The maritime industry transports over 80% of goods worldwide and is essential to the deployment of climate technologies. At present, the industry contributes approximately 2 to 3% of global emissions, but this figure is projected to grow without major changes to the industry and its ancillary services. However, decarbonizing the maritime industry is unusually challenging. As the president of Marine and executive vice president at Wärtsilä, Roger Holm’s team helps power one out of every three ships worldwide. In light of new EU regulations and the International Maritime Organization’s goal of net neutral carbon emissions by 2050, Wärtsilä is now focused on solving the decarbonization riddle for clients that operate ships that can last for decades and need to be able to adapt to a wide range of infrastructure and fuels in ports. In this episode, Roger Holm chats with Hilary Langer and shares why Wärtsilä approaches maritime decarbonization at the systems level, why clients are increasingly focused on sustainability, and where he sees the greatest potential for carbon and cost savings.
The maritime industry transports over 80% of goods worldwide and is essential to the deployment of climate technologies. At present, the industry contributes approximately 2 to 3% of global emissions, but this figure is projected to grow without major changes to the industry and its ancillary services. However, decarbonizing the maritime industry is unusually challenging. As the president of Marine and executive vice president at Wärtsilä, Roger Holm’s team helps power one out of every three ships worldwide. In light of new EU regulations and the International Maritime Organization’s goal of net neutral carbon emissions by 2050, Wärtsilä is now focused on solving the decarbonization riddle for clients that operate ships that can last for decades and need to be able to adapt to a wide range of infrastructure and fuels in ports.
In this episode, Roger Holm chats with Hilary Langer and shares why Wärtsilä approaches maritime decarbonization at the systems level, why clients are increasingly focused on sustainability, and where he sees the greatest potential for carbon and cost savings.
Links:
European Commission - Reducing emissions from the shipping sector
World Resources Institute - Decarbonizing International Shipping
NYTimes Gift Link – Shipping Contributes Heavily to Climate Change. Are Green Ships the Solution?
Bloomberg - How the Shipping Industry Aims to Reach Net Zero by 2050
Episode recorded August 14, 2024
Chad Reed: I'm Chad Reed.
Hillary Langer: I'm Hillary Langer.
Gil Jenkins: I'm Gil Jenkins.
Chad: This is Climate Positive.
Roger Holm: It's extremely exciting to look at how shipping is developing now because it's going very fast. It's a global industry supporting global trade involving most countries in the world one way or the other. We just need to look at, how can we speed it up even far?
Hilary: The maritime industry transports over 80% of goods worldwide and is essential to the deployment of climate technologies. But decarbonizing the maritime industry is unusually challenging.As the president of Marine at Wärtsilä, Roger Holm’s team helps power one out of every three ships worldwide. His team is tasked with solving the decarbonization riddle for clients that operate ships that can last for decades and need to be able to adapt to a wide range of infrastructure and fuels in ports.
Hilary: Roger, thank you so much for joining us on Climate Positive.
Roger: Well, thanks a lot for inviting me, Hilary.
Hilary: You have over 25 years of experience in the maritime industry. What initially drew you to this field?
Roger: I've been now 27 years in Wärtsilä. It started with the interest of joining a global company because we are really global. We are in 79 countries around the globe, but that was the first interest. Then I learned over the years how interesting this shipping part of the business was. It's never a day that you are here that you don't learn anything new. That has been the fascinating part of it.
Hilary: How have the conversations about the industry's impact on the environment changed in the time that you've been working in the field?
Roger: I would say it's like day and night. I don't think it was a priority when I started back then. Of course, you always looked at efficiency overall, but the change, I would say, during the last three to five years has been massive. It is a really big change in the discussions. I don't remember last time, actually, when I have met a customer where we have not talked about decarbonization. I don't think we would go into a customer meeting today without talking about it. It's on everyone's agenda. It's really strategic for all the shipping companies, and it's being discussed in all board meetings.
I think last year in July, IMO, the International Maritime Organization being part of UN, when they decided to accelerate the decarbonization of maritime to go to net zero by 2050. That made a huge impact also on the speed and the whole discussion. It sounds like 2050 is far away to say that we go to net zero by 2050. When you look at it in perspective, it's about one vessel lifetime.
If you look at today a vessel has a lifetime of 25 to 30 years. Vessels that are being bought now, designed and delivered now, will be used in 2050. It's like saying that all cars in the whole world would be net zero in 12 years. We all know that's not going to happen, but this is what shipping is targeting to do. Even if it might sound far away, it's a massive transformation that we are on. That's the exciting part here as well.
Hilary: Can you tell us a little bit about what drove this change from the International Maritime Organization and this new focus? The maritime industry was one of the few that was completely left out of the Paris Agreement. It just seemed like it was in a gray area where it's really hard to attribute the carbon emissions from these ships as they go from country to country and they're registered in countries where they might not operate.
Roger: It's a good question. If you look at it in perspective, global shipping is handling around 80% of the global trade. It's a massive impact on the global trade. Still, it's around 2% of the global emissions. You can say it's already today the most efficient way to transport goods and people if you compare to alternatives. Still, there are a lot of opportunities. Of course, you come under the general pressure both from society and companies itself to look at how do you actually optimize then shipping.
Then I think also you have seen, from region point of view, clear pressure on global shipping like coming from European Union and the new EU regulation coming into play. You can say that EU has been now with the regulations coming in and starting this year has really been a front in connecting the decarbonization with the money. That's a huge important connection to have that you actually talk related to money. Money talks in the end so this is the connection you need.
That has been clearly precious from certain regions of the world, pressure from the general public to be able to show that shipping is keeping up. I think now with the IMO target setting for 2050, it's a really ambitious target to do all of this during one vessel lifetime. We talk about fairly expensive assets here. To do that, during one vessel lifetime, because it will mean a lot of transformation of existing vessels as well. It's not just enough what you put in the new vessels. It's also about what you do with the existing assets.
Hilary: At a high level, what does Wärtsilä do to address these challenges?
Roger: Well, what we do is, on the marine side, our offering goes to several parts. One is, you can say, the powertrains or the engines, the propulsion part. We are also looking and going into carbon capture on board. We also do certain things on the electrical side. Then we also optimize the operations of vessels through either agreements or using digital tools to optimize the routing of the vessel. We come with the benefit to our customers that we have the widest portfolio in the industry.
We just don't look at one product. We look at a portfolio of products because when a customer today look at decarbonization, they will look at multiple things. One is how to reduce fuel consumption in general, so the efficiency, because any saved fuel, whatever fuel you use is both saved money and saved emissions. Then the other part is then that how do you go into new fuels to decarbonize.
We discuss a lot together with the customers that how do you decarbonize at an optimal speed because this will for sure have a big change for the customers. It will increase the cost levels. They also need to stay in business to be able to decarbonize. How do you optimize this journey? That's where we then come in and come help them both with how to go to green fuels, as well as how to optimize the efficiency for the assets.
Hilary: If there's this focus only in the last few years, that's a lot of education on both sides. How do you bridge that gap and settle on what makes the most sense?
Roger: It's a lot of diversity in the discussion because we have, of course, customers that are real front runners, and then we have customers that are just in the beginning of this journey. It depends a bit on the customer and the segment where you are. A question we get very frequently from the customer is, please tell us the future fuel of shipping. I don't think there is one answer to that one. I don't think there is anyone that can say this is the fuel, because one part is the optimization efficiency in general, which everyone has been focusing on for, for years.
That has been always part of it. The new thing is to really understand that how do you create maximum fuel flexibility, because you most probably might have to change the fuel of your vessel during the lifetime of the vessel, at least in many cases. How do you then prepare for that? What is the future fuel to use? This is a key discussion to take. We have our views, but I don't think anyone can give a clear answer to that question today.
Hilary: You have said that you think by 2035 conventional fossil fuels will actually be more expensive than the more sustainable options. The maritime industry is incredibly competitive, cost-oriented, consolidated. Given that business environment for companies that are not necessarily working exclusively in the EU or back and forth to the EU, what would drive the interest in sustainable fuels?
Roger: This is where we have a lot the chicken-and-egg thing that when does a ship owner want to invest in a green fuel-capable ship? Not knowing when will there be green fuel available. How do you connect this to the money aspect as well, because you need to make sure that you stay in business while you decarbonize? That's usually the best way to do it. How do you then make sure that the regulations are incentivizing than this transfer so that you step by step can go to green fuels, because they will be two to five times more expensive than the existing fuel.
Unless you get into a common playing field with your competitors, you cannot just go green because you might go bankrupt. Then there needs to be a transformation for the whole industry for this to happen. It's happening step by step. I think the EU regulations now in place are clearly incentivizing this transfer. You have to step by step go green. I think that's a perfect example on how the regulations actually can incentivize the industry to go green.
I think the key here is that you actually create the incentivization through clear regulations. If I start from the EU regulations that now has gradually start to come in during this year, there we see that if you operate in EU waters, the fuel cost using fossil fuels will double by 2030. We estimate, as you said, that by 2035 around, we will see a level-playing field between fossil fuels and green fuels because of the higher cost to operate on fossil fuels. Then optimizing the cost for the green fuels, which means that after 2035 you will see an even higher cost than to operate on fossil fuels.
This is what I mean with the fact that you need to optimize the speed of your decarbonization because today you cannot just wait and see, because if you are too slow you might also get out of business because it might become too expensive to operate on fossil fuels. I think here is the key example on how you connect the money with the decarbonization because you need the predictability. These are long-term assets where you put in a lot of money and you need to understand that you invest wisely.
The global regulations under IMO, the target is fully there. I think what still is a bit missing there is to connect it enough with the money part like we have on the EU side. That comes back to your questions then. I think IMO is moving in this direction. Then the incentive to invest and start using greener fuels is really coming from this, that it will be financially feasible to do so. You will be competitive and you actually have to do it step by step to make it competitive for you as a ship owner, because then we come into this that it's actually something that the whole industry is doing.
In some cases, yes, you might have customers paying for green transports even over what the regulations would require. Then you as a customer, you utilize that towards then customers or whoever is ready to pay for that. To look at the masses you have to do it based on the regulations to see that, how do you then make sure that it's a level playing field for everyone in the industry?
Hilary: Are the EU regulations or EU policies enough to prompt that worldwide given that the IMO only has the targets and not necessarily the incentives and disincentives?
Roger: No, not to move the whole global shipping fleet, then it will impact the ones operating either coming within EU waters, so connecting to EU ports, then it'll impact that or the ones that operate only within EU waters. I believe looking at what's happening within IMO, IMO will clearly move into the same direction. Will it then be exactly the same rules or similar? That's still to be seen.
I think it's very clear also within IMO that if you want to have these movements it needs to be more clearly connected to the financial part. Then when that comes I think we will see also the global movement. We see a lot of change happening already today, partly because of the IMO target, but a lot also due to the EU regulations because you have to move to stay financially relevant also in the future.
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Hilary: I want to get back to something you mentioned earlier. You noted how the IMO is responding to some of these government policies, and then also demand from customers and the general public. I'm surprised by that because it does seem, at least to me, like shipping is one of the last things that consumers and individuals consider when they get products. I try to be a smart, responsible consumer.
I couldn't tell you where any of the things that I got from overseas, how they got here, if they were on a green ship or not. Is there a movement to make that more visible?
Roger: It's a very good question. I don't think the end consumers today necessarily is driving a big part of this. Companies using shipping companies for their own transports are because more and more companies are setting their own decarbonization targets. Then looking at how they operate and how they transport goods, it's driving. I would say still a small part, but that will become more and more over time as well. If you're taking the container business today talking to the container companies, they have an increasing demand, even if it's still a very small part of their customers that want to transport their goods in a green way.
They can then do that by using green fuels or biofuels already today. You pay extra for getting your goods transported in a green way. That, of course, then requires that it's part of your brand. Your end customers will pay for it, you can use it, but that's still a small part today. I would say it's more within the discussions of companies that want to decarbonize their own operations, and then looking at how they are transporting their goods. Still the major movement here is happening due to the regulations.
Hilary: The regulations are the driving force, but then also the companies want to be able to tell the end users that they use green shipping.
Roger: Correct.
Hilary: One thing that you mentioned is how so many of the ships that are coming online now will still be in their useful life by 2050 when these net zero targets take place. How do you think about that tension between retrofitting and potentially re-imagining how we build these ships?
Roger: The good thing with engines on ships is that they're very flexible. You might design a ship today to use LNG, for example. If you prepare it a bit like some customers do today, you can do preparations for fuel tank structures. and maybe some preparations in the engine room as well.
Then you can fairly easily convert it to, for example, to run a methanol after five or 10 years. You take it as an insurance today that you put in a bit of more efforts to prepare the ship for conversion at a later stage. Then, of course, if you have an older ship where you haven't had no preparations, the cost for converting will be fairly high. Then you come into BCC, then [unintelligible 00:21:13] the remaining years you have of the vessel in operation.
For sure, we see more and more today that are thinking about this preparation, and then you give it more opportunities for staying relevant longer in the lifetime of the vessel. Which also from an environmental perspective is wise because you want to use the vessel as long as possible once you have invested in it.
Hilary: I understand that Wärtsilä powers one out of every three ships worldwide, which is an incredible number when you think of that market reach. Do you find that innovations like having the engines that can switch from one fuel to another or other design elements are quick to catch on with others. Because customers see that you've done it elsewhere and they want to have it on theirs?
Roger: I think it creates a lot of discussion. As said today, decarbonization is part of every discussion in the shipping community today. What was important for us when we go some years back was to show that the engine technology is very suitable for the decarbonization. It's not the technology itself, it's the fuel that is the challenge. You can use green fuels to power shipping, and for us that was really important. First to show that it's possible and that we have done already both with methanol and ammonia. Then the rest is a lot relying on the whole ecosystem development because then we need the fuel providers.
There you come back to the chicken and egg thing that how do you then make sure that you get the green fuel. What we have changed, for example, in our approach to support this whole transformation is that in the old days when we developed new engines, it was the most secret thing in the whole company. Not even people internally knew about it. Then we came out and said, "Ta-da, this is our new engine," and hopefully, we will have a good demand in the market."
What we actually showed our customers now is showing our development plan for which engine types which fuels and by when. Of course, that might change over time depending on the demand in the market. We try to support this chicken and egg challenge by showing much more openly what we are planning to do. Ship owners can invest in equipment that are capable of running on green fuels in parallel when they look for green fuel availability because otherwise, this will take much longer.
This is our effort to try to support the whole transformation because the speed that we need to see to get to net zero by 2050 is massive. It's an enormous transformation for shipping. It can be done, but we need to make sure that it's really supported by everyone in the ecosystem. The challenge today for companies that look into developing green fuels is they, of course, want to sign contracts. They want ship owners to commit to offtake.
That's the other challenge today that it's not happening fast enough. That's not happening fast enough unless you have predictable regulations that will then support financially the companies to do this. Then you sit around and look at what's the optimal price for green fuels in the future, et cetera. There are a lot of uncertainties around this, but the movement is there, now it's to try to get it as predictable as possible.
Hilary: You've also been developing the largest battery electric ship ever built, a catamaran ferry that will be ready next year. How did that project come about, and can you tell us a little bit about it?
Roger: Yes. This is a fast-speed catamaran that when it's ready, it will operate between Argentina and Uruguay, and carry more than 2000 passengers and more than 200 vehicles. I think this is also an example of how to decarbonize shipping. It's a fairly short route. This is where you can go for full battery installations. Then that might be the easiest way to decarbonize. When you have shorter routes, you actually can go for full electric. This is a perfect examples when you have customers that really want to be front runners and say that, "Hey, we want to be front runners in this, and we are ready to show that this is possible."
I think this is a perfect example of that. The reason why full battery ships is not going to go on ocean-going ships is that today, if you put batteries versus then existing fuels, it would take around 40 times the space of existing fuels on a ship. That's the challenge in shipping. You need a bit more space for cargo or passengers or boats. You can't just have a ship full of whatever you need for powering, and that's why you can't have ocean-going ships powered by batteries. That's also the reason why you can't go for hydrogen, pure hydrogen.
Hilary: Then looking at another customer-facing operation, Carnival Cruise is one of your long-term partners, and I understand they recently renewed their performance contract with you. How has the approach to technology evolved over the course of your partnership?
Roger: Carnival is one of our very close partners. We work very close to them from this performance agreement point of view. We look at together, how do we make sure, first of all, that we optimize the fuel consumption for them, regardless of the fuel to start with. How do we together, look at saving fuels? Of course, more and more over time we look together at, how does this decarbonization transformation happen? Then I would say carnival in the same way as other customers that we look at this today is how do we create the maximum flexibility for the future?
Then if I comment more in general it's, like I said earlier, that how the customer ordering a ship today create the maximum flexibility for the future. Because you have to think today that I might need to do a fuel conversion during the lifetime of the vessel. This is about then how do you do that small insurance investment today to pay back then later to have this flexibility? I think we see that in general in the industry today that this is really important to create this opportunity for a later stage, especially if your plan is to own your vessel for a long time.
Hilary: Do you see that flexibility being incorporated beyond just the fuels and the engines?
Roger: I think it goes a lot from two angles. One is how do you optimize the efficiency of the vessel in general, regardless of the fuel. Then the customers are looking at how do they take step changes, so same type of vessel, next-generation design, how is it more efficient in general? That has been ongoing for many years already. We see a lot of step changes coming from different angles of the vessel design. How you use the vessel and what type of engines you have, what type of propulsion equipment you have.
We will need all tools in the toolbox to decarbonize shipping. I don't think we need to look at technologies here as competing technologies then it depends on the use of it. In some cases, yes, you might use sails in combination with something else. It's not going to be enough, but all things that make the ship more efficient and you get a good payback for the investment, so to say, that will happen. In general, I think we will see shorter paybacks for any efficient measures due to the increased fuel prices.
We see air lubrications happening. To some extent, we see wind assistance. We will see route optimization, which we already do today, look at the most optimal way to route the ship versus current and arrival times and these kind of things. You look at how to optimize your propeller. The whole propulsion setup, the ship design, all of these, they are all contributing and they are all good.
I think we will see, depending on the vessel segments, all of these being used one way or the other. I don't think we will go to purely sails like in the old days, so maybe some exceptions. It'll be a combination of optimizing the engines. The hybrid installations that we will see more and more like in the cars you use engines combined with batteries to optimize the hybrid installation. That we will see to some extent batteries, but it will be a combination of many different things.
Hilary: I find the air lubrication of the hulls fascinating. Could you describe that for the listeners, how that works?
Roger: Yes. How it works is that you actually have small air bubbles below the hull when you are running the vessel, which creates less friction. Then you do a locked-in shipping to try to create less friction. You need to have a clean hull. You can do air lubrication with bubbles. You can look at the ship design. Above the water level, as you said, you look at wind assistance. It's all about this that how do you optimize the progress of the ship in the best possible way?
Hilary: Are many of these technologies things that the ships can be retrofitted for or do they require redesign?
Roger: In many cases, we see retrofit. That's definitely possible in looking at these efficiency technologies. This is definitely not only for new builds. I think that will be the case and that has happened already. For example, we have done a lot of propulsion retrofit cases already where we optimize the powertrain. It's all of this, that how do you make more efficient chip?
We have even gone as far as we have done a big 2-stroke engine. We have done radical derating of an engine. You rebuild half of the engine to make it smaller on a ship. You optimize it based on a slower speed, which makes it more efficient to run. You see many of these retrofit cases happening in shipping to optimize it versus existing operation.
look at how shipping is developing now because it's going very fast. It's a global industry supporting global trade involving most countries in the world one way or the other. The way this is going at the moment is really to look at, how do we work together in the ecosystem?
I think that's a key, key element for this transformation. How do the different parties work together to make sure that we do this massive transformation? I think, in general, this is what you hear more and more in the ecosystem, that this collaboration is key. I think it's happening. We just need to look at, how can we speed it up even far?
Hilary: Great. Rapid fire questions. When I need to relax, I--?
Roger: What really turns my brain to something else is when I go playing floorball. You need probably to be in northern parts of Europe to understand what is floorball because that's mostly a northern European sport. Floorball is you play indoors. It's a bit like land hook. You have a stick and a plastic ball and you do a lot of running. You can only think about that when you play that side. I like that.
Hilary: Are you on a league?
Roger: No, I'm not. We just play with some very nice neighbors. Sometimes it's more serious and sometimes it's less serious, but we get good exercise every week.
Hilary: A key to my team's success is?
Roger: The team in general. I think it's really about getting the right people around you, and really people that are better than you in the areas that they are in because that's what you need to go for. Then when you combine the teamwork, that's creating the team success.
Hilary: Advice that a mentor shared that I still use or advice that you give as a mentor?
Roger: I have to say the same as I just came from-- I got the advice from a wise person quite some time ago, that look at the team you build around you and how do you get that team to collaborate and how do you enable that team to succeed? That's the power of the team, to get that to work a lot together. I think that was a very wise advice.
Hilary: Then finally, to me, climate-positive means?
Roger: Climate-positive, if I go a bit beyond, going beyond net zero, you can look at it from two angles. What I try to think, you can think about how can I contribute to the de-carbonization from a private life and what I do. Then even bigger is, how can we, from a company point of view, contribute to the change. It's all about the change, and how can we make sure that we support the change?
For me, when I look at this, it's more about the journey and how do we optimize the journey here to make it as quick as possible. Of course, we all want to make sure that the world we leave behind us for our children and grandchildren will be a good place to be in. I think that's what we're trying to do here, to make sure that we really optimize the speed here. For me, the journey here is really what I'm passionate about. That's what we really like to support the shipping industry with.
Hilary: Well, you're certainly making great strides on that front, so I'm excited to see where this goes in the coming years. Thank you so much for joining us today. Really great talking with you and understanding this industry better.
Roger: Well, thanks a lot for inviting me, Hilary.
Hilary: If you enjoyed this week’s episode, please leave us a leave a rating and review on Apple and Spotify. This really helps us reach more listeners.
You can also let us know what you thought via Twitter @ClimatePosiPod or email us at climatepositive@hasi.com
I'm Hilary Langer.
And this is Climate Positive.