“These are very ambitious goals, but also a unique opportunity for Norway to continue to take the lead in the development of new and greener solutions. This will require political will, use of appropriate policy tools and, not least, an industry that is willing to commit to and take the lead in meeting new climate and environmental demands,” says Helene Tofte, Director of International Cooperation and Climate at the Norwegian Shipowners’ Association.
To reach the goal of being climate-neutral in 2050, shipping companies are considering the use of potential fuels such as electric-hybrid, ammonia, biofuel and methanol.
Members of the Norwegian Shipowners’ Association are climate optimists and believe they will reach the goal of zero emissions by 2050. At the same time, it seems unease about global events also affects the climate field and optimism is somewhat reduced compared to last year’s member survey.
The past year has been marked by uncertainty linked to the war in Europe, inflation, disruption in supply lines, higher energy prices and regulatory developments. In addition, it is still unclear what will be the leading green technology for ships in the future. This means that investments which will have a lifetime of 20-30 years currently appear uncertain. Collectively, this affects the companies’ future prospects and contributes to more uncertainty associated with investments and the choice of green solutions.
This is made clear by the fact that 76 percent of members point to high investment costs as an obstacle to the use of alternative fuels. This is followed by availability of alternative fuels, a lack of onshore infrastructure and shortcomings in technology.
Set up right for the green transition?
Cooperation between industry and the authorities is absolutely essential if we are to succeed with the transition. However, as many as 94 percent of member shipping companies believe the current policy instruments are not adequate to boost the green shift. This is a strong call for more comprehensive and effective policy instruments.
In January 2023, the government signed a preliminary climate partnership agreement with industry, which will include new solutions to environmental challenges. The shipping industry has been clear about the need for a common arena that can give a boost to climate policy, and it will be important to make the climate partnership a good forum for cooperation in 2023.
Public schemes, such as those available through Enova and the Research Council of Norway, are key tools for green transition in the maritime sector. With the financing of pilot projects, such schemes contribute to the development of new technology. Direct funding from the EU also plays an important role here. One challenge is that new technologies are considered ready for the market before they actually are, and support is being discontinued. To ensure that new green solutions prevail in the market, it is necessary that public funding is extended for a longer period than today. This way, new technology can outcompete less climate-friendly solutions.
“We see that there is uncertainty among Norwegian shipping companies related to the scaling up of technology. There are good support schemes in the start-up phase of projects, but the support period must last longer if we are to reach our goal,” says Helene Tofte, Director of International Cooperation and Climate at the Norwegian Shipowners’ Association.
Contracts for difference for the green transition in the maritime sector
Ships that are ordered today will be sailing in 2050. Therefore, uncertainty about future technology is a major risk for shipping companies. Contracts for difference are a tool that will both mitigate the risk by reducing the price difference between traditional and climate-friendly fuels, and lead to increased production of new fuels.
With contracts for difference, the authorities cover the price difference between traditional and alternative emission-free fuels in a transitional phase. This reduces the risk associated with new green investments and leads to a more rapid development of production of alternative fuels along with the necessary infrastructure.
A climate-neutral EU in 2050
The EU continues to lead the way in climate policy and has set ambitious targets to become climate-neutral by 2050. The Norwegian Shipowners’ Association has participated in development of the proposals currently under review in the Fit for 55 regulatory package and supports the climate goals defined in the EU’s green growth strategy, the EU Green Deal.
The EU Emissions Trading System (EU ETS) - a game-changer?
For the first time, European and international shipping operating in Europe will be required to pay for its greenhouse gas emissions when sailing in EU waters. This will be done through the inclusion of shipping in the EU emissions trading system (ETS) 1 January 2024. This means that, for ships of a certain size, 100 percent of emissions from voyages within the EEA, and 50 percent from voyages to and from the bloc, must be reported and recompensed. More than 1600 shipping companies from all over the world are now preparing for how emissions trading and administration will work in practice for over 11,000 ships.
Once the system is in place, payments from shipping will amount to a significant sum. The Norwegian Shipowners’ Association has estimated that, for 400-plus ships subject to quota obligations in its own member fleet, one could be looking at EUR 250 million annually, depending on the price of emission allowances. During the negotiations, a number of actors, led by the European Parliament, have argued for funds to be earmarked for financing of the green transition in shipping - in a separate Ocean Fund. It has now been decided that some of the revenues from emissions trading will be channelled through the EU’s Innovation Fund, while a larger share of allowance revenues will be returned to member states. In EU countries, all quota revenues must be used for green initiatives, and we believe that Norway also should use these revenues to accelerate the development of new, green maritime solutions.
“An earmarking of these fresh revenues gives the industry the opportunity to finance its own green transition,” Tofte says.