Maersk R&D center to launch tradable 'tokens' for low-carbon shipping

The Maersk Mc-Kinney Moller Center for Zero Carbon Shipping is developing a tradable instrument based on the greenhouse gas intensity of marine fuel consumption, following the example of similar mechanisms in the utility and aviation sectors, according to project developers.

Since the third quarter of last year, the Denmark-based research and development center has been designing a "book and claim" platform where shipping companies and cargo owners can digitally record emissions from their voyages.

The emissions then will be tokenized and expressed in CO2e/Megajoules in units, exchangeable among project participants that can use this instrument in their carbon accounting.

Frederik Jacobsen, a project manager at the center, said the system will allow those on the supply chain using more expensive low-emission fuels to sell their decarbonization effects to those consuming conventional oil-based fuels.

Such voluntary transactions would "funnel capital back to companies which are investing in green shipping capacity," Jacobsen recently told S&P Global Commodity Insights.

In turn, prospective buyers would be those who seek to make decarbonization claims but could not physically achieve low-emission shipping, Jacobsen said.

Industry participants said limited availability of low-emission fuels is among the main deterrents to maritime decarbonization. S&P Global expects such fuels to make up just 2.2% of global bunker consumption in 2030 in its reference case, versus 0.2% in 2021.

"It isn't necessarily a given that everyone has access to ships using alternative fuels," Jacobsen said.

The center is working on the system with Rocky Mountain Institute, Danish Shipping and Maersk Oil Trading, having received project funding from the Danish Maritime Fund.

It has been receiving feedback from 17 unspecified companies across the supply chain, including fuel suppliers, to launch a pilot platform in May, according to the center.

Vision

Jens Johannes Keppler, an MPC Capital executive also involved in the project's development, said transactions are expected to take place on an over-the-counter basis or via direct negotiations in the pilot phase.

The system could evolve into a fully fledged trading platform in the marketplace later, depending on the resolution of financial regulatory and other issues, Keppler suggested.

"It's very likely that we will start quite simple, and then we build out the system," he said. "it's not yet set in stone how this will look like in the future."

Based on the proposed project design shared with S&P Global, vessel owners and operators can receive Scope 1 tokens that can be swapped among them before being accounted in operational emissions. Once accounted, the tokens will become Scope 3 and passable to cargo owners.

Cargo owners can receive Scope 3 tokens based on their emissions records, or obtain such tokens from vessel owners and operators. Those tokens will then be accounted in cargo owners' supply chain emissions.

Keppler said the system will have a governance structure designed by RMI, the nonprofit that helped develop a book and claim system for the aviation sector via the Clean Skies for Tomorrow coalition.

In 2021, the coalition led by World Economic Forum launched the system to allow travelers and airlines using aircrafts running on fossil fuels to acquire sustainable aviation fuel certificates -- which certify emissions reduction -- from those consuming SAF.

"They are making sure that everything that happens on the system is validified...The system will be the rock solid and make sure that there is no leakage of tokens," Keppler said. "We will make sure that within our system nothing can be claimed twice."

Jacobsen said the book and claim concept has a similar logic to renewable energy certificates, whose market has been developing for over two decades. RECs are issued when renewable electricity is generated, and their buyers can trade them or retire them to make claims in using green power.

"It is based on the same principle," Jacobsen said. "You can basically decouple the emissions attributes from the physical service itself."

System needs integrity

Nishatabbas Rehmatulla, principal consultant at consultancy UMAS, said the center's project could encourage in-sector GHG reduction by connecting the demand for low-carbon shipping with supply.

"Currently the problem is that in the trade flows where there is 'willingness to pay'...does not match where first and early opportunities to decarbonize shipping exist," he said. "Such a system allows for the two to be reconciled."

But Rehmatulla stressed that the system should take into account well-to-wake emissions of fuel consumption, rather than a tank-to-wake approach, to accelerate the uptake of genuine zero-emission fuels. Fossil-based hydrogen and ammonia have little emissions during combustion but comparable lifecycle emissions to oil-based fuels.

"Fuel that have small reduction in WTW GHG emissions are not the priority for shipping," Rehmatulla said.

Also, such a book and claim system should be transparent to prevent any token from being accounted for more than once and aligned with the EU regulations, nonprofit Transport & Environment's shipping program director Faig Abbasov said.

"Ships must publish their emissions every year using the same metrics as in the EU MRV [monitoring reporting and verification system] and get those emissions verified by independent third-parties," he added.

EU institutions are in trilogue talks over the FuelEU Maritime rules on GHG intensity requirements for marine fuels, which could allow ships using greener fuels to transfer their emissions reduction to under-compliant vessels.

"The most-effective system would be a regulated one," Abbasov said.