At least $1 trillion of capital investment in land-based and ship-related infrastructure will be needed to achieve the IMO target of reducing world shipping’s total greenhouse gas emissions by at least 50% of 2008 levels by 2050.
This transition requires significant infrastructure investments in new fuel production, supply chains, and a new or retrofitted fleet. To put the scale of the investment in perspective, $1 trillion (1,000,000,000,000) is the equivalent of about two-thirds of all physical U.S. currency currently in circulation.
The $1 trillion number comes from a new study for the Getting to Zero coalition by London-based consultancy UMAS (University Maritime Advisory Services) and the Energy Transitions Commission, which describes itself as “a diverse group from across the energy landscape, aiming to accelerate change towards low-carbon energy systems that enable robust economic development and limit the rise in global temperature to well below 2°C.”
According to the UMAS study, depending on the production method, the cumulative investment needed between 2030 and 2050 to halve shipping’s emissions amounts to approximately $1-1.4 trillion, or an average of $50-70 billion annually for 20 years. If shipping is to fully decarbonize by 2050, this will require further investments of some $400 billion over 20 years, bringing the total to $1.4-1.9 trillion.
BIGGEST INVESTMENT: SHORESIDE INFRASTRUCTURE
The biggest share of investments is needed in the land-based infrastructure and production facilities for low carbon fuels, which make up around 87% of the total. This includes investments in the production of low carbon fuels, and the land-based storage and bunkering infrastructure needed for their supply.
Only 13% of the investments needed related to the ships themselves. These investments include the machinery and onboard storage required for a ship to run on low carbon fuels in newbuilds and, in some cases, for retrofits.
Ship-related investments also include investments in improving energy efficiency, which are estimated to grow due to the higher cost of low carbon fuels compared to traditional marine fuels.
“The investment needed should be seen in the context of global investments in energy, which in 2018 amounted to $1.85 trillion,” says Johannah Christensen, Managing Director, Head of Projects & Programs at the Global Maritime Forum, a partner of the Getting to Zero Coalition. “This illustrates that shipping’s green transition is considerable, but certainly within reach if the right policy measures are put in place.”
“Energy infrastructure and ships are long-life capital-intensive assets that normally evolve slowly,” says Dr. Tristan Smith, Reader at the UCL Energy Institute. “In the next three decades however, our analysis suggests we will see a disruptive and rapid change to align to a new zero carbon system, with fossil fuel aligned assets becoming obsolete or needing significant modification. Even though regulatory drivers of this system change such as carbon pricing are only starting to be debated, the economic viability of today’s investments and even the returns on recent investments will be challenged, and the sooner this is factored in to strategies and plans, the better.”
GLOBAL CARBON LEVY
At the Global Maritime Forum’s recent Annual Summit, maritime leaders proposed a global carbon levy to accelerate shipping’s decarbonization through investments in technology and design of new propulsion systems, alternative fuels, and scaling and infrastructure to deliver these fuels – while taking into consideration the impact on trade and developing states. The starting level for a carbon levy should be $10 per ton CO2, and $50-$75 per ton CO2 by around 2030. A price of $10 per ton CO2 would correspond to an annual fund of $8 billion. A price of $75 per ton CO2 would correspond to an annual fund of $70 billion.