The report, by the US-based Environmental Defence Fund and Lloyd’s Register Maritime Decarbonisation Hub, outlines a roadmap to finance a green transition for the global shipping industry. The three key goals – improving ships’ energy efficiency, investing in zero-emissions fleets, and scaling up green fuel production and infrastructure – all face significant challenges in requiring adequate financing, leading to a large investment gap that is slowing the green transition.

Maritime shipping alone is responsible for 3% of global greenhouse gas emissions; without urgent action to decarbonise the industry, emissions will rise to up to 130% of 2008 levels by 2050. While industries around the world increasingly focus on a green transition, the so-called “scope 3” emissions generated by the shipping sector remain elusive. 

The International Maritime Organization’s Net Zero Framework, a set of regulatory measures setting a global emissions price and fuel standards, was only released in April this year, showing just how far behind the shipping industry is compared to the rest of the economy; in contrast, EU emission standards for cars and lorries have been in effect since 1992. 

While decarbonising the sector is not easy, it’s also far from impossible. Low-emissions cargo ships aren’t as common or technologically advanced as electric cars or trucks, but they do exist, with China especially investing large sums in their development in recent years. 

Improving energy efficiency for existing ships – many of which have been in the sea for a long time, with the average life span of a container ship being 30 years – and expanding the use of zero and near-zero emission (ZNZ) fuels can also go a long way towards meeting climate goals.

However, all of these require significant investments, often of up to £2 billion each, which banks have traditionally been reluctant to finance due to the risk and regulatory uncertainty of the industry. 

The report finds three key ways to bridge the financing gap and facilitate the capital investments the industry so direly needs. 

1. Maritime Multiplier Carbon Accounting approach

Part of the reluctance from banks comes from the shipping industry being seen as inherently polluting. Amid increasing pressure to decarbonise portfolios and disclose climate risks, financiers are wary of investing in something that will increase their carbon footprint on paper – even if the investment serves to lower emissions in the long run.

This leads to a vicious cycle where the shipping industry doesn’t pursue decarbonisation because it lacks the necessary capital, but because it has not decarbonised it pushes away potential investors and loses capital due to ESG-motivated divestment. 

Enter the Maritime Multiplies Carbon Accounting approach (MMCA). The MMCA would model and quantify the impact of an investment in a way that captures its broad long-term impact, including its cascading effects throughout global supply chains. This would encourage banks to invest in shipping decarbonisation and show the impact of decarbonisation in the Scope 3 emissions of virtually every player in global trade.

2. Lending platform for energy-saving technologies

Right now, shipowners who want to retrofit existing ships with energy-efficient technology – especially small shipping companies – struggle to get financing at all, let alone with terms that would make the capital-intensive investment worthwhile. 

A dedicated lending platform leveraging pooling mechanisms, blended finance, and standardised processes would make it much easier for shipping companies to get the necessary capital and start investing towards decarbonisation now, without waiting for ships’ lifespans to run out before changing to ZNZ technology. 

3. Time stacked offtake model for ZNZ fuel

Part of the issue in the green transition isn’t the ships themselves, but the lack of availability of ZNZ fuel needed to power the future fleet. Scaling up ZNZ fuel projects and infrastructure is one of the most capital-intensive investments, but it is an urgent priority to achieve the green transition. 

A flexible fuel procurement model that would break up long-term investments into smaller, short-term tranches offered to multiple investors is a way to turn investments from years-long mega-projects to more manageable investments, making them more attractive to financiers.