Map of global commercial shipping routes.
Technical Summary

Efficient Ocean Shipping

Project Drawdown defines the Efficient Ocean Shipping solution as: the use of technologies to make maritime shipping less fuel-intensive. This solution replaces conventional maritime shipping practices and technologies.

Shipping is a large contributor to greenhouse gas emissions. Emissions from shipping for the year 2012 are estimated at 972 million tons of carbon dioxide-equivalent gases[1]. These emissions are forecasted to increase by 50-250 percent over the next 33 years, representing 10-14 percent of global emissions by 2050. Emissions from shipping are a function of: the demand for transportation work, the efficiency of ships, operational conditions at sea, fuel used, and more. There are many emissions reduction techniques available, including technical improvements, operational measures, and fuel replacement. In addition to the practice of “slow steaming,”[2] this solution considers a suite of 17 energy-efficient technologies based on the Global Maritime Energy Efficiency Partnership (GloMEEP) project by the International Maritime Organization (IMO).

Methodology

Total Addressable Market[3]

The total addressable market for Efficient Ocean Shipping is defined as the total demand for maritime freight work projected to 2050 by the IMO and others. The model uses various projections of the Energy Efficiency Operational Indicator (EEOI), which are derived from forecasts of different scenarios of greenhouse gas emissions and transport work done by ships in the future. An efficient ship is assumed to be 50 percent more efficient than a conventional ship, based on a combination of different efficiency measures and the practice of slow steaming.[4]

Current adoption[5] of Efficient Ocean Shipping is estimated as 5 percent of the total addressable market. This was calculated by taking the improvement in EEOI in 2018 compared to 2014, the base year.[6]

Adoption Scenarios[7]

Future adoption of Efficient Ocean Shipping was estimated using EEOI projections to 2050 made in the Third Greenhouse Gas Study of the IMO. Impacts of increased adoption of Efficient Ocean Shipping from 2020-2050 were generated based on two growth scenarios, which were assessed in comparison to a Reference Scenario where the solution’s market share was fixed at the current levels.

  • Scenario 1: The average of the EEOI projections was used, and applied to work done by ships operating at 50 percent greater efficiency.
  • Scenario 2: Adoption is based on one standard deviation below the mean EEOI values from all sources, and applied to work done by ships operating at 50 percent greater efficiency.

Emissions Model

Emissions reductions are determined based on reduced fuel use resulting from the efficiency measures and slow steaming.

Financial Model

Capital costs for incorporating the energy-efficiency measures, and fuel savings from implementing these measures, are calculated by looking only at the cost of adding efficiency measures to a conventional ship. Hence, the cost of an efficient ship is estimated as the retrofitting cost for the 17 technologies identified applied to relevant ship types.[8] The cost of the solution is assumed to have a 5 percent learning rate based on a report from the International Council on Clean Transportation (ICCT), which indicated that some of the technologies are new enough to warrant higher rates (10-15 percent).

Operating costs are derived from the cost of fuel use (based on the average pricing from 2007-2018)[9] and maintenance costs of the efficiency measures (IMO, 2015). Only fuel costs are considered for conventional ships.

Results

The Scenario 1 projects that energy-efficient shipping can lead to an estimated emissions reduction of 4.4 gigatons of carbon dioxide-equivalent greenhouse gases from 2020-2050, at an additional cost of approximately US$530 billion[10] and a lifetime operating savings of US$620 billion. The Scenario 2 shows an avoidance of 6.3 gigatons of greenhouse gas emissions and US$876 billion in lifetime savings.

Discussion

Large capital investments are required to capture the benefits estimated above, and these may be difficult to finance due to split incentives[11] and difficulties in verifying fuel savings. However, some of these investments can be recovered quickly, leading to lifetime cost savings. We included some technologies that were not yet cost-effective. If these were removed, the profitability of efficient ships would increase, but at the expense of lower emissions impacts. A more granular analysis with faster learning rates of up to 15 percent for some technologies could prove insightful. While there are cost and emissions savings in each Scenario 2, the cost of freight transportation may increase in the short term, which may result in a marginal increase in the prices of commodities.

Although a reduction in greenhouse gas emissions from Efficient Ocean Shipping is forecasted over time, the rate of these reductions has to be increased so that the aggregate emissions from international shipping can be controlled. The IMO has put into place rules concerning Sulphur in ships which are effective from 2020, but no defined plan for carbon emissions has yet been agreed despite the low Sulphur rules possibly having a carbon emissions impact when fuel switching to say, LNG or biofuel occurs. Voluntary adoption of energy-efficiency measures for ships has been observed in the case of certain shipping companies, as it leads to direct lowering of operational costs for ships. Nevertheless, there are many financial and informational challenges which need to be overcome before all ships adopt energy-efficient measures.

 

[1] Smith et al (2014) 3rd IMO GHG Study, International Maritime Organisation

[2] During slow steaming, ships reduce their speeds to a minimum which has a significant reducing effect on fuel use as fuel use increases with the third power of speed.

[3] For more on the Total Addressable Market for the Transport Sector, click the Sector Summary: Transport link below.

[4] Many technologies and approaches can be used to improve energy efficiency, in so many combinations that there could be hundreds of ways to make ships more efficient. Based on the existing literature, it is estimated that 22.5 percent fuel efficiency improvements can be attained through 17 specific energy-efficiency measures analyzed by the IMO’s GloMEEP project and 27.5 percent of improvements can be attained from slow steaming.

[5] Current adoption is defined as the amount of functional demand supplied by the solution in 2018. This study uses 2014 as the base year.

[6] We assume that in 2014 all ships were conventional, so any improvement in EEOI is attributed to the adoption of “efficient ships,” which are 50 percent more efficient than the ships of 2014.

[7] For more on Project Drawdown’s growth scenarios, click the Scenarios link below. For information on Transport Sector-specific scenarios, click the Sector Summary: Transport link.

[8] We assume that this cost is close to the additional cost of purchasing a new ship with these technologies, as compared to purchasing a conventional ship.

[9] Intermediate Fuel Oil (IFO) 380

[10] All monetary values are presented in US2014$.

[11] The costs are likely borne by the shipping companies, but the operating savings they would enjoy are lower, so the actual benefit is environmental, recreating the classic tragedy of the commons problem.