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As the push for net zero emissions by 2050 continues, the shipping industry is witnessing an increased demand for carbon credits - a tradable permit or certificate that provides the holder of the credit the right to emit one ton of CO2 or an equivalent of another greenhouse gas (GHG). According to the International Maritime Organization (IMO), shipping accounts for close to 3% of annual global emissions, and shipowners are faced with a challenge to reduce greenhouse gas (GHG) emissions by at least 50% by 2050 compared to 2008 levels through more efficient ships, operational and logistical improvements, and the use of alternative fuels. Since the immediate reduction of the emissions is not economically viable, shipping companies as well as others with higher carbon footprints have an obligation, but also an option to buy carbon credits generated by organisations that develop or run projects designed to benefit the environment. Companies awarded credits for their carbon offsets get returns on their low-carbon investments by selling them to other companies or investors, and that has opened up many opportunities on the emerging environmental trading market. On paper, the idea of carbon credits looks promising as they are market mechanisms for the minimisation of GHG emissions and give pretty much anyone the ability to voluntarily purchase carbon offsets and resell them. A carbon credit is a tradable certificate providing the holder the right to emit one ton of CO2 or an equivalent of another greenhouse gas However, it raises a question if buying this 'commodity', which is heading in the direction of being traded like bitcoin, really helps the environment or it just helps get some companies off the hook, at least in the short term. "I'm not aware of many times that we have faced a problem related to science, which climate change is, and addressed the root causes via a trading scheme or a tax. On the surface carbon trading schemes have some merit but I question how their effectiveness will be ascertained and if they will lead to a significant decrease in CO2 emissions,” says Greg Atkinson, founder and CTO of Japan’s Eco Marine Power. Diane Gilpin, founder of the Smart Green Shipping Alliance, also has mixed feelings about carbon credits. “I worry about the suitability of the schemes carbon credits may be used to fund; locally inappropriate monoculture forestry for example. I also concern myself with the mindset that it fosters; that we don’t need to take responsibility, that we don’t fully engage our imaginations as to how we can develop transformational solutions for shipping,” she says. Despite the growing number of shipowners looking into carbon credits, the industry remains divided. While Giant Maersk doesn’t see this as a legitimate solution, Hong Kong shipping lines Wah Kwong and Pacific Basin as well as major containerlines MSC and CMA CGM are rolling out carbon credit schemes. Capt Uttam Kumar Jaiswal, speaking on behalf of Pacific Basin Shipping, which launched its carbon credit scheme in December last year, says: "At Pacific Basin, we take the firm view that carbon offsetting does not absolve us of our responsibility to reduce and eventually eliminate our actual carbon emissions.” However, Jaiswal points out that there are currently unavoidable emissions, some of which the company wishes to neutralise voluntarily through carbon offsetting. “It’s just one of several steps we feel it’s worth taking towards achieving carbon neutrality and, eventually, complete decarbonisation," he says. Jaiswal’s boss, Mats Berglund, the CEO of the handy and supra bulk specialists, points out that any green tech under development for the global merchant fleet will take a while to filter down to the tramp trades. “I do think it will be many years before this new technology will be both practically and commercially viable for tramp trading tankers and bulkers since you need to also build out the bunkering infrastructure,” Berglund observes. Maybe in the near future carbon credits will be called greencoin Shipowners are also exploring different fuels and vessel retrofits with low carbon propulsion technologies to generate carbon offsets. This is something shipbrokers are also advising – to make ships greener, and thus generate carbon credits (revenue). With shipping companies now looking to join the carbon credits trade arena, a number of shipbroking firms, such as Clarksons, Affinity and BRS, have set up carbon trading units anticipating a spike in demand. Commodities giant Trafigura Group is also stepping into this market with its own trading division as it believes the carbon offset markets will have an important role to play in the progression towards a carbon neutral world for industries with emissions that cannot otherwise be eliminated or reduced through investment and operational optimisation. With recent industry movements and shipbrokers eyeing new business opportunities, this is only the beginning of the carbon credits story in shipping. Nevertheless, Eco Marine Power‘s Atkinson as well as some other industry players believe decarbonisation needs a different approach. “Rather than implementing complex trading schemes, why not further incentivise the uptake of low and zero emission technologies via such initiatives as reduced port charges for ships fitted with these technologies and R&D tax credits for shipping companies that help develop and conduct trials to support their development?" Atkinson muses. According to Simon Bennett, deputy secretary general at the International Chamber of Shipping (ICS), the use of carbon credits in a commercial context is a matter for individual companies and their supply chains and can play an important role as part of their ESG programmes. However, they are not the solution to achieve decarbonisation, Bennett asserts. He believes that the global targets set by the IMO for the international shipping sector are absolute targets, which, for the moment at least, cannot be achieved with carbon offsets. “Carbon credits are a substitute for real meaningful action. They are extremely unlikely to create the step change in the shipping industry which is required to meet decarbonisation goals,” claims Bennett. It remains to be seen how the shipping industry will move forward with compliance and voluntary carbon markets. Some will buy carbon offsets, some will retrofit their fleet to earn carbon credits to sell them on the market and generate revenue. “In an ideal world I’d like to see in-sector carbon credit trading, where working together across the shipping industry those harder to decarbonise segments of the fleet would contribute via the polluter pays principle to financing early-stage projects that make impactful and immediate real emissions reductions that benefit the entire global fleet," says Gilpin. Shipping will ultimately become greener and shipowners will start generating carbon credits and trading them on the market. Who knows, maybe in the near future carbon credits will be called greencoin.

Carbon credits: kicking the can down the road or a viable interim solution?

Carbon trading is set to be big business in shipping. Splash Extra investigates the pros and cons.

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