The shipping industry is under immense pressure to decarbonise – and fast. The industry, responsible for around 3 per cent of global greenhouse gas emissions, is responding to the challenge as it transitions towards sustainable technologies and alternative fuels.
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However, unlocking this transition requires a significant shift in regulation, not just technology. Sustainability advancements require new policy frameworks to address the new risks to vessels, crews, and the environment, particularly when it comes to alternative fuels. It is essential to proactively address these risks, otherwise marine insurance may become unaffordable, delaying the industry’s progress to net zero.
The evolution & regulation of maritime fuels
The International Maritime Organization (IMO), a global body which oversees the safety of shipping and the prevention of marine pollution, has set out ambitious targets to reach net zero by 2050 in its Greenhouse Gas Emissions Strategy, established in 2023. This includes a 2030 milestone, with a target of 5 per cent to 10 per cent of shipping fuel to come from alternative fuels.
Shipping has been powered by fossil fuels, such as marine diesel, since the industrial revolution. Accidents and spills of these fuels are notorious for their environmental and social damage, meaning that robust regulations have been put in place to address the risks and liabilities associated with them. Regulation such as the 2001 Bunkers Convention, which addresses pollution damage caused by spills of bunker oil from ships, is part of the robust framework to ensure the shipping industry can function in the face of major incidents. Importantly, regulation creates a clear framework for liability and compensation, which is essential to secure affordable insurance for the industry's vessels.
Now, new frameworks must be proactively developed for alternative fuels, like biofuel and ammonia, to enable their safe and practical adoption.
Alternative fuels: the risks
The transition to alternative fuels introduces new risks that need to be managed carefully. For example, hydrogen, a promising fuel for ship propulsion, is highly explosive, posing a substantial risk to life and property. Others, including ammonia and methanol, need specialised storage facilities.
While global initiatives are addressing these safety concerns, it's clear that we cannot fully mitigate these risks – we must also be prepared for accidents. It is critical that international regulation is swiftly agreed for the movement and usage of alternative fuels. Without this, the industry risks making vessels using sustainable fuels unaffordable to insure, thus delaying the transition.
Gaps in regulation: the solutions
The long-term adoption of alternative fuels is dependent on the development of a thorough regulatory and risk limitation framework. The first thing this framework must include is the ratification of the Hazardous and Noxious Substances (HNS) convention, which would provide a plan for accidents involving HNS, which crucially would cover alternative fuels.
Secondly, the development of an Alternative Fuels Convention, modelled on existing conventions, would address the specific risks and liabilities associated with alternative fuels.
Lastly, the framework should include the creation of a second-tier fund, similar to the International Oil Pollution Compensation Fund, which would provide compensation for large incidents involving vessels operating on alternative fuels.
Policymakers will be critical to addressing the challenges associated with alternative fuels. Their role in accelerating the ratification of international conventions, such as the HNS convention, cannot be understated. Policymakers must also encourage the development of global industry standards, helping to establish a benchmark for the safe handling, storage and transportation of alternative fuels to mitigate risks and ensure industry-wide compliance.
Marine insurers must also take proactive measures to facilitate this transition. They should take the lead on the development of risk assessment models, alongside industry experts, to ensure that insurance products are adequately priced and structured to cover emerging risks. This work must be undertaken in collaboration with policymakers and the wider shipping industry to ensure that regulatory frameworks are both comprehensive and practical.
By taking these key steps, policymakers and marine insurers can play a pivotal role in facilitating the safe and sustainable adoption of alternative fuels, ensuring the maritime industry transitions smoothly, while minimising risks and liabilities.
If the shipping industry is to successfully transition to alternative fuels, then the new risks that such fuels bring must be addressed through comprehensive regulatory frameworks. Policymakers and insurers must collaborate with the wider industry to enable progress to cut emissions via alternative fuels, while prioritising safety and accurately assigning liability. If this is carried out, then the maritime industry will be able to navigate the complexities of the green transition, securing a resilient and bright future for global shipping.
Jesse Fahnestock is Decarbonisation Director at the Global Maritime Forum
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A helpful contribution to the problem. However it doesn't go anywhere near far enough. At best with 50m separation on one fo the sides of the...