Cargo owners and the International Maritime Organization could determine the pace of decarbonization in the shipping industry by providing more incentives to use low-carbon bunker fuels, according to Poseidon Principles Chair Michael Parker, as vessels capable of running on non-oil fuels hit the waters.
The growing appetite among shipowners for alternative propulsion technologies comes as lenders are taking their climate performances into consideration, but the banking sector’s willingness to support decarbonization has recently come under question, not least due to political backlashes.
With the IMO set to finalize new decarbonization rules for maritime transportation later this year for implementation from 2027, Parker suggests what the UN agency can achieve would be “much more important” than ship financiers for the industry’s low-carbon transition.
“If it succeeds getting consensus around the definition of alternative fuels and the pricing mechanism, it’s going to change behavior [in bunker purchases],” Parker recently told S&P Global Commodity Insights.
IMO member states have been discussing proposals for setting a price on greenhouse gas emissions from marine energy use, with revenues from such a scheme redistributed to fund low-carbon energy or developing countries affected by the energy transition.
“For the first time … we’ll actually have something much more significant globally,” Parker said. “And I think that’s what’s relevant for shipping.”
With half of the newbuild orders designed to be powered by alternative fuels in gross tonnage, more than 20% of the global fleet in operation could stop using conventional, oil-based bunkers by 2030, according to shipbroker Clarksons.
Fuel prices
But industry worries persist over whether those ships would actually be bunkered with sustainable fuels, whose high prices and low availability are preventing shipowners from committing to long-term offtake contracts at an industry-wide level.
The monthly average delivered bunker price for 0.5%-sulfur marine fuel, the most common bunker type, also known as very low sulfur fuel oil, was $559/mt in Houston last month, according to S&P Global Commodity Insights data. The price for 100% sustainable methanol was $2,066/mt of VLSFO-equivalent.
IMO rules will be aimed at bridging the price gap to trigger a switch to low-carbon fuels, according to the organization. “The demand signals are being sent by the regulator,” Parker said.
Moreover, Parker suggested the methodology for calculating supply-chain emissions should be further developed for cargo owners so they would be more willing to pay more for sustainable freight services.
“The definition of Scope 3 for shipping and for ports … needs to be agreed as soon as possible,” Parker said. “People need a clear set of metrics and terminology.”
The Zero Emission Maritime Buyers Alliance, whose members include Amazon and IKEA, has awarded its first tender to German line Hapag-Lloyd to transport 1.15 billion twenty-foot equivalent unit miles/year on ships powered by bio-LNG in 2025-26 to cut supply-chain emissions, and said it would award another one for freight based on e-fuels from 2027.
“I think cargo owners, particularly in the container sector, will play a much more important role — and this is connected to Scope 3,” Parker said.
Political winds
Launched by Citi, Societe Generale and DNB in 2019, the Poseidon Principles are a voluntary framework for assessing and disclosing the climate alignment of financial institutions’ shipping portfolios with the IMO’s net-zero shipping target, which is close to 2050.
The 35 signatory banks, which control 80% of the global ship finance market, have committed to reporting their GHG data but have not explicitly pledged to follow the IMO’s ambition in this initiative. Many of the banks have their own company-wide decarbonization targets.
In September, UCL Energy Institute said the lenders were determining loans to shipowners on a corporate rather than asset basis, and that ships with low-carbon intensity did not receive favorable margins.
“The Poseidon Principles is merely a transparency initiative, just expressing an ambition to support the industry in its decarbonization efforts,” Parker said.
In the US, Republican state attorney generals have recently turned to the courts to try to pressure the financial industry to abandon policies deemed harmful to the fossil fuel industry, citing discrimination.
The backlash against green finance is expected to worsen following the inauguration of President Donald Trump as he promises to curb the development of low-carbon energy. In recent weeks, Citi, Well Fargo, Goldman Sachs, Bank of America and Morgan Stanley have exited the UN-convened Net-Zero Banking Alliance — a coalition with joint transition targets — but promised to keep their individual climate commitments.
“We don’t see the Poseidon Principles being impacted by the NZBA situation,” Parker said. “I do not expect any of the existing signatories to the Poseidon Principles to leave.”
Source: Platts
