Shipping decarbonisation: A cUS$300bn opportunity or threat for the industry/consumer?

We continue our work on shipping industry decarbonisation. We see the opportunities outweighing the costs and find both transforming for a variety of industries. In more detail, we look at:

1. Infrastructure cost, estimated by University Maritime Advisory Services(UMAS) at US $0.9-1.7trn between 2030 and 2050 (c1% of the total energy transition cost).
2. Additional fuel cost, which we estimate could be US$196-261bn annually for 100% decarbonisation, i.e., doubling the like-for-like fuel bill.
3. Carbon taxation: If all current fossil fuel consumption were taxed at US$100/tonne of CO2, this would cost the marine sector US$70bn annually (c50% of current fuel costs).
   
4. Energy efficiency measures: At current fuel prices, we see 12 different measures with negative marginal abatement costs (MAC), ie, a financial saving, and a total of US$9-39bn could be saved annually (5-17%).
   
5. The cost for the end consumer: Price increases for typical consumer goods would be mostly below 1%, according to our findings.
   

When IMO meets in July (MEPC 80), its current greenhouse gas (GHG) reduction agenda (-50% by 2050) might toughen to net zero. We would see this as an important catalyst for industry adoption/market awareness. We have seen adoption crowding towards IMO regulation deadlines in the past, which tends to be cost inflationary. Hence, even if shipping industry decarbonisation stretches over many more years than past regulation, such crowding could make cost estimates/disruption less predictable. The UBS Evidence Lab shipping executive survey affirms the rising importance of IMO's carbon rules. To comply, executives prefer technical/operational measures mostly in the short term, but are looking for fuel flexibility in the longer term as fuel and technology availability is still an issue. Most respondents expect to pass on the costs to clients, supporting our view that the opportunities outweigh the costs for industry players.

Decarbonising the industry could help to remove 3% of global CO2 emissions and be a major opportunity for industry participants:

1. for shipping companies gaining market share;
2. for shipyards benefiting from rising eco ship demand;
   
3. for shipyard suppliers focusing on fuel systems/engines and energy efficiency;
   
4. for alternative fuel providers;
   
5. port infrastructure providers; and
   
6. renewable energy providers and their suppliers powering green fuel making.