What will it take to

decarbonize global
shipping?
Five critical levers that
make a difference
November 2021
What will it take to decarbonize global shipping?

A three-part series explores maritime

transportation’s decarbonization
journey, complementing the Mærsk
Mc-Kinney Møller Center for Zero
Carbon Shipping’s "Industry Transition
Strategy" report.

The second installment takes a look at

the critical levers in five key areas to
accelerate the decarbonization of the
maritime industry.

The Center would like to thank McKinsey & Company, as knowledge partner to the Center, for its analytical and
editorial contributions to this series of articles.

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 Five critical levers that make a difference

Introduction
Global shipping’s determination to reach with our partners, the Mærsk Mc-Kinney
carbon zero is admirable—but what will this Møller Center for Zero Carbon Shipping
endeavor actually require? has identified five critical levers that
stakeholders could activate to meet
In our first article, we learned that the existing challenges, and accelerate the
shipping industry’s current trajectory pace of decarbonization in global shipping.
could result in emissions growing around (See infographic 1.)
20 percent by 2050. Changing direction
towards carbon zero will involve significant While these levers apply to different facets
challenges, such as the high cost of clean of the shipping ecosystem, and impact
fuels, misaligned financial incentives various stakeholders differently, it would
between ship owners and charterers, be a mistake to think of them in isolation.
and a lack of consensus among In our analysis, no one lever by itself is
various stakeholders. able to generate sufficient impact on
decarbonization. To stand a fighting chance
To overcome these hurdles, it’s crucial of propelling the shipping industry toward
to take stock of the tools we have at our carbon zero by the middle of the century,
disposal. Which will make the biggest stakeholders will need to activate all five
impact? How can we can wield them for levers in concert, sparking the reinforcing
maximum positive outcomes? Together effect they have on each other.

We analyze the impact of levers in five critical areas, using

the most probable and realistic outlook

1 Tech advancements on ship

2 Energy & fuel advancements

3 Policy and regulation

4 Finance-sector mobilization

5 Customer demand/pull

Note: These projections and outlooks are subject to significant uncertainty, predominately linked to the evolution of global environmental regulation and enforcement;
global trade developments; and the cost and competitiveness in the development of fuel alternatives. More information on each individual lever is presented in our
“deep dives”.

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What will it take to decarbonize global shipping?

Ship efficiency flows. Many of these nascent technologies

are still at the research and development
Innovations made onboard a vessel stage, and safety, scale, and operational
to enhance its fuel economy have the challenges may hinder their
potential to deliver a 40–50 percent eventual impact.
reduction in energy demand in new ships.
Onboard energy efficiency plays an By reducing fuel consumption and saving
important role both in the short-term and on emissions, ship efficiency is often “in the
the long run because it is fuel agnostic. This money” today, on a total-cost-of-ownership
means that if and when alternative fuels (TCO) basis. It also comes with the added
become more widely used, technologies advantage of having the biggest impact on
improving fuel efficiency will unlock further decarbonization from now to 2030. More
reductions in carbon emissions. efficient fuel consumption may help bring
forward the moment when alternative fuels
When it comes to existing technologies become more economically attractive to
an industry wide implementation of a shipping companies.
best practice of technology adoption,
application to optimise powering systems Compared to alternative fuels, most
and fleet operations holistically can take onboard efficiency innovations are cost-
us a long way. Substantial gains can for competitive, and typically yield good
example be achieved by implementing air- returns on investment. However, there
lubrication and wind-assisted propulsion are numerous technologies that are not
technologies on existing ships, as well as getting the attention they deserve. Without
voyage optimization software to reduce fuel continued investment, and increased
burn on a large scale. penetration of new technologies, energy
savings will be limited.
In terms of new technology, there are
several promising avenues to pursue, Activating this lever would require the
which may unlock greater efficiency. For industry to agree to extend the payoff
example, giving hulls biomimetic surfaces times on such investments, by adjusting
by replicating the qualities of shark skin, commercial structures and incentive
or incorporating passive air-entrapment dynamics. We estimate that if these new
qualities to reduce friction. Researchers technologies were to become commercially
could take inspiration from history’s available and widely adopted, better ship
seafarers, harnessing the power of wind efficiency could lead to a ten percent
as a primary source of propulsion, going reduction in carbon-dioxide emissions
beyond the flettner rotors and traditional every year to 2050. Furthermore, activating
sails already on the market. other levers—such as government
coordination and leadership—could further
Of course, digitalization and advanced reinforce and boost this impact.
data analytics could also optimize cargo

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 Five critical levers that make a difference

Alternative fuels Another limiting factor pushing up the price

of biofuels is that gathering the feedstocks
Technological advances could also open needed to create them is expensive. Raw
up more sustainable and environmentally materials are dispersed: vast networks
friendly fuel options. There are two primary of collection facilities are required to
categories of alternative fuels: biofuels and coordinate the transportation of feedstocks
electrofuels, each of which comes with a from both urban and rural areas, where
specific set of challenges that hinder their farms and forests spread out over large
widespread adoption. swathes of land.

Biofuels are sources of energy derived from The other category of alternative fuels,
biomass such as trees, crops, municipal electrofuels, depends on wind and
waste, and animal manure. With heat and solar energy to create green hydrogen,
pressure applied, these materials are which then can be transformed into
refined to extract carbon and hydrogen. various e-fuels to power ships. Unlike the
Examples of biofuels are bio-methanol and processes used to manufacture biofuels,
bio-methane. These chemical processes the electrolysis technology used to harness
have been around for decades, and solar and wind power is less mature,
innovation is unlikely to improve efficiency which means that much of its potential is
by the orders of magnitude necessary to untapped. A significant learning curve lies
make significant impact on ahead as deployment scales up. In addition,
carbon reductions. the levelized cost of solar and wind power

“Technological advances could

also open up more sustainable and
environmentally friendly
fuel options.”

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What will it take to decarbonize global shipping?

continues its steady march downwards Unlike onboard technological innovations,

as those technologies mature. Both these alternative fuels are currently not cost-
effects point to electrolysis becoming competitive, although the cost of utility-
increasingly cost-competitive. scale wind and solar energy has fallen by
between 5 and 15 percent annually over
One potential fuel that could make a the past five years. If no further action is
difference is e-ammonia, which isn’t yet taken, prices may continue declining at a
commercially available in the maritime gentler rate, with levelized cost of electricity
industry. However, production technology reaching about half of today’s by 2050.
is already known and optimized given the
century-long production of fertilizers. The It’s crucial that further improvements
challenge of using e-ammonia as a marine in the development and deployment of
fuel is two-fold: technical (shortage in its alternative fuels accelerate at a pace faster
main ingredient - green hydrogen, toxicity/ than the growth in demand for shipping
handling and refrigerated/pressurized fuel. Our modeling suggests that, despite
storage), and commercial (engines, the industry’s best efforts, the big price
bunkering infrastructure, and safety gap between fossil and alternative fuels
procedures). If these hurdles are overcome, won’t narrow sufficiently in time, to the point
however, e-ammonia would enjoy a long- where the entire industry is incentivized to
term cost advantage. switch their energy source. Thus, despite
clean, renewable sources of energy being
In the meantime, e-methanol offers a critically important component of global
a number of advantages. It has more shipping’s decarbonization efforts, we’ll
manageable handling requirements, and need additional support from other levers
unlike e-ammonia engines, projected to to fully realize the industry’s carbon-
enter the market in 2024, e-methanol zero ambitions.
engines are already commercially available.

“Both these effects point

to electrolysis becoming
increasingly cost-
competitive.”

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 Five critical levers that make a difference

Technology alone Policy and regulation

won’t set global Not all policy and regulations are effective
shipping on a path or achieve their purpose. Some may be
too restrictive, while others may be too
to carbon zero weak or improperly enforced. But that does
not mean that all regulation is harmful. In
What has emerged from our analysis is fact, we see regulation as an essential tool
that technology and innovation, as they in achieving the international goal, and
apply to onboard ship infrastructure and collective public good, of mitigating
energy sources, may be inadequate levers climate change.
in themselves to set global shipping’s
course toward carbon zero. Shipping is a As mentioned in the first article, ship owners
conservative industry, where technologies are often not incentivized to outfit their
need to be trialed and proven to work in vessels with the latest green technology, as
multiple contexts before they are adopted they are often unable to share the financial
at scale. Furthermore, the average ship burden with ship operators and charterers,
lasts over 20 years, making renewal of the who will likely opt for a cheaper lease.
fleet a slow-moving process. Governmental intervention could correct
this misalignment.
Thus, getting the shipping industry to
carbon zero is not just in the hands of The IMO is already coordinating this
shipping companies. The sector needs to international effort by establishing
work together with other offtake markets consensus among member states on a
to scale up both R&D investment in green number of fronts: carbon pricing schemes,
solutions, and the widespread adoption of and clear regulations for energy-efficiency
new technologies. This is why the remaining measures adopted by shipping players.
three levers—policy and regulation, low-
cost financing, and customer willingness to As of now, no clear pricing agreement
pay for decarbonized shipping services— exists, even though discussions on the
play an indispensable role in accelerating issue will shortly take place at the IMO. A
the advancement and widespread adoption current reference is the EU ETS carbon-
of these solutions. trading price, which, in the first half of 2021,
was around $50 per ton of carbon dioxide.

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What will it take to decarbonize global shipping?

With a carbon pricing of $50/tCO2, large In 2020, the IMO introduced the second
cost gaps will continue to exist between phase of the Energy Efficiency Design Index
fossil fuels and the more expensive, (EEDI) for new ships, with the third phase
alternative fuels with low emissions coming into effect in 2025. By 2023, the
intensity. However, it is sufficient to close Energy Efficiency Design Index for existing
the gap between cheaper alternatives ships (EEXI) will make it mandatory for
such as bio-oils, which may trigger wider vessels already in operation to comply with
adoption of this fuel type. Our NavigaTE phase-two regulations. Finally, all vessels will
model estimates that a $50/tCO2 levy on also have to adhere to the Carbon Intensity
its own could lead to emissions reductions Indicator (CII) by 2023, which should yield
of around five percent more than what a one percent improvement yearly from
we would expect to see by 2050. This is 2019 to 2022, and two percent annual
obviously far from enough, and higher improvements from 2022 to 2026. These
levies may be needed to reach Paris requirements are valid until 2026.
climate targets.
Activating this lever could require all new
That said, it’s encouraging to see some vessels designed and built after 2030 to
players showing leadership in this area further improve energy efficiency by ten
by proactively discussing the carbon percent, and extend the current standards
cost and implementing policies. Trafigura for carbon intensity during operations
is proposing reinvesting $250 to $350 through till 2030. Tightening regulations
per ton of carbon dioxide equivalent into to ensure that vessels are more energy
green technology R&D, while Maersk has efficient would have a critical impact on
suggested a tax of $150 per ton of carbon emissions reduction.
dioxide. Meanwhile, Norway has announced
plans to impose national shipping quotas.

The second role regulation could play is

in setting stricter standards governing
the improvement of designs of new and
existing ships, and lowering the carbon
intensity of operations. Instead of focusing
on alternative fuels, the priority is placed on
reducing the energy demand of fleets.

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 Five critical levers that make a difference

Low-cost of industry. This could incentivize the

industry to pursue and adopt more
financing environmental practices.

Green finance has been a flourishing Our analysis suggests that because fuel
sector since the Paris Agreement, standing consumption represents around 20 to 30
at the crossroads of financial, socio- percent of a vessel’s annual cost, there’s
economic and environmental challenges. a limit to how much cheaper financing will
It uses financial instruments to accelerate impact carbon emissions. Nonetheless,
the transition to a low-carbon economy, combined with the other levers, it’ll help
focusing on environmental issues, and bring the industry a step closer to its
providing a growing range of green and decarbonization goals.
sustainable instruments.

The global maritime industry’s transition

Customer
to carbon zero is a costly endeavor, and willingness to pay
one in which many shipping-industry
players struggle to raise the necessary for decarbonized
capital to participate. Just as impact and
sustainable investing becomes increasingly
shipping
mainstream, and more investors prioritize
After governmental regulation and
incorporating ESG (environmental, social
accessible financing narrow much of the
and corporate governance) elements into
cost gap, shipping companies may find that
their portfolios, opportunities are also
customers are willing to pay a premium for
opening up in the maritime sector.
zero-carbon shipping.

Global financial commitment is needed

Sustainability and environmental issues
to ensure that financing the ecological
have risen to the top of the world’s
transition is genuinely effective. The
social consciousness. Across the globe,
financial sector now has a unique
67 percent of people consider climate
opportunity to accelerate and steer
change and the loss of biodiversity the top
global shipping’s journey toward carbon
challenge over the next decade. Not only do
zero, by providing cheaper financing that
more than half believe their individual habits
rewards sustainability-focused endeavors.1
matter in tackling climate change, but they
Furthermore, MSCI research confirms that
are willing to change their purchasing habits
companies that are high ESG performers
to reduce their carbon footprint.
enjoy lower costs of capital, regardless

1
A good example of such commitment is the Poseidon Principles – a global framework for assessing and dis
closing the climate alignment of financial institutions’ shipping portfolios. Currently 27 financial institutions are
Signatories, representing nearly 50 percent of the global $400-billion ship-finance portfolio.

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What will it take to decarbonize global shipping?

On the surface, what this seems to indicate spend a little more for sustainable shipping,
is that customers are willing to pay more the industry should not rely on them as a
for sustainable shipping, which relieves major source of decarbonization funding.
some of the cost burden on shipping
companies. Research suggests that the
closer the customer is to the supply chain,
the more willing they are to pay a premium Despite the many roadblocks on the
for sustainable practices. This means road to carbon zero, the global shipping
shipping companies are likely to be able to industry is not without the tools it needs
charge more for (some) container freights to clear them. As this article has laid out,
than for dry bulk and tankers. We also see we have five critical levers, all of which
an increase in corporate willingness to pay must be pulled to catalyze the transition.
for sustainable practices (especially around If we activate them all together, they
scope-3 emissions), as brands seek to reinforce each other. However, this means
burnish their green credentials. decarbonization decisions and actions
must be made today, following a clear
However, reality is more complex; research abatement roadmap.
reveals that surprisingly few consumers
actually walk the talk. We analyzed the This roadmap must combine actionable
percentage of consumers reporting quick wins with long-term goals, enabling
positive sustainability attitudes who a continuous transition toward net-zero
actually follow through with their wallets. In emissions that keeps all stakeholders on
2020, only around ten percent of maritime board. Our final article explores what these
consumers acted on their willingness steps are, and what shipping players can do
to pay a low premium. There’s also the to effect the necessary change.
risk of companies greenwashing their
practices, which may give rise to consumer
skepticism around paying more for carbon-
zero shipping. This gap between what is
said and done will likely limit the impact of
changing customer expectations.

Even given the industry’s best efforts, the

reduction potential of this lever in the global
maritime industry may be less than what we
hope for. While customers may be willing to

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 Five critical levers that make a difference

About
.

The Mærsk Mc-Kinney Møller Center for Zero Carbon

Shipping is a not-for-profit, independent research- and
development center working across the energy- and shipping
sectors to explores viable decarbonization pathways for the
maritime industry.

With partners from leading organizations across the world, we

accelerate the development and implementation of new
energy solutions and technologies.

The Center was established in 2020 with a start-up donation

from the A.P. Moller Foundation.

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