Low-Carbon Shipping - excitement, leadership and action

Ladies and gentlemen, good afternoon. I am delighted to take part in this forum, and honoured to speak to such a distinguished audience.

The Smith School must surely be commended for the striking impact it has had, in only two years since it was officially opened. For me it epitomises the sine qua non of sustainable development: the bringing together of business and environmental issues, on a common platform, with shared interests, by people who are in a position and have the will to make a difference.

And make a difference we must, to achieve the low-carbon world we need.

Mobility is clearly a major factor in how low-carbon we can go. And the area I represent, as President of the Chamber of Shipping, has a very important role to play in low-carbon mobility. In my “day job” at Shell Trading and Shipping, I also have a great interest in realising this role effectively.

My remarks today will offer glimpses into the low-carbon shipping future. I want especially to highlight some exciting new developments, and prerequisites for achieving a low-carbon future in a timely fashion.

Shipping – excitement, leadership and action

Some people have an image of shipping as old-fashioned and dull. But nothing could be further from the truth – especially in the context of this meeting.

Shipping is already the most carbon-friendly means of transport. As you probably know, more than 90% of global commerce is conducted by sea – yet maritime shipping produces an estimated 2.7% of the world's carbon emissions.¹ About 74% of energy-related CO2 emissions in the transport sector comes from road transport, and another 12% from air transport.² Shipping 1 metric ton of goods 1000 kilometres by sea – roughly, the distance from the south of England to northern Spain – generates between 10 and 50 kilograms of CO2, compared with about 500 kilograms to do the same thing by air.³

We are not sitting on any laurels, however. There is a lot going on to enhance the shipping sector’s environmental performance still further.

For example, the International Maritime Organisation introduced, in 2008, a rigorous new regulatory regime for ship emissions that can adversely affect human health. These rules refer to emissions of nitrogen oxides, sulphur oxides and particulate matter. They were established as part of Annex VI to the International Convention for the Prevention of Pollution from Ships (MARPOL) and are being implemented around the world.⁴

Meanwhile, governments at the IMO are now involved in developing such a global regime for managing carbon emissions. This work complements the kind of guidance that has been produced by OCIMF on energy efficiency and fuel management.

But if shipping is to continue its leadership role in addressing the global emissions challenge, and carbon in particular, we can't just focus on what's possible today.

In fact, the shipping industry is busy on three different time horizons – short, medium and long term. And we're taking a wider perspective on emissions, to cover the whole logistics value chain rather than simply shipping. An important part of this is energy efficiency – staying constantly focused on using less as well as emitting less, through a combination of technical and operational means.
Let me show you some highlights of what is happening on each of shipping’s time horizons.

Short-term horizon

In the short-term, we can achieve a lot by fully implementing the lower-carbon technologies that already exist. I’m talking about technologies like optimising hull hydrodynamics, using silicon paints, which reduce hull fouling and hull resistance through the water; or retrofitting propellers to reduce drag and turbulence. We can do waste heat recovery, where the thermal energy “lost” via the exhaust of a diesel engine vessel is utilised to generate electricity. Through a technique known as “virtual arrival”, it’s possible to optimise fuel use and port use by planning the right speeds throughout a vessel’s journey.

Another route towards low-carbon mobility is today’s trend towards building bigger and bigger ships: the more a vessel can carry, the lower the emissions per ton. One example of this is the VLCC, or very large crude carrier. Each one typically carries 160,000 to 320,000 deadweight tonnage, or around 2 million barrels – roughly, the daily oil consumption of Canada.

The IMO is also developing an Energy Efficiency Design Index for new ships, to stimulate innovation and technical advances. At the moment the formulae used for calculating the energy efficiency of a design relate to bulk carriers and tankers; work is ongoing to expand the range of vessels to which the Index can be applied.

The industry fully supports the mandatory application of this Index, when it’s fully available. It will mean ship owners can have confidence that any new ship on offer from a shipyard is energy efficient; at the moment, to an extent, they have to take what they can get.

In another valuable initiative, the IMO is developing a CO2 Operational Indicator. This will provide ship owners with excellent support as a management tool, enabling them to monitor their ships – each of which has a unique CO2 emissions profile – and address performance issues as necessary.

The beauty of such indexes and indicators is that they provide a framework in which to build and operate efficient ships. To complete the virtuous circle, this activity needs to take place in a market that provides incentives to deliver such efficiencies. That is, in a market with carbon pricing.

The expected results are worth the effort. Within the global industry, the consensus of opinion is that it may be possible for shipping to reduce its CO2 per tonne per kilometre by 15 to 20% between 2007 and 2020, through a combination of the kind of technology and operational developments I’ve mentioned, as well as the introduction of new and bigger ships designed to the new IMO Energy Efficiency Design Index.⁵

Medium-term horizon

Let’s move now to the medium-term horizon for shipping.

In this time frame we are looking at further engineering changes that can reduce carbon emissions without fundamentally altering the ship's hull – because, typically, a ship represents a 20 year investment.

It has been estimated that the global fleet of 2030 could emit 30-60% less CO2, depending on measures implemented, with the first 30% coming in at a net saving, and remaining reductions incurring a net cost.⁶

For shipping as a whole, it’s absolutely crucial to be realistic, manage expectations and feed constructively into policy decision-making in this context. Now, you could argue that these estimates are quite optimistic, for such a disaggregated industry as shipping. However, with incentives like a cap and trade system which values carbon strongly, making them a reality is not out of the question.

That’s why, under the OCIMF umbrella, some modelling is being done right now to estimate the impact of different measures, including possible game-changer technologies, to mitigate CO2 emissions from oil shipping. At this point, the model that has been developed has proved it fits historical data well; the logic is now being extended to include things like simulating emissions from multiple ship types, and interaction between different emission-mitigating measures.

Our industry also continues to invest heavily in research and development that will make shipping more fuel efficient and more environmentally effective. Earlier this year, for example, shipbuilder Samsung Heavy Industries announced that – by 2015 – all the ships it is making will have emissions 30% below current levels.⁷ Plans to achieve this include minimising fuel consumption and emissions, and maximising energy efficiency.⁸

Meanwhile, advances in computing technology are making it possible to integrate all the stages in a ship’s entire lifecycle: costing, design, engineering, production, management, and maintenance.⁹ This lifecycle perspective is important if we are going to continue to reduce emissions as well as increasing commercial performance.

Long-term horizon

In the long-term, solutions are likely to include new hull forms, specifically designed for carbon efficiency. So, for instance, they may include a higher proportion of curved elements to increase slipperiness. This would be a major change from today's hulls, which are designed to optimise building costs, and so have lots of flat elements.

We could also be looking at completely different types of engines, fuelled not by diesel but by LNG – something which, in my Shell role, I find doubly interesting. Such ‘greener’ engines do exist already, but not ones that can propel a vessel the size of three football pitches through the oceans of the world.

Using an LNG fuelled tanker, sulphur dioxide emissions can be reduced by more than 90% compared to a conventional diesel powered vessel; CO2 by 20%; and nitrogen oxides by 10%.¹⁰

The concept of LNG-fuelled tankers also provides an alternative to the current preferred option for very large ships: that is, nuclear power, with all the implications and concerns that can present. Yet more concepts are being investigated – for example, using sails; or modular engines, which can be replaced and upgraded very easily, unlike today's design where the engine is part of the hull and therefore in situ for the life of the ship.

Like the other developments I’ve highlighted for you, this modular engine is not “pie in the sky” – a 737 jet engine has already been looked at as a ship propulsion system, with a baby engine next to it to power utilities when the main engine is off; because of the simplicity of the system – an on/off switch, little more – there is no need for engineers to run it; and there’s no need to service the engine either, it’s simply swapped over.

Conclusion

I have only had time to give you a glimpse of the low-carbon shipping future. But I hope you’ve seen enough to recognise there are many exciting developments taking place – through fuel efficiency, reduced emissions, and increased optionality.

However, it will be very difficult – if not impossible – to land all these things effectively unless we have carbon market mechanisms Carbon trading provides more certainty about environmental outcomes. It encourages shipping companies to find the most cost-effective and carbon-efficient solutions. And it resonates with existing and progressing legislative changes around the world.

That’s why shipping has led the way in consistently calling for emissions trading to be a global scheme, rather than a regional one.

At the Chamber of Shipping, we have developed a cap and trade model that complies with all the IMO principles for a global system to encourage emissions reductions.

Our model is quite straightforward. At least initially, there would only be a cap on CO2; monitoring would apply to all CO2 emissions from fuel, regardless of where it was used on board; and CO2 emissions would be calculated in a transparent way. The ‘responsible’ entity would be either the technical operator or the owner (if the ship is directly managed by the owner).

1 emissions allowance would be equivalent to 1 tonne of CO2; carbon credits could be auctioned or sold, depending on the nature of the company’s fleet; and every vessel would be required at all times to carry the documentation that shows compliance.

Our model is designed to be effective – because it’s outcome focused. It’s equitable – because it would be administered globally and apply to all ships of all flags operating internationally above a certain tonnage size set by the IMO. What we’re proposing would promote change, by rewarding efficiency improvements on existing ships and new technology on new ships, through the operation of the market.

This is one of the ways in which today’s shipping industry is playing its part, as well as through investment, research and development, to deliver low-carbon mobility. But we can’t do it on our own. So we look forward to working with governments and other stakeholders in the forums and alliances that are at the heart of providing the future our children, and our children’s children, deserve.

Thank you.

^{1 Source: 2nd International Maritime Organisation Green House Gases Study 2009, p 1}

^{2 Source: World Trade Organisation - opens in new window}

^{3 Sources: http://timeforchange.org/co2-emissions-shipping-goods - opens in new window, http://fluglaerm.de/hamburg/klima.htm - opens in new window ; cf Chamber of Shipping Cap and Trade paper, which quotes15-20 g CO2/tonne-km for shipping and 540 g CO2/tonne-km for air.}

^{4 Source: 2nd IMO GHG Study 2009, p 3}

^{5 Source: Shipping, World Trade and the Reduction of CO2 Emissions, published by the International Chamber of Shipping for IMO World Maritime Day 2009}

^{6 Sources: Leadership through rough seas, a report by Xynteo for the Norwegian Shipowners Association, 2010, p 7; “Shipping can cut CO2 sharply, classifier DNV says”, Reuters, 8 June 2009 - opens in new window}

^{7 Source: Lloyds List - opens in new window}

^{8 Source: SHI presentation for Lloyds Register Technology Day, prepared by SHI Exec VP CH Park, 24 February 2010, supplied by Campbell Scott}

^{9 Example: Hyundai Heavy Industries (HHI) Shipbuilding 2009 brochure, page 16}

^{10 Source: Technical Proposal of JIP on LNG Fueled Crude Oil Tanker, DSME (Daewoo Shipbuilding and Marine Engineering), May 2010, p 2}