Introduction
The voluntary market in shipping is an emerging trend where ship owners can finance the retrofit of their vessels to reduce carbon emissions by issuing carbon credits. These credits are then sold in the voluntary carbon market to individuals or companies looking to offset their own carbon emissions. This approach aims to address the financial burden of complying with regulatory measures such as the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), which have been implemented by the International Maritime Organization (IMO) to reduce greenhouse gas emissions in the shipping industry. The voluntary carbon market is a separate system from regulatory carbon markets and operates on a voluntary basis, with credits often certified by reputable standards such as the Verified Carbon Standard (VCS) or the Gold Standard. While the voluntary carbon market has gained traction in recent years, there are concerns about its effectiveness and potential for greenwashing or double counting of credits. However, it continues to play a role in global efforts to combat climate change and reduce carbon emissions in the shipping industry.
The Rise of Carbon Credits in Shipping: A Win-Win Solution for Owners and the Environment
The race to save the planet from the harmful acts of humanity is well underway, and shipping is catching up with ever-increasing debates and legislation to mitigate its impact. However, the common denominator to all the efforts made is the costs associated with increased operating expenses or substantial CapEx investments required to maintain the vessels compliant or financially viable.
To change that, we are starting to see exciting projects emerging in which the ship owners will be able to finance the retrofit of their vessel by issuing carbon credits. The issued carbon credits will then be sold in the voluntary carbon market and bought from companies or individuals eager to offset their carbon emissions.
Greenheart, Njord, and Marsoft Join Forces to Combat Shipping Emissions
Towards that direction, Greenheart, Njord, and Marsoft have announced a partnership in which:
- Greenheart will provide four vessels,
- Njord will design a package of fuel-saving technologies to be installed,
- Marsoft will quantify and certify the CO2 savings.
As a result, the vessels are expected to reduce their fuel consumption by 7-16%, but more importantly, the ships will be enrolled in the Gold standard program. It will allow them to issue and sell carbon credits at the current market price.
What is the voluntary carbon market?
The voluntary carbon emissions market, also known as the voluntary carbon offset market or the voluntary carbon credits market, is a system where individuals, companies, and organizations can voluntarily offset their carbon emissions by purchasing credits or offsets from projects that reduce or remove greenhouse gas emissions. In 2021, the voluntary carbon market experienced tremendous growth, reaching $2 billion, and the pace of purchases is still accelerating in 2022. By 2030, the market is projected to reach between $10 billion and $40 billion. These credits are typically generated from projects that focus on renewable energy, energy efficiency, reforestation, and other initiatives that aim to mitigate climate change. Participants in the voluntary carbon emissions market may purchase credits to compensate for their own emissions or to demonstrate their commitment to sustainability and corporate social responsibility.
The voluntary carbon emissions market operates separately from regulatory carbon markets, which are established by governments and have mandatory compliance requirements. In the voluntary market, participation is voluntary, and there are no legally binding regulations or standards. However, reputable voluntary carbon market programs often adhere to widely recognized standards and certifications, such as the Verified Carbon Standard (VCS), the Gold Standard, and the Climate Action Reserve, to ensure the integrity and transparency of the credits.
The voluntary carbon emissions market has gained traction in recent years as individuals and organizations seek ways to address their carbon footprint and contribute to climate action. It provides an avenue for businesses to demonstrate environmental leadership, meet sustainability goals, and engage in environmental stewardship. However, there has been some criticism and controversy surrounding the voluntary carbon emissions market, including concerns about the effectiveness and additionality of carbon offset projects, as well as the potential for greenwashing or double counting of credits. As the global focus on climate change intensifies, the voluntary carbon emissions market continues to evolve and play a role in efforts to reduce greenhouse gas emissions and combat climate change.
Carbon emissions in shipping
The shipping industry, responsible for 2-3% of global greenhouse gas emissions, is now ready to drive innovation. The International Maritime Organization (IMO) has set ambitious targets of achieving net zero emissions by 2050, and from January 2023, the implementation of two key regulatory measures, the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), came into force. The EEXI aims to improve energy efficiency of existing ships, while the CII measures the carbon intensity of shipping operations. These regulations will have significant implications for the industry in terms of compliance and transitioning to a decarbonized future.
Implementing the EEXI and CII regulations is a critical step towards achieving net zero emissions in the maritime industry. The EEXI requires ships to meet minimum energy efficiency standards based on age, size, and engine power. The CII measures the carbon intensity of each vessel’s operations based on actual fuel consumption and distance traveled.
However, implementing these regulations poses challenges for ship owners. One challenge is the financial burden of investing in new technology and infrastructure to reduce carbon emissions. These investments require significant capital expenditures, which may affect the financial viability of ship owners. Additionally, the regulations may require operational changes such as slower speeds or the use of alternative fuel sources, which may impact the ship’s commercial viability.
Moreover, retrofitting existing ships to comply with the CII and EEXI regulations can be challenging and time-consuming. Retrofitting involves modifying the ship’s existing equipment and systems to make them more energy-efficient and may require the installation of new equipment. These modifications can be costly and time-consuming, impacting the ship’s operations and commercial viability.
Carbon Pricing: The EU ETS and the Maritime Industry
The EU ETS, or the European Union Emissions Trading System, is a market-based mechanism designed to reduce greenhouse gas emissions in the European Union (EU). It is the world’s first and largest cap-and-trade system for carbon emissions. Under the EU ETS, a cap is set on the total amount of greenhouse gas emissions that can be emitted by participating industries, such as power plants, factories, and airlines. These emissions are divided into allowances that are allocated or auctioned to participants.
Companies are required to surrender allowances equal to their emissions at the end of each compliance period. If a company reduces its emissions below its allocated allowances, it can sell the surplus allowances to other companies or bank them for future use. Conversely, companies that exceed their allowances must purchase additional allowances to cover their emissions, creating a financial incentive to reduce emissions.
The maritime industry has not been part of the EU ETS since its implementation in 2005. However, it is expected to be added starting in 2024, creating a new set of operating expenses. Specifically, shipping companies must purchase allowances for vessels over 5000 GT calling in EU ports. As a result, the percentage of the required allowances compared to the verified emissions will reach 100% in 2026, following a phase-in period that increases yearly.
Conclusion
In conclusion, the race to save the planet from the harmful acts of humanity, including emissions from the shipping industry, is gaining momentum with innovative solutions. The partnership between Greenheart, Njord, and Marsoft to retrofit vessels and issue carbon credits in the voluntary carbon market is a promising development. The voluntary carbon market, which has experienced significant growth in recent years, provides an avenue for individuals and organizations to offset their emissions and demonstrate sustainability commitment. However, challenges remain, including the financial burden of compliance with regulatory measures such as the EEXI and CII, and the complexity of retrofitting existing ships. Additionally, the inclusion of the maritime industry in the EU ETS from 2024 will further impact the industry’s emissions reduction efforts. Despite these challenges, the collective efforts of stakeholders in the shipping industry are crucial in mitigating its impact on the environment and moving towards a decarbonized future.
