IMO 2020: The Big Shipping Shake-Up
Over 90% of all global trade takes place on our oceans.
Unfortunately, the network of 59,000 vessels powering international commerce runs on sulfur-laden bunker fuel, and resulting emissions are causing problems on dry land.
As today’s infographic by Breakwave Advisors demonstrates, new emissions regulations taking effect in 2020 will have a big impact on the world’s massive fleet of marine shipping vessels.
The Regulatory Impact
The International Maritime Organization (IMO) – the UN agency responsible for ensuring a clean, safe, and efficient global shipping industry – will be implementing new regulations that will have massive impact on maritime shipping.
The regulations, dubbed IMO 2020, will enforce a 0.5% sulfur emissions cap worldwide starting January 1, 2020 ─ a dramatic decrease from the current emissions cap of 3.5%.
Here are a few ways marine fuel will likely be affected by these regulations:
- High-sulfur fuel oil will drop in price as the demand drops dramatically after January 1, 2020
- Diesel, a low-sulfur fuel oil, will be in higher demand and should see a price increase
- Refiners should also expect higher profits as refining runs increase to satisfy the new regulations
The Economic Impact
IMO 2020 will be one of the most dramatic fuel regulation changes ever implemented, with a significant impact on the global economy.
New regulations are certain to influence freight rates ─ the fees charged for delivering cargo from place to place. These rates can fluctuate depending on:
- Time and distance between ports
- Weight and density of the cargo
- Freight classification
- Mode of transport
- Tariffs and taxes
- Fuel costs
Rising fuel costs means rising freight rates, with much of these costs being passed to consumers.
In a full compliance scenario, we estimate the total impact to consumer wallets in 2020 could be around US$240 billion.
─ Goldman Sachs
The Environmental Impact
Not surprisingly, the world’s 59,000 transport ships, oil tankers, and cargo ships have a consequential impact on the environment.
Bunker fuel accounts for 7% of transportation oil consumption (~3.5 million barrels/day). Burning this fuel generates about 90% of all sulfur oxide and dioxide (SOx and SO2) emissions globally. In fact, the world’s 15 largest ships produce more SOx and SO2 emissions than every car combined.
These sulfur emissions can cause several harmful side effects on land ─ acid rain, smog, crop failures, and many respiratory illnesses such as lung cancer and asthma.
Changing Currents in the Shipping Sector
As IMO 2020’s implementation date nears, shippers have a few courses of action to become compliant and manage costs.
1) Switch to low-sulfur fuel
Bunker fuel use in the shipping industry was 3.5 million barrels per day in 2018, representing roughly 5% of global fuel demand.
Annual bunker fuel costs are predicted to rise by US$60 billion in 2020, a nearly 25% increase from 2019. Price increases this significant will directly impact freight rates ─ with no guarantee that fuel will always be available.
2) Slower Travel, Less Capacity
The costs of refining low-sulfur fuel will increase fuel prices. To offset this, shippers often travel at slower speeds.
For example, large ships might burn 280-300 metric tons of high-sulfur fuel oil (HSFO) a day at high speeds, but only 80-90 metric tons a day at slower speeds. Slower travel may cut costs and help reduce emissions, but it also decreases the capacity these vessels can transport due to longer travel times, which shrinks overall profit margins.
3) Refueling Detours
Adequate fuel supply will be a primary concern for shippers once IMO 2020 takes effect. Fuel shortages would cause inefficiencies and increase freight rates even more, as ships would be forced to detour to refuel more often.
4) Installing Scrubbers
A loophole of IMO 2020 is that emissions are regulated, not the actual sulfur content of fuel itself.
Rather than burning more expensive fuel, many shippers may decide to “capture” sulfur before it enters the environment by using scrubbers, devices that transfer sulfur emissions from exhaust to a disposal unit and discharges the emissions.
With IMO 2020 looming, only 1% of the global shipping fleet has been retrofitted with scrubbers. Forecasts for scrubber installations by mid-2020 run close to 5% of the current ships on the water.
There are a few reasons for such low numbers of installations. First, scrubbers are still somewhat unproven in maritime applications, so shippers are taking a “wait and see” approach. As well, even if a ship does qualify for a retrofit, cost savings won’t take effect until several years after installation. On the plus side, ships with scrubbers installed will still be able to use the existing, widely-available supply of bunker fuel.
No matter which route shippers choose to take, the short-term impact is almost certainly going to mean higher freight rates for the marine shipping industry.
The Circular Economy: Redesigning our Planet’s Future
Our modern world was designed for mass consumption and waste. Choosing to build a circular economy will be integral to the future of our planet.
Think about the last item you threw away. Did you consider where that product ended up, once you threw it away?
The Earth’s growing waste problem can be traced back to a culture that treats virtually every item we buy and own as disposable. Rapid urbanisation, population growth, and industrialisation are key contributors to the burgeoning volumes of waste that humans are producing each year.
But what if there was away to get around that?
Introducing the Circular Economy
Today’s post from BlackRock highlights the key benefits of adopting a circular economy, and examines the factors that will make the biggest impact in the years to come.
A Culture of Consumption
Mass production is making products cheaper, more readily available, and more readily disposable, bringing levels of material comfort unimaginable to previous generations.
Companies are making new products at a frenetic pace to keep up with global demand─consuming finite resources as if the Earth had an infinite supply.
The intense effects of this mass consumption are visible across multiple industries:
- Construction: Construction waste alone is expected to reach 2.2 billion tonnes annually by 2025.
- Fast Fashion: Roughly 87% of clothing is discarded or burned each year, costing US$100 billion.
- Plastics: Over 95% of plastic packaging value is wasted every year, costing up to US$120 billion.
As natural resources decline and waste continues to pile up, our society is at a crossroads.
A Tale of Two Economies
Today, most of the world follows the Take-Make-Waste practices of the linear economy, with little regard for future use of these resources and products. Unfortunately, most of this ends up in landfills─by 2050, we could be producing 3.4 billion tonnes of waste each year.
The circular economy, by contrast, is focused on redesigning our systems, processes, and products to enable goods to be used longer, repurposed, or recycled more efficiently.
The circular economy is a major transformational force that will last decades…investors are increasingly considering sustainability factors when making investment decisions.
Companies and governments that choose to adopt a circular economic model could end up saving €600 billion (US$663 billion) annually─and potentially add €1.8 trillion (US$2 trillion) in additional benefits to Europe’s overall economy.
Designing a Better Future
Three major factors are driving the gradual, global shift to a circular economy.
Companies will need to switch from wasteful to sustainable practices, and many are taking steps towards a better future. The New Plastics Economy Global Commitment was signed in 2018 by over 400 organisations to eliminate plastic waste and pollution.
Regulations such as bans on single-use plastics and international waste imports are growing more stringent, and some governments are also offering tax incentives for corporations that follow sustainable practices.
More consumers are actively researching and questioning the impacts of the products they buy, and consumer demand is showing a preference for reusable products and practices.
While few public companies today are actively using a circular economy, several major brands are leading the way in sustainable business practices.
- Philips: Light-as-a-service that provides access to lighting rather than ownership of lightbulbs
- Levi Strauss: Repurposing old garments into building insulation, upholstery, and new clothing
- Toshiba: First multi-function printer, heat-sensitive erasable toner can do up to five reprints per page
- Renault: Revamped old vehicle drive trains, engines, and gearboxes to almost-new condition
Companies and governments in the circular economy have a structural advantage to solve some of the world’s biggest economic issues ─ giving them a strong, long-term market for goods and services, the potential to lower costs, and open profitable new business streams.
Lasting Impact on People, Planet, and Profit
In order for the circular economic model to achieve widespread adoption, both sustainable investment and partnerships across sectors are needed.
This rally for change is making an impact on financial markets─sustainable investments around the world grew from US$13.3 trillion in 2012 to US$30.7 trillion in 2018.
Healthy economies rely on a healthy environment, and building a circular economy is integral to the future health of our economy, planet, and society.
Ranked: Countries with the Most Sustainable Energy Policies
Which countries are able to balance prosperity and sustainability in their energy mixes? See the countries with the most sustainable energy policies.
Ranked: Countries With Most Sustainable Energy Policies
The sourcing and distribution of energy is one of the most pressing issues of our time.
Just under one billion people still lack basic access to electricity, and many more connect to the grid through improvised wiring or live through frequent blackouts. On the flip side of the socioeconomic spectrum, a growing chorus of voices is pressuring governments and corporations to power the global economy in a more sustainable way.
Today’s visualization – using data from the World Energy Council (WEC) – ranks countries based on their mix of policies for tackling issues like energy security and environmental sustainability.
The Energy Trilemma Index
According to WEC, there are three primary policy areas that form the “trilemma”:
1. Energy Security
A nation’s capacity to meet current and future energy demand reliably, and bounce back swiftly from system shocks with minimal disruption to supply. This dimension covers the effectiveness of management of domestic and external energy sources, as well as the reliability and resilience of energy infrastructure.
2. Energy Equity
A country’s ability to provide universal access to reliable, affordable, and abundant energy for domestic and commercial use. This dimension captures basic access to electricity and clean cooking fuels and technologies, access to prosperity-enabling levels of energy consumption, and affordability of electricity, gas, and fuel.
3. Environmental Sustainability
The transition of a country’s energy system towards mitigating and avoiding environmental harm and climate change impacts. This dimension focuses on productivity and efficiency of generation, transmission and distribution, decarbonization, and air quality.
Using the dimensions above, a score out of 100 is generated. Here’s a complete ranking that shows which countries have the most sustainable energy policies:
|Rank||Country||Trilemma Score||Letter Grade*|
|4||🇬🇧 United Kingdom||81.5||AAA|
|10||🇳🇿 New Zealand||79.4||AAA|
|15||🇺🇸 United States||77.5||AAB|
|16||🇨🇿 Czech Republic||77.4||AAB|
|34||🇭🇰 Hong Kong (China)||72.5||DAB|
|37||🇰🇷 South Korea||71.7||BAC|
|38||🇨🇷 Costa Rica||71.6||CBA|
|62||🇸🇻 El Salvador||66.0||BCA|
|71||🇲🇰 North Macedonia||63.7||CBC|
|76||🇹🇹 Trinidad and Tobago||63.3||CAD|
|78||🇸🇦 Saudi Arabia||62.8||CAD|
|79||🇧🇦 Bosnia and Herz.||62.1||BBC|
|85||🇱🇰 Sri Lanka||60.1||BCB|
|92||🇿🇦 South Africa||58.9||DBD|
|97||🇩🇴 Dominican Republic||57.6||DBB|
|111||🇨🇮 Côte d’Ivoire||49.3||BDC|
*The letter grade represents national performance in three dimensions. The first letter represents Security, the second letter represents Equity, the third letter represents the Environmental Sustainability. The top grade is AAA, the lowest is DDD.
Highs, Lows, and Outliers
Every country has unique circumstances — from strategic energy reserves to green energy ambitions — that shape their domestic energy policies. Let’s take a closer look at some of the more interesting situations around the world.
Global Energy Outlook
Achieving the balance of prosperity and sustainability is a goal of nearly every country, but it takes stability and the right mix of policies to get the job done.
The fact that many trilemma scores are improving is an indicator that the world’s patchwork of energy policies are slowly moving in the right direction.
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