This week’s London International Shipping Week brings together ship owners, charterers, insurers, commodity traders, port operators, and other key actors in the maritime sector. They play a crucial role in the global economy, given that ships carry around 90 percent of world trade by volume, with the total amount having more than tripled since 1970. Equally critical is the aviation sector, carrying around 35 percent of global trade by value, which includes over half of international tourists and a growing number of business travellers.

Both sectors are an increasingly significant source of greenhouse gas emissions. Together they produce 5 percent of global carbon dioxide emissions, which could rise to up to 32 percent by 2050. Curbing this emissions growth is critical to staying within the internationally agreed 2 degrees C (3.6 degrees F) limit to global warming.

Saving Money and Reducing Emissions

The New Climate Economy paper on aviation and maritime examines the double wins of improved efficiency for emissions reductions and economic savings. Current efficiency levels vary greatly: there is a 27 percent difference in the efficiency of the least and most fuel-efficient U.S. airlines, and the most efficient oil tankers are about one-fifth as fuel-intensive as the least. Given that fuel represents around a third of operating costs in aviation and half in shipping, efficiency improvements clearly matter. In shipping, taking full advantage of the measures already available could save over $30 billion annually for the industry and avoid 300 megatons of carbon dioxide equivalent per year by 2030.

So why aren’t these obvious economic opportunities being exploited?

In shipping, two systemic challenges hinder higher efficiency. The first is the lack of reliable information on the gains available from different efficiency measures. The second is the issue of split incentives between a ship owner and charterer, where charterers bear the fuel costs while the owner is responsible for the improvements, so neither side has a strong reason to change.

Solutions to address shipping’s split incentives through third-party financing are emerging. These include the Sustainable Shipping Initiative’s Save As You Sail and the Self-Financing Fuel-Saving Mechanism driven by Carbon War Room and University College London. Carbon War Room has also just announced a scheme offering grants of up to $200,000 to cover installation costs for continuous monitoring equipment for ship owners or charterers keen to retrofit with proven technologies.

Efficiency improvements in aviation, although free of split incentives, have been uneven, with periods of rapid gains in the 1960s and 1980s interspersed with decades of little progress in the 1970s and early 2000s. But now is a good time to take advantage of new technologies that can lead to considerable savings. The latest generation Airbus A320 is around 40 percent less expensive to operate than its predecessor. New engines can provide up to 20% efficiency improvements and “winglets” (wingtip devices that reduce drag) can improve fuel efficiency by 4 percent, paying for themselves in two to three years. Sophisticated air traffic management can also cut journey times and fuel use. What’s needed are stronger incentives to spur progress.

What Can Be Done?

International collaboration is essential for effective action in these two global sectors. While domestic emissions reductions are being driven by countries as part of national climate obligations, international aviation and maritime emissions are not.

International activity in these sectors is governed by the International Civil Aviation Organisation (ICAO) and the International Maritime Organisation (IMO), the UN agencies responsible for adopting industry-wide regulations and for ensuring safety, security and good environmental performance. Standards and norms set by these governing bodies can influence the whole industry. And they have taken important steps: ICAO has committed to introducing measures to cap net emissions at 2020 levels and the IMO design efficiency standards are projected to lead to savings of $200 billion on average in annual fuel costs by 2030.

But progress is not at the scale needed to maximize the double wins. This is why, in its second major report, Seizing the Global Opportunity, the Global Commission on the Economy and Climate argues for more ambitious action by these agencies. Its recommendations include:

  • Action by the IMO to implement a transparent, global system that provides reliable data on operational ship efficiency, and to accelerate the process to establish a policy measure that would promote operational efficiency (such as a global efficiency standard).

  • Action by ICAO to implement a stringent aircraft CO2 standard in its 2016 Assembly, including coverage of all new aircraft. Given the sector’s growth trends, ICAO should also incentivise RD&D of sustainable fuels, aiming to make them economically viable in near future.

Both sectors have a significant role to play in reducing their emissions to help the world stay on a 2 degree C trajectory – with major economic wins ahead if they do.