The big picture behind Maersk’s 2050 decarbonisation pledge

The big picture behind Maersk’s 2050 decarbonisation pledge
December 11th, 2018 https://splash247.com/the-big-picture-behind-maersks-2050-decarbonisatio...

Dr Tristan Smith from UCL Energy Institute gives readers insight into the Danish carrier’s big announcement earlier this month.

Maersk’s announcement is a major step forwards for the sector and for the future stability of world trade, and provides a real boost for all the companies working on zero GHG solutions for shipping. At a time when some are still misinterpreting this as something we can ease in to through incremental marginal change, and when many of Maersk’s competitors are still trying to find ways to argue that LNG is sufficient, Maersk sends an unambiguous signal, not only that the future is zero emissions, but that this future is only 10 years away.

Why Maersk’s target is an accurate interpretation of the IMO Objectives

Most readers miss, whether on purpose or by accident, the fact that the IMO Objectives say “at least” before both the 2030 40% on carbon intensity, and the 2050 50% on absolute GHG. 50% is not the target. The target is some number equal to or greater than this. The Objectives explicitly reference the IPCC’s 1.5 report, which was unfinalised and therefore was deemed (you can probably guess by which country) unsuitable for direct use. IPCC’s 1.5 report, for those that haven’t read it, can be paraphrased as “zero GHG before 2050”.

We will know more in 2023 where this lands, when IMO formally revises its GHG Strategy. But before then, its important to remember what was left in the IMO’s Initial Strategy, and not just selectively quote whilst keeping fingers crossed that given a range of values, the most unambitious end of the range will be chosen. My guess is that between now and 2023 we will only experience more of the fundamental threats that climate change poses, see more alignment politically on enabling decarbonisaiton, and have further evidence of the commercial and technological solutions to achieve it. So I think Maersk have taken a wise bet and landed at the only realistic conclusion of what “at least” means.

But even if we do land on 50%, Maersk’s targets are still the only rational choice. Shipping tnm grew at about 4% last year. Even a projection of 3% p.a. growth gets you triple tnm by 2050, which means to meet 50% absolute emission reduction, the average ship in the fleet in 2050 will have to be 85% less carbon intensive than the 2008 average. Our group has spent years trying to figure out how to reduce carbon intensity at the rates implicit in IMO’s Initial Strategy objectives, and we are confident that the only way to get there is adopting zero emissions fuels in 2030 and seeing them grow in share rapidly thereafter. The key here is that the 85% is an average for the global fleet. If Maersk aren’t a little above average, who else is going to be? Do Hapag-Lloyd and MSC really have plans to hit just 85% and have all the hassle of keeping a small tank for fossil fuels to blend in with their hydrogen?

But why this is really about commercial opportunity and not compliance

There’s a pattern here. In 2008, Maersk made a big fuss about slow steaming from an environmental perspective. They helped embed something as widespread practice (whilst cunningly avoiding antitrust and anticompetitive issues) which as we know, reduces operating costs and acts as a reduction in supply so helps to keep ‘some’ upwards pressure on rates. It also enabled Maersk to look good to a client/customer base that was beginning to get interested in low environmental impact services. A triple whammy – low operating costs, higher rate, more market share.

Ten years later, why is this not the same move? Maersk want to be there with the right technology at the right time. Giving their suppliers and supply chains enough warning will help ensure that the solutions are mature, reliable and the costs reduced so that when the inevitable compliance requirement comes out from the IMO’s process, it can be achieved without significant cost.

But the real play is that those same customers that in 2008 were seduced by the environmental PR that Maersk managed to spin out of slow steaming, have now upped their game. Swathes of companies that use shipping have adopted “Science Based Targets” (~500 corporates/multinationals) or some equivalent strategy. They increasingly demand zero GHG emissions from their suppliers so that they can reassure their shareholders they’re positioned to survive the mounting pressures of GHG regulation and related stability threats, and so they can offer zero emissions fish, furniture, ovens, shoes to attract more customers. Guess who is going to be front of their queues?

Why this isn’t all good

The risks in the announcement are that Maersk are clearly leaving open the option to use biofuels to reach these targets. This creates risks for further endorsement of a fuel type that has many supply and sustainability challenges, not least risks of creating pressure on land-use and food prices. Maersk will need to quickly clarify how they will manage these risks, as there may be enough biofuel for Maersk but its very unlikely there is enough for the whole sector, and ultimately that means either significant unintended sustainability impacts or a dampener on innovation for the solutions that will be needed to compliment the quantities of biofuel that are affordable and sustainable.