Sources say that ocean freight costs will remain high in 2022, as regulators and investors scramble for decarbonization of the shipping industry and companies struggle with green financing.
Shipping, which accounts for almost 3% of the world’s CO2 emissions and handles 90% of global trade, is being urged by environmentalists to take more concrete action, including a carbon tax. The UN’s specialist shipping agency, the International Maritime Organization (IMO), has claimed that it has made significant progress in short-term greenhouse gas (GHGs) reduction measures.
Environmentalists and a number 175 IMO member nations don’t see this timeline as being fast enough. “Regulators will be under a lot pressure at the MEPC meeting (IMO committee) next June to ensure they are ready to negotiate a solution and not just kicking the can down a road due to misalignment. Christian Michael Ingerslev is chief executive of Maersk Tankers.
Last month, the IMO adopted a zero emission target by 2050. This was supported by the United States and other countries at the COP 26 summit on climate change. The IMO has so far set a goal to reduce overall GHG emissions by 50% by 2050 from 2008 levels.
Faig Abbasov, a member of green group Transport & Environment, stated that “as far as IMO is concerned,” the negotiations process in 2022 “will likely be very slow- and onerous.” “The problem is in believing that a U.N. institution with 175 members could come together and make tough decisions to decarbonize an entire economic sector.”
The IMO stated that concrete progress was made in 2021 regarding climate change. They also added that they would “work very hard” next to develop a revised GHG Strategy, which will be finalised 2023. RoelHoenders, head of air pollution and energy efficient at the IMO, said, “Where there is willingness to act then processes can move faster.”
The IMO has not yet approved a proposal to establish a $5 billion research-and-development fund to find the right technology for meeting the targets. Additional talks are scheduled for next year. The impact on poorer countries, such as Pakistan, will be an important indicator of the difficulties ahead.
Pakistan’s Federal Ministry of Maritime Affairs Ali Haider Zaidi explained that while the country was a small carbon-emitter, climate change had “directly impacted our hard”. “Developing countries cannot afford the type of infrastructure necessary and therefore, developed nations must support the process in the IMO,” he said to Reuters, referring to the R&D funding.
FINANCING STRAIN Financing the way ahead is another hurdle. Analyst estimates suggest that shipping will require $2.4 trillion to achieve net zero emissions by 2050. Another hurdle is financing the path ahead.
Tony Foster, chief executive of Marine Capital, a specialist asset manager, said that the criteria for sustainable finance will be met by the European banks. “When it comes down to funding new assets, it will be more difficult to finance anything that doesn’t qualify, and it may be even more difficult for existing assets.”
Darren Maupin, founder and chief fund manager Pilgrim Global, stated that companies in the shipping industry were struggling to secure finance under more ESG pressure. Maupin said that capital is afraid – how can you invest in a 25 years asset when you don’t know what the IMO will do over the next five years?
“The industry has a much lower ability to build ships and a limited amount of capital to do so. Simple supply-demand logic suggests that rates will rise and the industry will need to raise more capital to finance itself. (Editing by David Evans
(This story is not edited by Devdiscourse staff.