type of system enables a shipping line to ‘book’ environmental benefits of a particular voyage, which consumers can then ‘claim’ on another voyage. By de-coupling sustainability from physical voyages, customers can pay for alternative fuels even if they’re not available for their specific voyage. And by building connections to verified data and enabling trusted data exchange across the industry, it is also easier for classification societies such as DNV to calculate and verify any green claims for the end customers.
There must be an industry-wide push for greater transparency and accountability, empowering stakeholders to measure the value of alternative fuels to both the customer and the environment. Not only can shipping lines and customers alike use this to justify the investment to their shareholders and customers, but it can in turn create the momentum needed to enable industry-wide change.