Dr Tristan Smith from UCL Energy Institute runs the rule over the International Energy Agency’s net zero report which made plenty of waves in shipping last week.
Last week the International Energy Agency (IEA) published a new report analysing what net-zero means for ‘energy’ (which includes industry and transport). This has started to address a significant shortcoming in their earlier publications, which had not been at all aligned with the IPCC 1.5 report’s recommendations and the direction increasingly taken by more progressive governments.
Some of the most newsworthy graphs and messages have been doing the rounds on LinkedIn for a few days. It is not surprising that the direction of travel is towards a zero-sum game which is harder than much of the mainstream industry literature has put out. Both the IEA (previously), some of the class societies and of course the oil majors have been systemically hiding how stark the choices that we face really are. On shipping, the main message seems to have been “IEA believes shipping won’t achieve zero GHG in 2050”.
My first reaction was how that message reveals how relatively accepted it had become that shipping would/should reach zero GHG in 2050. Undoubtedly, president Biden’s announcement in April that the US would push for this outcome at the IMO has a lot to do with that. But it is some evidence that shipping has a very high rate of change of ‘norm’ – with expectations steadily being revised upwards to increased speed of transition away from fossil fuel use than you might have picked up from a content analysis of ‘chatter’ a year ago.
I was then curious as to why they came to that conclusion and how it was justified. What I have found out might be useful if you are considering factoring their work into your own strategies.
One key assumption in the IEA modelling is about how different sub-sectors in aggregate achieve an overall rate of CO2 reduction broadly in line with IPCC’s recommendations, and satisfy the need for zero overall by 2050. Under IEA’s modelling, sectors like shipping and aviation get a growth in share of total CO2 emissions, and are compensated by other sectors reducing GHG even faster. In the NZE scenario, the total GHG is zero in 2050, because sectors that still have a net positive emission (like aviation and shipping) are compensated by negative emissions achieved in the power sector. However, by looking only at the ‘energy sector’ (which in their definition includes transport and industry), the IEA are only modelling ~75% of total anthropogenic emissions. By not assessing the other 25%, but instead assuming that this 25% will somehow follow the same pathway, they make a critical simplifying assumption – especially when we consider what is in that other 25% and how hard it will likely be to achieve steep reductions (agriculture, for example). This might seem a nerdy point, but it is important to the political viability of shipping having such a large overshoot post-2050, and therefore needing other sectors to compensate for this. As governments get to the bottom of the barrel of easier emissions cuts, how will they trade off the pressure they apply to shipping versus their own society’s desire for a certain diet etc.?
The other key assumption is about what happens to the fossil fuelled ships in the period 2030-50. At some point in time, models like IEA’s and ours get to zero carbon ships being the default choice, but until then a lot of ships can be built that are designed for fossil fuel use, and there remains the existing fleet (which has an average age around 10-11 years old). There are three basic choices for those ships in models:
- Scrap early – the IEA assumes an economic life of 25-35 years and does not invoke this option, so even some ships built 2015-2020 are included in the fleet composition in 2050
- Retrofit to zero carbon fuel/energy – my understanding is that in the IEA’s modelling, retrofits of energy efficiency and drop-in fuels are incorporated, but not of zero carbon fuel/energy
- Continue on fossil fuel
Our approach has been to include an option in our models for the fossil fuelled fleet of a retrofit to zero carbon fuels. This is partly justified by the evidence from the engine/machinery manufacturers that many of the existing engines are retrofittable to zero carbon fuels such as ammonia and methanol (e.g. MAN’s comments on the ME-C and the intention to bring out retrofit packages for machinery in the middle of this decade). This may not be an option for all of today’s ships, which may not have machinery that is so adaptable, but for the fleet of the 2030’s and 2040’s, most of which will be built post 2010, this may be more viable. Fuel handling, fuel storage and exhaust treatment systems updated mid-life to a fundamentally different system is not trivial, but they are costs that can be estimated and modelled. Having done so, the question we have then asked ourselves is how the model reacts to that cost, given a finite CO2 budget for shipping. Does the model slow the fossil fuelled fleet down to 5 knots (which is one option), does it justify use of more expensive drop in fuels in (e.g. synthetic hydrocarbons), or does it take up the retrofit and use zero carbon fuel/energy? We have not tended to model the other option, which is also to prematurely scrap the fossil fuelled fleet, but we are doing more work on this at the moment to be able to test the sensitivities.
What we often find in the results, is that the retrofit to zero carbon fuel is taken up in preference of lower speeds or higher cost/price drop-in fuels. That is not to say that this is a given/conclusion for all scenarios. But it is important to highlight that if the IEA reached its conclusions without even modelling this option or considering what might happen if during a radical transition, ships were scrapped before 25-35, then it has preconceived its outcome for there to remain fossil fuel use beyond 2050.
My simplified take away is to think very carefully about the risk to your strategy posed by an even faster switch away from fossil fuel e.g. if this happens at a speed faster than the newbuilding and conventional scrappage determined fleet turn over. And I hope that us and others can provide more information to help all consider the different choices and trade-offs, as well as how to make sure that whatever the environmental target and interpretation of that for shipping, that it is achieved at lowest cost to the sector and to trade.