NOBODY, other than European politicians and bureaucrats and environmental campaigners, really thought decarbonisation of the shipping industry would be easy, did they? Certainly nobody working within the industry did. Whether anybody realised just how complicated and difficult the process would be is another matter.

The International Maritime Organization (IMO) is struggling belatedly to put together a net-zero strategy that has a chance of being generally accepted while the EU has steamed ahead with extending the coverage of its Emissions Trading Scheme to shipping.

IMO, the shipping industry and (perhaps) EU bureaucrats are learning the hard way that the devil is in the details. IMO’s Carbon Intensity Indicator, on which the UN agency’s decarbonisation plans are largely dependent, has proved to be highly problematic and will have to be comprehensively revisited.

So many unknowns

More fundamentally, IMO and the EU are trying to regulate unknowns. New developments in alternative fuels and technologies are landing in my inbox every day. Nobody yet knows what a net-zero shipping industry will look like.

One big trap for the unwary is trying to mandate what fuel type or technology can be used. Ashore, the forced move to electric vehicles (EVs) looks like turning into a hugely expensive demonstration of what not to do. Incidentally, it also highlights the perils of not taking into account the need to be able to transport the key components of your strategy around the world safely by sea. At least one vehicle carrier shipowner is refusing to carry EVs while marine insurers are getting jittery about covering ships transporting EVs. Lithium battery fires at sea are very bad news.

IMO is playing catch-up with onboard carbon capture technologies but has so far not addressed the possibility of offsetting greenhouse gas emissions from ships with carbon capture ashore. That is probably because it is a difficult and controversial topic.

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Unilateral EC action

Now there has been a very interesting recent development regarding the EU Emissions Trading System (EU ETS). The Methanol Institute (MI) and SEA-LNG, two bodies that promote the interests of the methanol and liquefied natural gas (LNG) industries, respectively, are very cross with European Commission (EC), which essentially runs the ETS.

The EC has just announced it intends, in the MI and SEA-LNG’s words, to “exclude the automatic certification of biomethane and biomethanol-based fuels produced through mass balance chain of custody in third-party countries outside the EU gas grids within the Union Database, an IT system to trace the sustainability and origin of renewable fuels place into service in the European market”.

Yes, I know that is terrible and almost impenetrable technical gobbledegook. But as noted right at the top of this column, decarbonisation is complicated.

According to MI and SEA-LNG, what this means in practice is that the exclusion would “severely limit the use of these critical fuels in decarbonising intra-European and international maritime transport even if these fuels were produced in accordance with EU regulations under the Renewable Energy Directive (RED)”.

The two bodies believe the move would create a trade barrier threatening to “impede the importation of biomethane and biomethanol into the European Union, limiting the availability and increasing the costs of these fuels to the bunkering industry in Europe”.

Crucially, fuels produced outside the EU would not be recognised under the EU’s Renewable Energy Directive (RED). Consequently, MI and SEA-LNG warn, “these fuels may not be able to generate credits under EU ETS and FuelEU Maritime”.

MI and SEA-LNG are asking for “an urgent meeting between our representatives and those of the European Commission to discuss necessary amendments to ensure a sustainable and competitive energy future for the European maritime sector”. I would like to be a fly on the wall at that meeting if it happens. Control freakery central versus commercial reality.

Of course, this all underlines the fundamental problem that the EU is unilaterally imposing its environmental taxation scheme on international shipping.

Singapore’s contribution under EU ETS

Talking of which, it appears that Singapore-registered vessels will be required to contribute a significant 330 million euro (S$480 million) share of Asian shipping’s total emissions liabilities under the EU ETS, according to OceanScore.

The Hamburg-based maritime technology firm predicts that 5.5 million EU Allowances (EUAs), or carbon credits, will have to be surrendered for some 1,120 liable vessels registered in Singapore once the EU ETS is fully implemented in 2026.

That estimate is based on the current carbon price of 60 euros per tonne of CO2. It is anybody’s guess what the cost will be in two years’ time. That is exactly why the shipping industry really doesn’t like the EU ETS.

OceanScore notes that Singapore is second only to China and Hong Kong, together with Taiwan, in having the highest number of EUA commitments among non-European countries and is also ahead of non-EU European nations such as the UK and Norway, which will have to surrender 4.4 per cent and 3.8 per cent of global EUAs, respectively.

However, OceanScore’s co-managing director Albrecht Grell sees Singapore’s large contribution to EU coffers as a positive. He asserts: “These figures clearly demonstrate the importance and continued growth of Singapore as a magnet for international shipping due to the advantages of its geographical location, as well as world-class port infrastructure, a diverse maritime services cluster, business incentives and green shipping initiatives.”

All of that is true. As noted in last week’s column, a new report from classification society DNV and Menon Economics has found that Singapore has retained its title as the world’s leading maritime city.

However, there is a reason why OceanScore is looking on the bright side. The company is “now supporting a growing number of non-European shipping companies with EU ETS compliance through its web-based digital application ETS Manager, an end-to-end management solution for tracking, allocation and accounting of EUAs to simplify complexity and mitigate risk”. It will soon have a representative office in Singapore and “currently serves more than 70 shipping companies worldwide, representing over 1,000 vessels”. And OceanScore is by no means the only company benefiting from the ETS. There is now a burgeoning sub-industry taking the extra workload imposed by the ETS off shipowners’ shoulders.

IMO’s Marine Environment Protection Committee convenes for it 82nd session on Sep 30 this year. It desperately needs to come up with a strategy that is straightforward, effective and actually contributes to the decarbonisation of shipping. In other words the polar opposite of the EU ETS.