Recently, we have seen the development of industry decarbonisation initiatives, intended to influence towards the reduction of CO2 emissions from merchant shipping, thus supporting the International Maritime Organization’s initiative in achieving a 50% reduction by 2050.
Financial institutions led the way with the launch of the Poseidon Principles in 2019. Charterers followed with the introduction of the Sea Cargo Charter in October 2020. Both schemes pledge to adjust signatories’ activities to incentivise emissions reduction. The question now is when and how the insurance industry will follow.
Both the existing initiatives use operational carbon intensity indicators (CIIs) to measure emissions performance. Their selection relates to the ability of signatories to obtain reliable information for the calculations. The similarities do not end there with both schemes tracking asset performance per asset group and size-band against linearly reducing annual targets leading to the ultimate target of 50% reduction in the year 2050.
The first assessment under the Poseidon Principles saw just three of the 15 reporting institutions comply appropriately. This was no surprise to those studying the topic of emissions, nor to most of the signatory institutions. Annual targets signify where we need to be to achieve the 2050 objective. It is no secret that currently installed technology cannot take us very far.
Of the merchant fleet at the end of the last decade, less than half of the ship assets appear to achieve the carbon efficiency targets. The number of existing assets forecast to be compliant at the start of the next decade (assuming no upgrades) falls below 5%.
Change is imperative. It will come in the form of energy saving upgrades that lower fuel consumption by current engines. It will come from alternative fuels, or from new carbon-free engine technologies. There is no single solution. Vessel type, size, service life, and operational profile, are all determinant parameters in selecting the right option for emission reductions.
The current industry initiatives tell us it is time we examined our shipping assets. The prospective lending incentives and charter demand are paving the way towards change. How will the insurance industry participate?
Click HERE to access IUMI’s webinar on “IMO’s strategy on the reduction of GHG emissions – and ways to achieve it”.
