Decarbonizing shipping: a real prisoner’s dilemma.

Written by Ingrid Kylstad, Head of Sustainability at ZeroLab (Klaveness).

Decarbonization presents shipping with a real prisoner’s dilemma*: How can we overcome company-specific incentives in favor of the common good? Economic theory teaches us that regulation is a way out of prison: changing today’s incentives can change behavior quickly. Unfortunately, that’s not fast enough. The Paris Agreement was signed in 2015, but six years later the IMO has yet to formulate a target that would align the shipping industry to carbon neutrality by 2050.

In the absence of institutionalized regulation, another way out of prison is to develop strategies that reward collaboration. At Klaveness, we are dedicated to developing products and business models that enable stakeholders in the shipping value chain to work together to reduce emissions. Business models that encourage collaboration should enable stakeholders to drive decarbonization without a regulatory framework, and they must efficiently mitigate the risks of pioneering. For those who want to get started with commercially driven decarbonization today, two approaches are emerging: high-quality carbon credits and a new edition of the tried and tested bunker adjustment clause.

The voluntary carbon market can be a powerful tool for decarbonising shipping if it supports the right projects. Carbon credits from insetting can do just that: insetting refers to projects within the relevant value chain as opposed to offsetting, which refers to projects to reduce or eliminate carbon everywhere and mostly outside the sector where the emissions originated. Without an industry-wide carbon tax, many decarbonization projects are now prohibitively expensive. Carbon credits from Insetting can help close the current funding gap and accelerate the transition to low- and zero-emission technologies. A high quality carbon credit

Klaveness, made available through a robust book and entitlement mechanism, decouples the benefits of emissions reduction from the actual project implementing the solution and enables it to bring together ambitious organizations that want to support the implementation of low-emission technologies.

Carbon credits from insetting spread the cost of emission reductions across the supply chain and allow the buyer, for example a cargo owner, to legitimately claim supply chain emission reductions in their Scope 3** emissions inventory, even if their cargo was not transported Ship that has realized the emissions benefits. The concept is of particular importance for the ecological upgrading of the existing fleet and for the fuel change. In order to ensure the environmental integrity of such projects, it is essential to apply strict additionality criteria. Credits should only be generated from savings that meet the additionality criteria, ie that go beyond the mandatory requirements.

Another option is to include a CO2 Emission Adjustment Factor (CEAF) in contracts. The decarbonization discussion in shipping very often focuses on the endgame: how will we design zero-emission ships? When will alternative fuels be available? It ignores the significant emission reductions that can be achieved today through a greater focus on operational improvements. The CEAF clause should encourage the operator to achieve a pre-agreed emissions target (e.g. measured in kg CO2 emissions per tonne of cargo carried) and equally lead to a reduction in cargo where emissions are higher. The CEAF is an immediately available option for impatient operators and cargo owners looking to make decarbonization collaboration commercially tangible.

Formal regulation is crucial to accelerate the decarbonization of shipping. In the meantime, collaborative business models are a starting point.

*A prisoner’s dilemma is a situation in which individual decision-makers always have an incentive to choose in a way that creates a less-than-optimal outcome for the individuals as a group.

**Scope 3 emissions are the emissions upstream and downstream of the value chain and include emissions from the transport of supplies and products. The emissions from shipping are therefore part of the Scope 3 emissions of the aluminum producers.

About ZeroLab

Founded in 2021, ZeroLab is the latest explorer among Klaveness companies and is dedicated to decarbonizing supply chains at sea.

ZeroLab is currently developing several initiatives to make low-emission and zero-emission options available. It works with ambitious cargo owners who are at the forefront of creating a market for low-carbon ocean shipping and want to identify and reduce carbon risk in supply chains at sea.

About Christine Geisler

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