Shipping is the most environmentally friendly form of freight transportation. Even so, its greenhouse gas (GHG) emissions amount to 2.5 percent of global emissions. Yet shipping-engine and fuel technologies have not seen major innovation since the shift from steam power to the combustion engine more than 60 years ago.
The International Maritime Organization (IMO) has ambitious targets to decarbonize the industry: a 30 percent reduction in absolute GHG emissions from shipping by 2030, and 50 percent by 2050, relative to a 2008 baseline. Meeting the challenge will require innovative, orchestrated, industry-wide action on an unprecedented scale.
Much uncertainty remains regarding how shipping companies should move forward. While several technologies have potential, a strong bet on a single option is likely too high a risk to take. Therefore, companies will need to try out several technologies while also monitoring the progress and adoption of others.
Why shipping companies must act now
The IMO’s target to halve GHG emissions by 2050 is in absolute terms. In the meantime, however, total shipping volumes and demand for goods will increase. To offset this growth, shipping will need to see around 70 percent unit reductions in GHG emissions. These and other reasons give regulatory bodies ample motivation to act now.
In addition to increasing regulatory pressure, cargo owners and consumers alike have a keen interest in reducing their carbon footprints. For example, nearly half the respondents in our 2019 global travel survey indicated they would consider climate impact when selecting a cruise vacation.
The future is uncertain
Shipping companies need to ready their fleets now for a decarbonized future. Reductions in GHG emissions will come from two sources: lower fuel consumption and cleaner fuels. Up to half of the unit GHG-emissions reductions could come through lower fuel consumption because of improved efficiency. Further savings will come through changes to deployment, particularly from reducing speed, which subsequently reduces fuel consumption.
Most of the reduction in GHG emissions, however, needs to come from new fuels and propulsion systems. Ocean-going ships require vast amounts of energy and must also carry the source for energy onboard, thus requiring energy-dense fuels (Exhibit 1).
A wide range of potential technology options
Several new technologies and fuels have the potential to support decarbonization—yet none of them are ready for at-scale adoption in shipping. For example, today’s batteries lack the necessary capacity and future fuels lack the required energy density.
While batteries may be a solution for short-sea shipping and ferries, their energy density is nowhere close to providing the capacity needed for ocean-going transport, even assuming significant improvements in technology. Batteries can play a supplementary role in all ship types, helping to reduce energy usage during peak demand. Shore power will also play a strong supporting role.
- Liquefied natural gas
While CO₂ emissions from LNG are 20 to 30 percent lower than from heavy fuel oils, these reduced numbers are offset by increased methane emissions, which contribute 84 times more GHG than CO₂ over a span of 20 years. Switching to LNG fuel would therefore only result in marginal improvements.
In some cases, biofuels can replace fossil fuels. At a system level, biofuels are typically sourced from “secondary” waste products, such as food or forestry waste. Recent estimates show that secondary biofuel sources could fuel all of shipping in 2050, but these secondary sources are not readily accessible and processable today. Biofuels will be part of the solution, but not the sole answer.
Finally, hydrogen-based fuels have significant potential for large-scale decarbonization. To realize their potential, they will need to be produced at scale and with green methods. For example, we are likely to see massive solar farms in deserts as well as geothermal farms in Northern Europe. Their technology remains a long way from commercial scale and economics, though prices for hydrogen will fall as technology improves.
Transport remains an issue, however, as hydrogen must be moved from the point of production to buyers in other regions. The form in which the hydrogen will be transported and consumed is up for debate. Fuel densities are a given; what remains ambiguous are the tank sizes needed to cover the required distances.
What shipping companies can do today
Given the uncertainty, companies must take several practical actions to prepare themselves to meet the IMO’s targets:
- Exploring the right technologies
The choice of fuel, supply, engine, and propulsion mechanisms are all unclear. Shipping companies need to extensively fund R&D and pilot programs to explore the benefits and limitations of new technologies. To do this, they should involve like-minded stakeholders in pilots to achieve the required scale. Many companies are already working on this: for example, Maersk is collaborating with a group of Dutch multinationals to trial a biofuel blend with marine gasoil.
- Engaging with supply-chain partners
With so many potential technologies, the industry needs to collaborate not only internally but also with partners along the supply chain to identify the most promising technology for fuel distribution. Cross-shipping groups such as the Sustainable Shipping Initiative are positive first steps. The industry will need to converge from looking at a variety of fuel solutions to one or two key solutions to support building a globally consistent infrastructure.
- Engaging with customers on the shift—and what it will cost
In many cases, customers are already pushing for lower emissions. Leading shippers are exploring partnerships with shipping companies to track their GHG emissions and develop pathways to cleaner transportation. For instance, H&M is partnering with Maersk to trial drop-in biofuel on their containerships sailing between Asia and Europe.
New fuels are likely to be more expensive than the HFOs they replace. However, shipping costs are typically a small component of the final price of the goods, so the impact on the end consumer and demand will be minimal.
- Demonstrating how regulations can be met
The overall direction of IMO regulation is clear, yet there are many areas in which the industry can work to show how these regulations are applied. Three examples help illustrate this point.
First, the IMO’s target is based on a fleetwide average. The industry can be proactive in proposing how fleetwide average targets can be incorporated into requirements for individual companies and ships Second, the industry can make efforts to ensure that total GHG contribution, not just CO₂ itself, is considered. Third, the industry can find a way to ensure that well-to-wake GHG emissions are accounted for.
- Hedging bets
Finally, companies should hedge their bets. Even experts have widely different views on the likely future take-up of fuels (Exhibit 2).
Given this uncertainty, shipping companies should adopt a “hydrogen ready” mindset and design optionality into their ships. This can include installing engines and tanks that burn both biofuels and ammonia or using electric powertrains to allow for future installation of fuel cells and batteries. Companies should also apply a strategy-under-uncertainty approach where the fleet and fuel plan are regularly adapted.
The shipping industry is sailing into an ambiguous future. By working together, pushing research and pilot in new technologies, and planning smartly, shipping companies can position themselves for a lower-emissions future. Additionally, many fuel saving measures have gone back in the money and could be some of the cheapest options on the GHG abatement curve.
 Borgar Aamaas et al., “Anthropogenic and Natural Radiative Forcing,” Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge, UK: Cambridge University Press, 2018, 659–740, ipcc.ch.
 Sustainable Shipping Initiative, https://www.ssi2040.org/; Global Maritime Forum - Getting to Zero Coalition, https://www.globalmaritimeforum.org/getting-to-zero-coalition
 Hugh G. Courtney, Jane Kirkland, and S. Patrick Viguerie, “Strategy under uncertainty,” McKinsey Quarterly, June 2000, McKinsey.com.