Report: Climate Change Could Cost Shipping Industry $25 Billion Annually By 2100

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An "Act Now or Pay Later" report released Monday by RTI International, a nonprofit research institute for the Environmental Defense Fund (EDF), estimated that "without further action to reduce emissions, climate change impacts could cost the shipping industry an additional $25 billion every year by 2100."

Average total operating profits for the global container shipping industry were less than $20 billion annually from 2018 to 2020, the report noted for context.

After growing rapidly in the last 25 years, shipping is now responsible for about 20% of global transportation-related emissions. And shipping-related emissions rose nearly 5% in 2021.

"This report clearly shows that without bold action, the impacts of climate change will severely strike the shipping sector," Marie Hubatova, senior manager for EDF's Global Transport team, told FreightWaves.

Impacts that climate change have on the shipping industry and ports include:

• Sea level rise.
• Severe tropical storms.
• Inland flooding.
• Drought.
• Extreme heat events.

"While the decarbonization debate is currently focusing on the costs of new fuels and technologies, it is important to consider the costs of postponing that transition in delays, disruption and damage from climate change impacts — which reach tens of billions of dollars annually. Without action from shipping and all transport sectors to cut emissions, we can expect supply chain crises like last year's to become a regular occurrence," Hubatova said.

Stronger storms at sea require rerouting. RTI estimated that each additional day a vessel is at sea would cost roughly $75,000 if it consumed 150 tons of fuel daily.

The cost of previous major storms add up to:

• $2.2 billion at U.S. ports for Hurricane Katrina in 2005.
• $46 million at U.S. ports for Hurricane Florence in 2018.
• $10 million at the Port of Shanghai due to a two-day disruption from Typhoon Haikui in 2012.
• $65 million at China's Port of Dalian due to a five-day disruption from Typhoon Lekima in 2019.

In 2019, record water levels on the Mississippi River led to transportation disruptions for exporting agricultural goods, leading to nearly $1 billion in losses. The same year, the shipping industry lost $230 million to $370 million due to severe drought in the Panama Canal region and limits on through traffic.

The report estimated that the increased annual costs due to port disruptions and storm damage will increase by $2.9 billion to $9.8 billion by 2050. That range was estimated to increase by $7.6 billion to $25.3 billion by 2100.

"The findings should help shipowners see the other side of the coin and realize that if they wait to invest in decarbonizing their fleet, that inaction could incur costly consequences of climate impacts. Maritime shipping is at the heart of global trade and cooperation, and they have a unique responsibility to lead efforts to decarbonize," Hubatova said.

Cost predictions limited by available data

Researchers can only estimate what the monetary impacts of climate change will be based on the data that is available, and right now, there are a lot of unknowns. If global emissions don't decline, climate impacts could be larger than currently expected. On the other hand, if climate mitigation measures are taken drastically and quickly, the costs of climate impacts could be lower than predicted.

"While our report uses the best information available to paint a picture of the true economic cost of climate change on international shipping, the reality is that these figures are likely underestimating the total scale of the consequences," RTI's George Van Houtven said in a release. 

"Considering the unpredictable volatility of climate change and the immense complexity of the shipping sector, we simply need more data to show the full picture. However, the available evidence strongly indicates that the costs will be great," Van Houtven said. 

Though maritime shipping trade volume is projected to reach 120 billion tons by 2100, RTI International predicted that growth in shipping could actually be stunted by nearly 10% due to climate change impacts.

Read: Report: Climate change ‘creating shocks to global trade'

Climate action for shipping industry

EDF listed several steps the maritime industry can take to improve sustainability, including:

• Commit to decarbonize by 2050, in line with the Paris Agreement.
• Support a market-based mechanism to reduce shipping emissions at the International Maritime Organization.
• Invest in zero-emission fuels and technology.
• Support an equitable transition for the shipping industry to ensure the brunt of damages and adaptation costs do not disproportionately fall on developing nations.

"Many in the maritime sector are already committed to climate action and the need for a full decarbonization of the shipping industry by 2050," Ingrid Sidenvall Jegou, project director at the Global Maritime Forum, said in the release. "This report only reinforces the business case for shipping decarbonization to begin now, emphasizing that a just and equitable energy transition is an opportunity for the private sector and developing countries alike."

Many shipping companies have joined groups like the Getting to Zero Coalition or the Call to Action, which focus on speeding up emission-reduction efforts in shipping through collaboration and government support.

"Just as the COVID-19 pandemic threw our ports and the global supply chain into crisis mode, the climate emergency will have major consequences for international shipping. In the face of climate breakdown, however, the shipping industry has an early warning bell and an opportunity to act," Hubatova said. 

Click here for more FreightWaves articles by Alyssa Sporrer.

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