The maritime sector is at a critical juncture as it faces mounting regulatory pressure to decarbonize. The International Maritime Organization (“IMO”) aims to reduce greenhouse gas (“GHG”) emissions from shipping by 50% by 2050 compared to 2008 levels.[1] To meet these targets, the industry is exploring a range of solutions, including the adoption of alternative fuels such as ammonia, hydrogen, biofuels and liquefied natural gas (“LNG”). Evolving domestic and IMO policies place significant pressure on shipping operators and insurers to respectively invest and insure vessels running on alternative fuels. While the IMO has set clear objectives, the maritime sector’s transition to sustainable operations will require coordinated efforts across governments, fuel suppliers, shipowners, and technology providers to ensure viable and scalable solutions – for now, alternative fuels represent many variables that are unknown. While alternative fuels present an opportunity to reduce emissions in the maritime industry, they do, unfortunately introduce significant risks for vessel owners (and their insurers), including engine retrofitting, fuel quality issues, environmental impacts and human health exposures to the crew, the public, and the response community.[2] Another operational challenge associated with alternative fuels is their corrosive properties, particularly with certain fuels. For instance, ammonia and biofuels can cause excessive corrosion. The maritime community must also adapt to the burgeoning of regulations and meeting the IMO targets.[3] Mitigation strategies include the following: quality control measures & robust testing protocols, storage solutions, health impact assessments, engine modifications, and training and safety measures. Another matter to address is evolving insurance premiums. [4] One of the primary factors affecting premiums is the fuel type itself. Vessels using biofuels, LNG, hydrogen or ammonia all face unique risks that could lead to higher premiums. Spill risks should be assessed independently due to the challenges associated with clean-up and the varying human and environmental risks posed by ammonia, hydrogen, LNG, and biofuels. [5] Ammonia, in particular, poses heightened environmental and health risks due to its highly corrosive and toxic nature and this toxicity must be factored in and calculated.[6] Insurers may impose additional premiums on vessels using ammonia due to the spill risk and the associated cleanup costs in the event of a leak.[7] This talk will cover the abovementioned risks and potential mitigation strategies from both a legal and technical perspective.
[1] Challenges and Opportunities for Alternative Fuels in the Maritime Sector (Foretich et al., 2021, p. 2). Available at: https://doi.org/10.1016/j.martra.2021.100033.
[2] “Managing Risks in a Sea of Change: The Marine Industry’s Transition to Biofuels,” AXA XL, 2022, at https://axaxl.com/fast-fast-forward/articles/managing-risks-in-a-sea-of-change_the-marine-industrys-transition-to-biofuels?
[3] Swiss Re. (2022). For Marine Insurers, the Transition to Green Shipping Starts Now. Retrieved from https://www.swissre.com/reinsurance/insights/marine-insurers-transition-to-green-shipping.html
[4] Maritime Insurance Premium, Claims Norms to Change on Energy Transition, S&P Global, 2022, p. 1. Available at https://www.spglobal.com/commodity-insights/en/news-research/latest-news/energy-transition/090622-maritime-insurance-premium-claims-norms-to-change-on-energy-transition-sources; See For Marine Insurers, the Transition to Green Shipping Starts Now, Swiss Re, 2022, p. 2. Available at: https://www.swissre.com/reinsurance/insights/marine-insurers-transition-to-green-shipping.html. See also Challenges and Opportunities for Alternative Fuels in the Maritime Sector, Foretich, E., et al., 2021, p. 6–8. Available at: DOI link.
[5] Id.
[6] Id.
[7] See For Marine Insurers, the Transition to Green Shipping Starts Now, Swiss Re, 2022, p. 2. Available at: https://www.swissre.com/reinsurance/insights/marine-insurers-transition-to-green-shipping.html.
