A new study from UMAS and the Energy Transitions Commission for the Getting to Zero Coalition suggests that cutting shipping’s greenhouse gas emissions by 50% by 2050 (from a 2008 baseline) could require capital investment of around $1-1.4 trillion – full decarbonisation could push up the cost to as much as $1.9 trillion.
This hefty price tag would equate to an average investment of some $50-$70 billion annually for 20 years, says the report.
‘Energy infrastructure and ships are long-life capital-intensive assets that normally evolve slowly,’ said 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.’
The study highlights that the majority of capital investment (87% of the total) required to facilitate decarbonisation will be directed into land-based infrastructure. This includes investment in the production of low carbon fuels, and the land-based storage and bunkering infrastructure needed for their supply.
According to the report, only 13% of the investment required relates to the vessels themselves, and would cover costs for the machinery and onboard storage required for vessels to run on low carbon fuels, either newbuilds or, in some cases, retrofits.
‘Sustainable investing is here to stay. We foresee that there will be a great appetite for investments in sustainable infrastructure projects that help reduce greenhouse gas emissions,’ commented Michael Parker, Chairman of Global Shipping Logistics & Offshore at Citi.
‘Much of shipping’s decarbonisation will take place on land. It is a systemic transformation that goes beyond the capabilities of the maritime industry alone,’ added Lord Adair Turner, Chair, Energy Transitions Commission.
‘We need to bring together the full range of upstream and downstream fuels value chains to unlock shipping’s shift to zero carbon energy sources. Done right, this represents a trillion-dollar market opportunity.’
At the Global Maritime Forum’s recent annual summit, maritime leaders proposed a global carbon levy to accelerate shipping’s decarbonisation through investments in technology and design of new propulsion systems, alternative fuels and the infrastructure to deliver these fuels.
The starting level for a carbon levy should be $10 per ton CO2, and $50-$75 per ton CO2 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.