Can a new Net Zero target turn the tide on carbon-intensive shipping?

Welcome back to the Net Zero Roundup from the Carbon Trust’s Net Zero Intelligence Unit. In this special summer edition, experts from across the Carbon Trust reflect on developments from the past two months that could mark a significant change in how the world approaches Net Zero.

In this edition, the shipping sector is in the spotlight. A lynchpin of global trade, the sector has previously been seen as harder to decarbonise, but progress is now being made. We also take a look at developments in the UK’s Net Zero policy, new international sustainability standards for business, and the latest on international climate finance.

As the recent brutal heatwave ravaging large parts of the globe reminds us, the climate crisis is all too real. The only way to avert even worse impacts is to reach Net Zero emissions. Please click subscribe to stay up to date with global Net Zero progress and solutions.

Under the spotlight

A revised emissions strategy will help steer the global shipping industry towards Net Zero, but large-scale change needs further support

Hailed as the biggest climate event of the year for international shipping, the UN International Maritime Organisation’s Marine Environment Protection Committee (MEPC) met in London on 3-7 July. The goal was to agree a new greenhouse gas strategy for the industry. Currently, shipping is responsible for around 3% of global emissions, roughly equivalent to the annual emissions of Japan, and commonly namechecked as one of the hardest-to-abate sectors.

The revised strategy, alongside other significant agreements forged during the committee’s 80th session (MEPC 80), represents a sea change in ambition compared to the previous 2018 strategy. What were the highlights, and what do they mean for progress on Net Zero?

Emissions targets are much more ambitious, but still not aligned with the Paris Agreement

The new strategy contains a target to reach Net Zero shipping emissions ‘close to’ 2050. This is a significant change, as previous commitments only aimed to halve emissions by the same date. For the first time, the strategy also contains interim checkpoints to reduce emissions by at least 20% by 2030 and 70% by 2040. Notably however, these checkpoints are not aligned with the goals of the Paris Agreement to limit warming to 1.5℃. However, the new strategy, combined with recent regulations like the inclusion of shipping emissions in the UK and EU’s emissions trading schemes, does send a critical signal to industry and fuel producers to urgently invest in and develop Net Zero-aligned fuels and vessels.

A clear signal is given on the need to switch to cleaner fuels

The strategy also contains a target for at least 5%, ideally 10%, of the energy used in international shipping to come from zero or near-zero GHG emissions sources by 2030. This is a welcome inclusion. The Carbon Trust previously encouraged the industry to look beyond vessel efficiency and less carbon-intensive fuels, instead towards zero-carbon alternatives. The term ‘near-zero’ must now be defined in order to encourage scale-up of the most impactful solutions. Fortunately, the new strategy requires the full lifecycle emissions of a fuel (well-to-wake) to be considered when calculating a fuel’s carbon footprint. Well-to-wake requires emissions from the production of fuels to be calculated, as well as the emissions released when the fuels are burnt. This means ammonia or hydrogen, when produced from renewable energy, would be preferable to the same fuels produced using fossil fuels. This change should help to create market demand for genuinely low-carbon fuels.

Collaboration is needed now to achieve rapid change

Scaling deployment of zero-emission fuels and vessels will be key to delivering on the strategy. The Carbon Trust’s comparison of the commercial readiness of alternative shipping fuels found that some of the most promising fuels for long-term decarbonisation, like hydrogen and ammonia, are currently the least mature and least cost-effective. Governments and industry will need to work together to unlock the level of investment needed to bring down the cost of fuels like clean hydrogen and ammonia, and build the infrastructure necessary to produce and safely transport it. Collaborative R&D programmes, like those run by the Carbon Trust, can help to align views on fuel pathways and scale solutions across the value chain. As well as building vessels which can run on zero carbon fuels, solutions that enable decarbonisation at every stage of a vessel’s lifecycle are needed. These include solutions which reduce embodied carbon in vessels and increase ship recycling.

The IMO has until 2025 to agree mid-term measures to deliver on these goals. A global shipping emissions levy is one option, but this was met with resistance at MEPC80.

The shipping industry is a tough one to decarbonise, not least due to the variety of vessels requiring different solutions and the economic and logistical barriers to commercialising these solutions. There is still a long way to go, but the IMO’s new strategy will help chart a course to success.

By Chloe St George and Sam Strivens. Chloe is an Analyst within the Net Zero Intelligence Unit, and Sam leads the Carbon Trust’s work on maritime decarbonisation.

Quick Intelligence

Policy: The UK needs policy certainty on Net Zero

The debate has hotted up in the UK over the summer about the pace and scale of the transition to Net Zero. This increase in debate is specifically related to what changes consumers will or will not tolerate if higher costs are involved. Of course, climate policies must be fair and proportionate in a cost-of-living crisis, but the cost of inaction is real too. In 2013, a decision to cut a flagship climate policy based on affordability is estimated to have added an additional ￡9.8bn to household energy bills and the scaling back of home retrofit programmes left UK households even more exposed to last year’s global energy spike.

On 28 June, the Climate Change Committee, or CCC, published their annual report on the government's progress towards meeting its Net Zero commitments. The 2,800 pages of policy documents released during the Government’s ‘Green Day’ gave the CCC more data to work with this year, but this only served to further highlight substantial gaps in plans. The CCC found that 75% of emissions had no credible policies to address them. Huge and persistent gaps were particularly notable in home heating, industry and agriculture. Whilst the CCC expressed increased confidence in meeting the current 2023-27 carbon budget, they were less confident than last year that the UK will meet critical targets for 2030 and beyond.

Policy stability allows industry to plan investment decisions and build supply chains accordingly. Our recent report illustrates how policy certainty helped forge the UK’s leading offshore wind industry. This is why, despite the challenge it initially presented them, many UK car manufacturers came out in support of the planned phase out of petrol and diesel vehicles last week, after the policy’s future was briefly called into question. Net Zero will not happen without a strong grip from central government and unambiguous commitment to hitting targets. If business senses ambivalence, they will bake-in the additional costs that come from heightened policy risk, and we will all pay the price.

By Helen Andrews Tipper. Helen is Head of Policy at the Carbon Trust.

Business: New ISSB standards could make considering climate long-term business-as-usual

On 26 June, the International Sustainability Standards Board (ISSB) released two much anticipated standards, IFRS S1 and S2. These seek to create consistent and universally applicable requirements for climate and sustainability disclosures from businesses and other entities. IFRS S1 and S2 incorporate the recommendations of the Taskforce for Climate-related Financial Disclosures and complement and influence voluntary and mandatory sustainability disclosure requirements including those outlined by GRI and the UK Financial Conduct Authority. It is now up to individual countries to determine whether to mandate disclosure in line with these new standards.

Investors have praised the standards for putting an end to the “alphabet soup” of sustainability standards. The standards are also receiving support and endorsement from stock exchanges, national treasuries, and government bodies in countries including China, Brazil, Australia, Hong Kong, South Africa, New Zealand and Nigeria.

These standards entrench the strategic benefits of thinking long-term, using scenario analyses, implementing holistic risk management, and bringing sustainability decisions closer to operational and investment decisions. The Carbon Trust helps businesses uncover relevant risks and opportunities and advises on how to close disclosure gaps, align with disclosure best practices and use insights to drive sustainable growth. Businesses should use the ISSB standards to assess their climate-related financial exposures and use these insights to inform their Net Zero strategy.

By Tim Mew. Tim is an Associate within the Carbon Trust’s Corporate Sustainability team.

Finance: Paris Summit sets the scene for scaling up global climate finance

On 22 and 23 June, the Summit for a New Global Financing Pact convened world leaders and key financial institutions in Paris. The Summit aimed to discuss how the existing multilateral financial infrastructure could be reformed to better meet the interlinked challenges of poverty, climate change and nature. The Summit took place amid a growing spotlight and rising tensions on the provision of finance to Global South countries. This issue has been at the forefront of the climate agenda since COP27, where Barbados Prime Minister Mia Mottley championed the Bridgetown Initiative. It then created a substantial impasse at the UN Bonn climate talks in June.

The Summit aimed to set a renewed constructive tone for achieving progress on climate finance prior to COP28 in November. It was not a complete breakthrough, but demonstrated growing momentum around the need for urgent change, particularly as Prime Minister Mottley co-hosted the Summit alongside the French President. The biggest outcome was a roadmap for the delivery of specific actions which will provide a key foundation for COP28 discussions. However, progress will depend on repairing frayed trust and meaningfully bringing the issue of debt burden into the conversation.

The Carbon Trust’s experience of acting as a broker between governments and financial institutions, in concert with our understanding of local contexts, has led to the development of innovative mechanisms for market transformation, like an Energy Efficiency Credit Guarantee Scheme in Thailand. At this moment of change, it’s more important than ever for international financial organisations to design equally robust, innovative solutions on a bigger scale. These must increase the supply of attractive climate finance and channel it into climate-positive solutions which are also in line with best practice and taxonomies. These solutions should use concessional funds as a catalyst to bring private finance to the table.

By Charlie McNelly. Charlie is a Manager in the Carbon Trust’s Climate Finance team.

From the Net Zero Intelligence Unit:

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On our radar

After a concerning uptick in global deforestation in 2022, there are promising signs of change.

According to official figures, deforestation in Brazil dropped by 33% in the first six months of 2023, coinciding with the first six months of President Lula de Silva’s administration. Lula had previously pledged to reverse Brazil’s soaring rates of deforestation and put a stop to illegal logging by 2030. Emerging figures for July 2023 also point to a 60% decrease compared to July last year. Members of the Amazon Cooperation Treaty Organization are also meeting in Brazil this week to discuss further protections.

Similar buds of hope could be blossoming in Colombia, where government figures note a 29% drop in deforestation last year.

This edition of the Net Zero Roundup featured contributions from experts across the Carbon Trust, with editing by Chloe St George. Thanks for reading. To ensure you don’t miss out on future monthly Net Zero Roundups, click here to subscribe.

The Net Zero Intelligence Unit produces experience-led insights to accelerate global progress towards Net Zero. If you’re a journalist or event organiser and would like to get in touch with us, please email [email protected] or [email protected].