In this episode of the World Bank Group's Trade Tips podcast, we explore the relationship between trade and climate change, and how shipping can tackle its huge carbon emissions.
We hear from Maersk – the world’s largest container shipping firm – about how a new and greener future is needed for the industry, and from the World Bank's Vicky Chemutai on the challenges and opportunities ahead.
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Featured Voices
- Morten Bo Christiansen, Head of Decarbonization, Maersk: “There is technology available to operate on green fuels, but there are no green fuels available at the moment."
- Vicky Chemutai, Economist, Young Professionals Program, World Bank Group: “All of the solutions to tackle climate change exist, but they need to be implemented at scale." Vicky Chemutai, Economist @WorldBank. Listen now to the #TradeTipsPodcast
Transcript
[00:05] Sarah Treanor: Hello and welcome to Trade Tips from the World Bank Group. I'm Sarah Treanor. This is the podcast that tackles some of the big issues in the world of trade and explores the solution. In this episode, we explore the relationship between trade and climate change, and how shipping can tackle its huge carbon emissions.
Morten Bo Christiansen: There is technology available that they can operate on green fuels, but there are no green fuels available at the moment. So you have this situation that there are no green fuels because no one is building the green ships and no one builds the green ships because there are no green fuels.
Vicky Chemutai: All of these solutions that we're talking about need to be done at scale. But the solutions exist, without a doubt they do.
Sarah Treanor: We hear from the world's largest container shipping firm about the search for new greener ways to think about trade, and from the World Bank on the challenges and opportunities ahead. All that and more coming up on the podcast.
Montage: Trade tips, trade tips, trade tips.
[01:14] Sarah Treanor: The unmistakable sound of a port. For many, this is the sound of global trade. And this is also a problem because the vast container ships traversing our oceans are also polluting our warming planet. So what's the industry doing about it?
Morten Bo Christiansen: So my name is Morton Bo Christensen. I'm head of decarbonization at Maersk and I'm located in Copenhagen.
Sarah Treanor: Morton, explain to me the size of the issue here.
Morten Bo Christiansen: So basically moving goods around the world, be it on ships, planes, trains, trucks, whatever. All in all emits something somewhere between three and a half and 4 billion tons of CO2 every year. So that is if you compare that to the total energy related emissions, that is 10%. And if you compared to overall emissions, it's more like seven.
[02:07] Sarah Treanor: How much have carbon emissions become a priority in your industry and also for your customers?
Morten Bo Christiansen: We are seeing an increasing number of customers who are actually willing to invest in solutions that are net zero or carbon neutral. But unfortunately it is more expensive to produce green products. Still, the cheapest way to transport things around is by using fossil fuel. And if you want to use green fuels, it adds a premium to the product. But we are seeing more and more customers who are willing to pay a reasonable premium to actually to reduce their carbon footprints. I think what we are seeing a lot at the moment is some kind of chicken and egg type situation. If you take for example the vessels, so the container ships, I mean there is technology available that they can operate on green fuels, but there are no green fuels available at the moment. So you have this situation where there are no green fuels because no one are building the green ships, and no one builds the green ships because there are no green fuels.
And that is kind of the conundrum that we are trying to break. And we have done that by coming up with an ambition to become or commitment to become net zero as per science-based targets definitions in 2040. So in 18 years. And we have also given ourselves some quite stiff targets for 2030. Which again, if we take the shipping part of it, we have said that 25% of the products we sell to customers by 2030 must be green. It's a quite ambitious target because it is in only eight years and someone needs to build the facilities for the green fuels first.
[03:49] Sarah Treanor: And so what will you sail the ships with, if not fossil fuels?
Morten Bo Christiansen: To sail the ships on green methanol instead of fossil fuel oil. The methanol we want to use on our ships needs to be based on either what is called eMethanol, which is the so-called Power-to-X. So you do electrolysis on water and you then pair it with biogens CO2 or it can be made from gasifying biomass directly. And that market simply just doesn't exist, building the ships, designing the ships, and so on that that's actually the least of our concerns because the technology is available and the engines are actually not that different from a conventional engine for oil. So that's really not the problem. The problem is to scale the green fuels market because it needs to scale very, very significantly.
[04:38] Sarah Treanor: And does that require partnerships in various parts of the globe to produce and provide refueling points? How does that work?
Morten Bo Christiansen: Yeah, exactly. I mean the good thing is actually that these container ships have very, very large tanks. So they basically only need to fuel up - or bunker as we call it - once on a full round trip. The real challenge is really to get the fuels produced in enough, a large enough quantities because we are talking about very, very large quantities here that is needed. And we have managed to sign up seven so-called MOUs, so memorandums of understanding, which are basically agreements to buy fuels from developers. And we have signed up seven of those mainly in Asia, North America and South America. And then on top of that, we are actually also exploring opportunities to take a more active role in developing these projects, for example in Northern Africa. And we also looking into other locations in the world because, well, to get to real scale and this, you will need renewable energy and you want to go where renewable energy is the cheapest, and that is typically in areas like Northern Africa or India is an interesting place as well, Brazil, and USA. So that's really, really what determines the production locations.
[05:59] Sarah Treanor: We're hearing a lot about so-called nearshoring trends: manufacturers wanting to source goods from closer proximity markets. We've also heard a lot about supply chain crises in the last couple of years. Have you seen clients and customers looking at this?
Morten Bo Christiansen: Indeed now, definitely. And we are also seeing that trend emerging now. The thing is there's a lot of inertia in the system because you have these established supply chains that are typically based on large investments. It's not that easy to overnight change the supply chain of, for example, an automotive manufacturer. But we are definitely seeing trends of this. And I think the biggest sort of topic for most of our customers right now is actually resilience. Many customers have actually been struggling. For example, if you are only sourcing from one particular supplier in one part of the world, if that country got locked down or whatever happened, then all of a sudden you could actually face production stops. So I think the key word for our customers right now is resilience.
[06:59] Sarah Treanor: And are many governments receptive to this plan too? You spoke about partnerships in the private sector to create your new fuel, but are governments getting on board, so to speak?
Morten Bo Christiansen: Well, they're not fast enough if you ask me. So shipping is a bit of a unique industry actually because it is, it's globally regulated under the United Nations. So we have something called the International Maritime Organization, which actually regulates global shipping. So ideally we would actually get a global carbon tax on shipping that would level the playing field. It would incentivize everyone through the right thing. And hopefully, that will happen someday.
[07:41] Sarah Treanor: So that's the ambitious target of the world's biggest container shipping firm Maersk. But what about the even bigger picture? I wanted to find out more.
Vicky Chemutai: Hi Sarah. I'm Vicky Chemutai. I am an economist under the Young Professionals Program with the World Bank's Trade and Regional Integration Unit.
Sarah Treanor: Vicky, give me the issue in a nutshell. What is the link between trade and climate?
Vicky Chemutai: So as we show in our recent report called the Trade and Climate Change Nexus, international trade flows are affecting climate change through the emissions of greenhouse gases. And this is at several levels - the production, the distribution, and the consumption stage. And more than a quarter of all those total global emissions stem from the production and distribution of traded goods and services. Now, when you add the emissions from the consumption stage, this share grows exponentially. And this is particularly true for Costa Rican coffee at the consumption stage of over 60% of the emissions come from there.
[08:53] Sarah Treanor: And where are we seeing the most acute issues? Are we talking mainly about the developing world?
Vicky Chemutai: Let me give two illustrations. So for the first one is that food insecurity is very high. The effects of climate change and food production are being felt. And you're seeing that the unprecedented droughts in the Horn of Africa. And when we look at different estimations, it shows that by 2030, about 70 million more people will be at risk of hunger because of climate change. So the sustainable trade of food will be critical in safeguarding food security in many parts. A second serious issue that we need to think about a lot is the fact that it is affecting worker productivity. And this is affecting export sectors. In Bangladesh, a study showed that months with an average temperature of 30 degrees or more in centigrade in outside temperature correlated with a productivity decrease of 2%, posing a significant future risk for the garment industry. And we all know that Bangladesh has a very huge garment industry, and this is one of its top export sectors.
[10:07] Sarah Treanor: There are some big problems, huge problems, but can trade contribute to the solution?
Vicky Chemutai: Oh, absolutely. And I really love this question because we often tend to look at one lens where trade is contributing to emissions, but we don't really think about the fact that they are solutions. And in an increasingly climate change afflicted world, trade will gain importance as a mechanism to address those issues that we just discussed: food insecurity, support, adaptation. In fact, opportunities exist to reduce barriers to support the greening of trade and facilitate countries adjustment to these changing comparative advantages. The fast one is reducing trade restrictions and access to environmental goods and services and on environmentally preferable products that are needed for both mitigation and adaptation. And what does this reducing restrictions take the form of? So one, it's reviewing country tariffs and removing any bias towards dirty sectors. Research shows that most countries tiered structures show a high skewness towards dirty sectors. This basically means when you have more carbon intensive products, they actually have very low tariffs, and when you have the less carbon intensive ones, they have very high tariffs.
Reducing restrictions could also take the form of removing these non-tariff barriers and implementing trade facilitation and logistics reforms to reduce delays at borders and along trade routes. Importantly, addressing trade facilitation concerns at border points could contribute to reducing food waste, which in turn contributes to food security, perhaps reducing the regulatory barriers on agricultural inputs and facilitating access to new technologies for farmers through expedited procedures for releasing seeds and easier movement of agricultural specialists. These are just a couple few examples but it illustrates that the trade policy solutions exist and most of them are quick win. They can be done easily and just require a lot of cooperation. And while this is all vital, it is not sufficient. We need innovation, but at scale. We need a freer flow of relevant environments of goods and services at scale. We need financing at scale, not just commitments. All of these solutions that we're talking about need to be done at scale, but the solutions exist without a doubt they do.
[12:43] Sarah Treanor: A positive and rallying note to end. Morton. Vicki, many thanks for explaining some of the links between trade and climate. Thanks for listening to this episode of Trade Tips from the World Bank Group. I'm Sarah Treanor. Do check out some more of our episodes, which take in discussions about trade and gender, the role of technology, and what Caribbean rum cake can teach us about trade agreements. We'll see you soon.
Presenter and Producer: Sarah Treanor
Executive Producer: Marisa Zawacki
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This podcast was created by the World Bank Group with funding from Trade Facilitation Support Program (TFSP). The TFSP is funded by nine donor partners: Australia, Canada, the European Commission, the Netherlands, Norway, Sweden, Switzerland, the United States, and the United Kingdom. This initiative provides assistance to countries seeking to align their trade practices with the World Trade Organization Trade Facilitation Agreement (WTO TFA).
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