Maritime shipping is the backbone of international trade and an integral part of global supply chains. The sector is also a major consumer of energy: international shipping is responsible for about 5% of global annual oil use and almost 700 million tonnes (Mt) of annual carbon dioxide (CO2) emissions.
Since 2008, as both global traded value and international shipping activity expanded by almost 50%, energy use in shipping has increased by 5%, with the sector’s oil consumption reaching 4.2 million barrels per day (mb/d) in 2023.
During that period, companies found ways to consume fuel more efficiently, since fuel accounts for up to half the costs of transporting goods by ship. In fact, the energy intensity of shipping – measured as the fuel consumed to transport a tonne of goods over a given distance – has decreased by about 30% since 2008. In 2023, this saved 1.8 mb/d of oil and $60 billion in fuel costs. Still, there remains ample scope for further improvements – in many cases by implementing technologies that are already commercially available.
Two main factors underpin efficiency gains in recent decades. First, there is the adoption of so-called slow steaming, which has been responsible for two-thirds of improvements since 2008, since cutting a ship’s speed in half can reduce fuel consumption up to eight-fold. On average, shipping speeds have fallen by 10% since 2008, resulting in oil savings of over 1 mb/d. Second, ship sizes have grown by over 50% on average.
This saved another 300 kb/d due to reduced hull surface area and wave resistance per tonne of cargo. These two trends developed as a reaction to high fuel prices, market dynamics and regulatory conditions, such as energy efficiency requirements for new-build ships and new international rules on the sulphur content of fuels.
There is potential to further reduce speeds and increase ship sizes in the future, but there are limitations. Ship sizes depend on trade patterns and must comply with size restrictions in canals and ports. And though further decreases in ship speeds are possible, they must be balanced against potential reductions in revenues and shipping capacity. Shortening waiting times at ports could help compensate for these effects, if coupled with a system favouring just-in-time arrivals over the typical “sail fast then wait” approach.
Another way to further cut vessel fuel consumption would be to expand the use of more efficient technologies. However, this option has so far remained largely untapped. Analysis of the actual design engine power of new-build ships (compared with a benchmark corresponding to their size and design speed) finds that their efficiency has only improved by around 4% on average over the past 15 years. Similarly, global maritime services company DNV has found that many of the energy efficiency technologies available have been implemented on less than 5% of all vessels on the water today.
An array of energy efficiency technologies and measures are commercially available right now. Some, like waste heat recovery, were first introduced a decade ago. Others, such as hull optimisation and air lubrication, are more recent innovations but have already been deployed on hundreds of vessels. Meanwhile, technologies like kite sails are at the full-scale demonstration stage.
Several of these technologies – such as improved hull and propeller design and those that optimise operations – already make economic sense for shipowners. We estimate that in a typical container ship, these technologies can be bundled in a way that allows for energy savings of up to 15%, which would lower costs by $2-5 million per year (reducing the total cost of ship ownership by up to 10%). The capital expenditure for this level of savings has a payback period of less than five years at current oil prices.
A further 10% reduction in energy consumption is possible with additional technologies such as air lubrication, wind assistance and waste heat recovery. The investment requirements for these technologies are higher, meaning that the payback period can exceed five years. Nonetheless, relative to the lifetime of a ship, the energy savings make up for the expenditures.
These energy efficiency technologies are not limited to new builds, which account for less than 5% the global fleet every year. Many are also available as retrofits, which could deliver wider efficiency improvements across the sector.
There are several reasons why the adoption of these energy efficiency technologies in international shipping vessels to date has been limited. As in the buildings sector, the main barrier is the classic principal-agent problem, which refers to diverging priorities between an asset’s owner and operator. The shipowners commission new ship designs and decide on upgrades to the ship. They must choose whether to install efficiency technologies, which in some cases can increase costs by several million dollars.
However, charterers, not owners, typically bear the energy costs of the vessel – which means owners do not benefit from the resulting fuel cost savings. These split incentives can increase overall shipping costs, since efficiency technologies are ultimately not adopted as a result. While innovative contract configurations that enable the investor to benefit from fuel savings have been proposed, this method has yet to be adopted in practice.
A further barrier to the deployment of new energy efficiency technologies is the uncertainty about what the exact energy savings will be for a specific ship. To overcome this, technical advances are needed to measure the in-service performance of each installed technology, in addition to dedicated sea trials and the establishment of independent third parties for verification.
International bodies play an important role in regulating shipping. To date, the International Maritime Organisation (IMO) and the European Union have been leading the way on designing policies to improve the sector’s energy and emissions intensity. The prevalent regulatory instruments they have championed fall into three main categories, which complement each other.
Standards on the emissions intensity of fuels aim to promote and de-risk the early adoption of alternative fuels. The European Union has passed the FuelEU Maritime regulation, and the IMO is currently discussing a greenhouse gas fuel standard (GFS) as part of its mid-term measures. This kind of standard does not target efficiency improvements directly, but it could indirectly incentivise the uptake of efficiency technologies in ships running on alternative fuels, which are more expensive than their fossil equivalents.
Pricing schemes on greenhouse gas emissions use market mechanisms to create a favourable business case for first movers while giving other stakeholders more time to adapt their practices. The European Union has included the shipping sector in their emissions trading scheme (ETS), and the IMO is currently discussing the economic element of the mid-term measures. An indirect impact on the energy efficiency of ships running on fossil fuels is possible if the price is high enough, but the effect could be undermined by the aforementioned market dynamics (including split incentives and uncertainty about exact efficiency improvements).
Standards on the emissions intensity of ships aim to stabilise or decrease emissions from shipping even as demand for it increases due to economic growth. The IMO now regulates the design emission intensity and operational emissions intensity of ships (through its Energy Efficiency Design Index, Energy Efficiency for Existing Ships Index and Carbon Intensity Indicator).
As intended, these standards have principally been met by improving the design and operational energy efficiency of ships. However, the increased availability of alternative fuels opens new possibilities. While the principal-agent problem could lead to greater alternative fuel use instead of investment in efficiency technologies, this issue could be mitigated with the revision of the IMO short-term measures that is currently underway.
If stabilising or reducing emissions from shipping is the primary policy focus, then switching to alternative low-emissions fuels can go a long way. However, focusing on sustainable fuels alone can result in supply shortages, especially given potential competition with other sectors such as aviation. Alternative fuels are also more expensive than today’s fossil fuels, which could raise shipping costs across the board.
Improving the energy efficiency of the shipping sector is possible now
Energy efficiency technologies can help to mitigate these issues. They are already available for both new and existing ships, and they reduce fuel use, thereby decreasing the exposure of the shipping sector (and global supply chains) to volatile fuel prices. Their uptake can also limit increases in shipping costs as the adoption of alternative fuels accelerates.
Improving the shipping sector’s energy efficiency has many advantages. But to fully unlock them, clearer, targeted policies are needed to support the deployment of key technologies. There is an important opportunity now to design measures that help overcome market barriers and foster a more energy and cost-efficient shipping industry.
By Laurence Cret (Junior Energy Technology Modeller), Hannes Gauch (Junior Energy Technology Modeller), Elizabeth Connelly (Energy Technology and Transport Analyst) and Leonardo Paoli (Clean Transport Analyst), IEA