DNV: Efficiency Measures Are Shipping's Best Bet for GHG Reduction

The delay in adoption of the IMO's Net Zero Framework (NZF) has changed the outlook for low-emissions shipping, and DNV's annual Forecast to 2050 report reflects the new reality: fuel efficiency and flexibility are the new watchwords, and green fuels will likely be powering the back burner for years to come.

The cost of developing a widely available green fuel supply remains the big challenge. While proposed green-fuel manufacturing projects totaling 270 Mtoe are slated for readiness by 2030, and about five percent of the world's fleet is capable of burning alternative fuels, the cost structure does not appear supportive for demand development in the near term. DNV expects demand for low-GHG fuels in the shipping sector to range from 4-22 Mtoe in the same timeframe, rising to at most 33-185 Mtoe by midcentury - a fraction of the potential pre-FID-status supply on the books today.

The upper range of those demand projections also depends upon the adoption of the IMO Net Zero Framework (NZF), which would create financial incentives to buy green fuels. The NZF "remedial" penalty tier would be initially priced at $380 per tonne of CO2 equivalent (about $1,200 per tonne of bunker fuel) for out-of-compliance fuel consumption, high enough to start driving adoption.

But the NZF faces stiff political opposition as-written, not least from the United States, and its future is uncertain. If adopted as it is, it could enter into effect as early as 2029. If modified in additional negotiations, or replaced with a different text, entry into force could be delayed as late as 2030-2033 - leaving just 17 years to hit the IMO 2050 target.

The uncertainty means that when planning future fleet investments, owners have to take not just the scale of the regulatory transition into consideration, but also the speed at which it happens, DNV says. A delayed (or canceled) NZF is a much different scenario than a rapid-onset NZF, with correspondingly different risk-reward profiles for owning bunker-fueled or dual-fueled ships.

In the immediate term, there is still something that owners can do to "green" their operations economically. Many energy efficiency measures (hydrodynamic improvements, wind-assisted propulsion, engine derating) can save money and help meet compliance targets under all of the expected regulatory pathways. DNV estimates that shipping could cut its emissions by 16 percent by 2030 and up to 25 percent by 2050 through efficiency measures and speed reduction alone - achieving half the IMO target for GHG cuts merely by using less fuel, and saving more than $20 billion a year in bunkering costs along the way. The financial math for the upfront investment in efficiency devices still has to make sense; as ever, it depends in part on a contractual mechanism for the owner to recoup a share of the fuel savings from the charterer, who typically pays for the fuel and accrues the benefits of higher efficiency.

"Reducing energy consumption lowers emissions, saves costs, and improves the economics of operating on more expensive low-GHG fuels. It is one of the rare areas where decisions taken today create benefits under almost any future scenario. Just as importantly, it creates resilience in a world where energy markets, fuel costs, and geopolitical conditions can change rapidly," said Cristina Saenz de Santa Maria, CEO of DNV Maritime, in an accompanying statement.