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Vessel operators, charterers shed light on bulk shipping emissions in “unprecedented” data project

24 June 2022 Max Tingyao Lin

As the Sea Cargo Charter Association released its first annual disclosure report on the carbon intensity of shipping activities, environmentalists, industry analysts, and some parties involved questioned its methodology and ambition but praised its efforts in enhancing data transparency and the understanding of value chain emissions.

Launched under the auspices of the nonprofit Global Maritime Forum in October 2020, the industry group—which manages the namesake charter—aims to establish a framework for reporting and measuring shipping emissions in alignment with the International Maritime Organization's (IMO's) mid-century climate goal.

Signatories of the Sea Cargo Charter—dry and wet bulk cargo owners and ship operators—are required to collect annual data on the emissions from their shipping activities in international trade, calculate their carbon intensity, and compare their performance against the IMO goal.

While vessel operators are used to such data collection due to IMO regulatory requirements, cargo interests in general need to insert an additional clause into their shipping contracts to gather emissions figures from shipowners.

Jean-Marc Bonello, a consultant at University Maritime Advisory Services (UMAS), which advises on the charter, said the main challenge for the cargo-owning signatories was to obtain data for the transportation work they were engaged in.

"An interesting finding for us was that even these leading players did not have access to emissions data linked to their activities, thus making it difficult to make any climate-aligned chartering decision-making," Bonello told Net-Zero Business Daily by S&P Global Commodity Insights.

Despite that obstacle, the charter has been growing in popularity, with its signatories increasing from 17 initially to 33 now. Of that total, 25—representing over 15% of total bulk cargo transported by sea—had to report their emissions performances for 2021.

In the first annual disclosure report published earlier this month, each of the signatories disclosed a carbon intensity score. This was obtained by comparing the CO2 emissions from moving 1 metric ton of goods one nautical mile in its voyages against standardized decarbonization trajectories for each ship class and size established by the association in alignment with the IMO's goal of halving shipping emissions by 2050 from 2008 levels.

The results show 13 signatories with positive scores, denoting how much they misaligned the UN shipping body's decarbonization target by reporting higher-than-required carbon intensity. The other 12 had negative scores, representing how much they exceeded the target.

"Having half the signatories aligned is exactly what one would expect to see since the baselines are drawn up from the mean activity of ships of respective types and sizes," Bonello said.

The simple average score was 2.7%, suggesting the signatories were slightly misaligned overall with the IMO pathway in 2021. Scores ranged from -26.1% to 46.2%, and three-fifths of respondents had a score of 5% or less.

Among the better performers, Signal Maritime Services reported -26.1%, NYK Bulkship (Atlantic) -19.8%, Equinor -13.0%, Trafigura -7.5%, Eagle Bulk -4.9%, TotalEnergies -4.5%, COFCO International -3.2%, Tata Steel -2.1%, Maersk Tankers -1.8%, Gunvor -1.3%, Anglo American -0.9%, and Holcim Trading -0.1%.

Separately, Dow was at 46.2%, Louis Dreyfus Company (LCD) 16.6%, Torvald Klaveness 15.8%, ADM 13.2%, Nova Marine 12.6%, Bunge 12.5%, Diamond Bulk Carriers 9.8%, Shell 6.2%, Cargill and Enviva both 5.9%, Klaveness Combination Carriers 3.3%, Norden 2.5%, and Copenhagen Commercial Platform 1.8%.

Switzerland-based Nova Marine said the results were "surprising" as the company operates a modern fleet, saying that the underperformance could be attributed to the lack of bespoke trajectories in the Sea Cargo Charter's methodology for the general cargo ships it operates.

"We have clubbed them under bulk carriers … [but] general cargo ships differ a lot in how they operate compared to bulk carriers," Nova Marine said in the report, adding that their frequent, sometimes long port stops and shorter laden voyages tend to result in more carbon-intensive operations.

Torvald Klaveness, a Norway-based operator of bulk carriers, said that the calculation methods for the alignment can be further improved, but the "thought-provoking" results will kickstart some measures in emissions cuts.

Room for improvement

The association admitted that the methodology can be refined further to better reflect the differences between each ship class and size.

"This was the first opportunity to see how the Sea Cargo Charter methodology can be applied in practice with measured data, which has in turn exposed some areas that may require some development to ensure better accuracy," the report said. "This is particularly relevant to liquefied gas carriers as well as chemical tankers for which alignment is subject to some methodological uncertainty."

On average, chemical tankers reported an alignment score of 39.9%, gas carriers 22.1%, bulkers 5.3%, and oil tankers -11.1%.

Across all vessel classes, smaller ships tend to be less aligned when compared with larger ships of the same type.

For chemical tankers, signatories encountered trouble choosing which ship category to report their voyages under as the class of vessel often can carry multiple types of oil and chemical products, according to the report.

"Additionally, these vessels can be used to transport all … types of cargo with [captains] designating the voyage according to the cargo rather than the vessel type when reporting data to signatories," the report said.

The comparisons for LNG and LPG carriers are also difficult due to their diverse propulsion systems and various types of marine fuels they consume, the report said. "This is further complicated by uncertainty around onboard machinery and proportion of energy obtained through cargo boil-off in the case of LNG and other liquid fuels," it added.

Moreover, green lobbyists believe the charter should be more ambitious. Signatories only commit to reporting their emissions performances rather than aligning with the IMO's climate goal, which itself could be insufficient to help cap global warming at 2 degrees Celsius—or what the Paris Agreement aims for.

According to the nonprofit International Council on Clean Transportation (ICCT), total shipping emissions need to at least halve from 2008 levels by 2030 and reach absolute zero by 2040.

"The industry … needs to look beyond the level of ambition of the IMO to effectively tackle the climate crisis," Antonio Santos, a policy director at nonprofit Pacific Environment, told Net-Zero Business Daily. "Any initiative meant to advance the decarbonization of the maritime industry should align with these targets."

In the report, Equinor came out to support stronger ambition in the charter aligned with the Paris Agreement, but did not state a specific target. "We believe it's important for the charter to evolve and develop in reflection of relevant climate science," it said.

There are also concerns about whether the charter's scoring system, based on carbon intensity, can actually promote emissions reductions in absolute terms.

"From a climate perspective, it's the cumulative emissions that drive global warming," ICCT Marine Program Lead Bryan Comer said. "Reducing carbon intensity is good, but unless absolute emissions fall to zero, the earth will continue to get warmer."

"A score based not only on carbon intensity, but also trends in absolute emissions, would help determine the overall climate impacts of the ship," Comer told Net-Zero Business Daily.

Nishatabba Rehmatulla, another UMAS consultant, said the carbon intensity metric could risk "misalignment with absolute GHG emissions if, for example, the real-world demand outpaces the assumptions on demand or if concrete actions on improving CO2 intensity are not taken quickly in the next few years."

"Therefore, there is a need to keep a close watch on this and revise the trajectories as required," Rehmatulla told Net-Zero Business Daily.

In the report, the association agreed that the charter needs to develop over time as more evidence of the climate crisis emerges. "The Sea Cargo Charter will therefore carefully evaluate possibilities of going beyond the level of ambition set by the IMO, including the possibility of having a temperature-based goal, reporting against whole lifecycle emissions, and including other [types of] GHG," the report said.

The bright spots

Despite its shortcomings, environmentalists and maritime professionals believe the charter managed to promote large-scale coordination in shedding light on shipping emissions.

"One benefit of this charter is that it improves data transparency, something that is severely lacking in the sector," Comer said.

While shipowners have been required to report their fuel consumption and sailing distances to the IMO's Data Collection System since 2018, similar data points required by the charter, the information is only available to the public at the aggregate level, and in many cases not available to charterers.

By signing the charter, cargo owners effectively commit themselves to studying shipping emissions with vessel owners whenever they need to hire ships. Technically, this is not an easy task.

"The biggest challenge is obtaining the data itself, but even if/when that data is collected, it is often in varying formats, lacks standardization, and validation and can be incomplete," said Ashlee Williams, head of maritime data operations at S&P Global Market Intelligence, which collects data for some signatories.

Technology like S&P Global software Enterprise Data Management could enable "the rapid integration of data," said Williams. "This delivers data quality, and an aggregating and mastered dataset against a set of standards that allow for transparency in reporting."

Still, signatories were able to gather data for 84 of their shipping activities in 2021. Cargill Ocean Transportation President Jan Dieleman said he observed "unprecedented levels of data sharing."

"We better understand the climate impacts of our business activities at a much more granular level, and can back up operational and strategic decision-making with real data," Dieleman, who also chairs the association, said in a statement 15 June.

S&P Global Market Intelligence Maritime Sustainability Lead Kristy Asseily told Net-Zero Business Daily that "the good thing about the Sea Cargo Charter is that it gives scrutiny and dialogue for data that has been taken for granted before."

"By unlocking, validating, and analyzing data at a more frequent cadence, charterers have a golden opportunity to optimize voyages in an unprecedented way," Asseily added.

Also, many of the signatories are major traders or producers in the energy and commodities industries that have decarbonization targets for value chain emissions (Scope 3), such as Anglo American and Shell. Consultants said the data collection under the charter forms a significant part of Scope 3 emissions calculation.

Alan Lewis, technical director at the Smart Freight Centre, which also advises on the charter, said those signatories are now able to better assess the upstream transportation emissions under chapter 4 of the GHG Protocol. Full reporting will require figures on the lifecycle emissions of marine fuels used in their shipping activities, he added.

"Scope 3 emissions are a large share of many organizations' emissions, yet are often ignored due to data availability and a lack of reporting requirements," Rehmatulla said. "Sea Cargo Charter has the potential for charterers to manage and improve their Scope 3 emissions over time."

Posted 24 June 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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