Schroders: Green shipping: a USD 1.9 trillion investment opportunity?

London-based global investment manager Schroders on Wednesday (12 April) published a report analysing risk and opportunities – from a wave of new regulation to the benefits of greener bunker fuels:

New developments set to impact the shipping industry over the next 24 months range from the introduction of mandatory energy efficiency and carbon intensity assessments by the International Maritime Organization (IMO) to shipping being included in European Emissions Trading System (EU TS) from 2024.

Under the EU ETS, which has so far been a driver of decarbonisation in energy and industry, companies face fines if they emit more CO2 than they have covered by emissions allowances.

It is also widely-anticipated that this year the IMO will adopt a more ambitious climate target than its current goal of halving absolute emissions by 2050.

In this paper we look at the risks, as well as potential investment opportunities a decarbonising shipping industry could present.

Why should investors care about green shipping?

With international shipping facilitating 80–90% of global trade, to reach a 1.5°C scenario the sector drastically needs to decarbonise. While it is the most carbon efficient means of transportation (on a CO2 per ton-km basis), it still accounts for one billion tons of CO2 per year, around 3% of annual global greenhouse gas emissions.

In a business-as-usual scenario, the OECD has forecast maritime trade volumes to triple by 2050. Businesses that do nothing to reduce emissions could face a triple hit of financial penalties, higher carbon taxes and reduced consumer demand.

At the same time, there is scope for investors to benefit from new innovations. We’ve analysed more than 100 decarbonisation projects being implemented across the industry and its value chain, focusing on engine technology, renewable fuel production, as well as bunkering and infrastructure projects.

To meet the IMO’s current 2050 emission targets, the scale of investment estimated to be required is up to $1.9tn.

A voyage to greener shipping in full

The report, A voyage to greener shipping: risks & opportunities, contains detailed analysis on:

• the IMO and EU TS changes coming into force, including a worked example of the impact on freight costs;
• short-term, medium-term and long-term pathways and solutions – from advanced biofuels to green hydrogen and e-methanol, green ammonia and scrubbers to wind propulsion;
• how to benefit from the $1.4-1.9tn investment required across the shipping industry between 2030 and 2050 to reach the IMO’s target of reducing absolute emissions by at least 50% by 2050, such as the opportunities for investors in ship improvements (13%) vs land-based storage and infrastructure for ammonia and hydrogen synthesis (87%). 

Note: Read the full report A Voyage to Greener Shipping: Risks and opportunities here. 

Photo credit: Schroders
Published: 13 April, 2023