With the International Maritime Organization (IMO) set to implement a GHG pricing mechanism in 2028, new possibilities and opportunities in LNG core materials and gas business are coming up. We take a look at how the decision to impose this shipping carbon tax could impact POSCO Group’s business, alongside insights from Ki-Yoon Jang, Senior Researcher at POSCO Research Institute.

Senior Researcher Kee-Yoon Jang, POSCO Research Institute

I Upcoming GHG Pricing Mechanism to Drive Changes in Global Shipping

The IMO has finally gone ahead with the official introduction of a shipping carbon tax (GHG pricing mechanism). Starting in 2028, all vessels over 5,000 tons will be subject to the tax. This marks the outcome of long-standing discussions aimed at cutting down on greenhouse gas emissions from maritime transport.

▲ The 83rd Marine Environment Protection Committee (MEPC 83), held by the International Maritime Organization (IMO) from April 7 to 11. (Image source: Korea Maritime Safety Authority(KOMSA))

This decision was finalized at the 83rd session of the Marine Environment Protection Committee (MEPC 83), held recently. The IMO has set out a goal for the global shipping industry to cut back carbon emissions by up to 43% compared to 2008 levels by 2035. If this target is not met, shipping companies will have to pay out a carbon tax ranging from USD 100 to as much as USD 380 per ton of CO₂ emitted. The exact amount may vary depending on vessel size, voyage distance, and emission volume, but the industry does not take this lightly.

*IMO: A specialized agency of the United Nations responsible for protecting the marine environment and ensuring safe and efficient shipping.

The global revenue expected from the GHG pricing mechanism is projected to reach USD 10 billion annually, or approximately KRW 14.25 trillion. This poses a considerable burden on the shipping industry. However, the IMO’s decision is anticipated to go beyond simple taxation, serving as a catalyst for reducing carbon emissions across the maritime sector. Some shipping companies have already begun introducing LNG-powered vessels, which emit less greenhouse gases compared to conventional ships, and are expanding the use of low-carbon fuels in a proactive effort to respond to the new regulations.

I Background of the GHG Pricing Mechanism

According to data published by the International Energy Agency (IEA) in 2022, the transportation sector accounts for 16% of global greenhouse gas emissions. Of this, maritime shipping is responsible for approximately 2%. In other words, the shipping industry accounts for approximately 2% of total global greenhouse gas emissions. This figure is by no means insignificant, especially when compared to road transport (12%) and aviation (1%). Accordingly, the role of the maritime sector in achieving global decarbonization goals has become increasingly critical.

The issue of GHG emissions from international shipping began to receive serious attention in the early 2000s. In 2003, the International Maritime Organization (IMO) initiated its first studies on GHG emissions in the maritime sector. Although the Kyoto Protocol*, which entered into force in 2005, assigned legally binding reduction targets to developed countries, the shipping sector was not directly included. Instead, responsibility for regulating maritime emissions was delegated to the IMO, leading to growing expectations for its role. Since then, the IMO has introduced energy efficiency standards for ships, implemented mandatory fuel consumption reporting systems, and actively advanced discussions on market-based measures such as carbon pricing and emissions trading schemes to address maritime carbon emissions.

In 2023, talks on introducing a GHG pricing mechanism in international shipping really picked up speed. The IMO drew up a new greenhouse gas (GHG) strategy and officially adopted the goal of achieving carbon neutrality in international shipping by 2050, thereby setting in motion the full-scale introduction of a GHG pricing mechanism. As a result, at the 83rd session of the Marine Environment Protection Committee (MEPC 83) held in April this year, it was decided that the GHG pricing mechanism would take effect in 2028. Once IMO member states agree on specific rates and application standards through further discussions, the mechanism is expected to be implemented as planned.

*Kyoto Protocol: An international agreement adopted at the 3rd Conference of the Parties (COP3) to the United Nations Framework Convention on Climate Change (UNFCCC), held in Kyoto, Japan, in 1997. It was the first legally binding treaty to set greenhouse gas (GHG) emission reduction targets for developed countries, covering gases such as carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O). The protocol entered into force in 2005. While developed countries were subject to reduction obligations, developing countries were exempt.

I Anticipated Increase in Demand for LNG-Related Core Materials Following Implementation of the GHG Pricing Mechanism

How is the implementation of the GHG pricing mechanism expected to affect the shipping industry? In particular, vessels operating on conventional marine fuels such as marine gas oil (MGO) and heavy fuel oil (HFO) are likely to experience a significant rise in operating costs. By contrast, LNG (liquefied natural gas)-powered vessels emit 20-30 percent less CO₂, making them subject to a considerably lower tax burden. As a result, demand for LNG fuel is expected to increase*, prompting shipping companies to increasingly consider LNG-fueled vessels when placing new ship orders. This shift is expected to be especially evident in long-haul routes and large vessel segments, such as container ships and oil tankers.

*Although the expansion of LNG usage may lead to increased methane (CH₄) emissions in the long term, and competition with zero-carbon fuels such as ammonia and hydrogen is inevitable, LNG is expected to maintain its position as a transitional fuel in the maritime sector through 2040.

▲ The photo above shows Gwangyang Terminal 1, completed by POSCO International in July. POSCO International is currently developing dedicated LNG bunkering infrastructure at the Gwangyang LNG terminal as part of its related business initiatives. A 12,500㎥ LNG bunkering vessel is under construction and is scheduled to begin full-scale operation in the second quarter of 2027, upon delivery. (Image Source: POSCO International)

As the number of LNG-powered vessels increases, the demand for LNG bunkering is also expected to rise. Rather than building LNG storage and refueling facilities at every port, constructing bunkering vessels that can supply LNG at sea is considered more cost-effective. Accordingly, the increase in LNG-fueled ships is likely to lead to a corresponding expansion in LNG bunkering infrastructure at ports. Major ports are expected to invest in LNG bunkering terminals or bunkering vessels, with demand projected to grow rapidly in global hub ports such as Singapore, Rotterdam, and Busan.

In addition, the demand for materials used in LNG storage and transportation is also expected to be affected. Since LNG must be stored and transported at an ultra-low temperature of -162°C, demand for cryogenic insulation materials such as vacuum insulation panels and aluminum alloys, as well as highly corrosion-resistant and heat-resistant materials, is projected to increase. Key materials used in LNG-powered vessels and bunkering applications include high-nickel steel (9% Ni steel) for cryogenic service, Invar alloy, high-manganese steel, and vacuum insulation panels.

For a standard LNG carrier with a capacity of 174,000㎥, it is estimated that approximately 1,500 to 2,000 tons of high-nickel steel, 500 to 700 tons of Invar alloy, and 10,000 to 12,000㎡ of vacuum insulation are required. A bunkering vessel with a capacity of 7,500㎥ typically uses 600 to 800 tons of high-nickel steel, 200 to 300 tons of Invar alloy, and 4,000 to 5,000㎡ of vacuum insulation panels. These core materials are essential for ensuring stability and efficiency under cryogenic conditions, and are therefore expected to contribute to the continued growth of the materials industry.

▲ POSCO’s independently developed high-manganese steel for cryogenic applications was officially listed in 2022 as a material standard under the IGC Code by the MSC of the IMO. It is now approved for use in cryogenic cargo tanks and fuel tanks for LNG, LPG, and other liquefied gases. The photo shows high-manganese steel being transported by a vacuum suction crane.

I POSCO Group’s Strategic Direction in the Era of Expanding LNG Propulsion

▲ POSCO Group’s first LNG-dedicated carrier ‘HL FORTUNA’.

Starting with the implementation of the GHG pricing mechanism in 2028, the IMO is expected to strengthen taxation standards and raise the per-ton charge over time. As a result, the number of LNG-powered vessels is projected to increase further.

Currently, LNG-fueled ships account for less than 10 percent of the global fleet, with a total of 1,308 vessels. By 2028, the number is expected to exceed 2,300, and the number of bunkering vessels will need to increase from the current 23 to at least 50.

In line with this trend, POSCO Group is introducing LNG-dedicated carriers to respond to the GHG pricing mechanism and other international environmental regulations, while actively expanding its energy business. On May 23, POSCO Group unveiled its first proprietary LNG carrier, HL FORTUNA, at HD Hyundai Samho in Mokpo, Jeollanam-do.

HL FORTUNA is an LNG carrier with a length of 299 meters, a beam of 46.4 meters, and a cargo capacity of 174,000㎥. It is built for transporting North American LNG. The vessel can carry out a single shipment that supplies Korea’s entire population with natural gas for 12 hours. It is fitted with a dual-fuel system that uses LNG as its main fuel, along with a high-efficiency reliquefaction system that cools down boil-off gas and turns it back into liquid fuel, enabling compliance with international environmental regulations.

After completing sea trials, the vessel will go into global LNG trading in the second half of the year. Starting in 2026, it will load cargo at the Cheniere terminal in Louisiana, United States, and will be used for domestic supply and overseas trading. It is expected to make over five round trips annually based on the Gwangyang LNG Terminal, transporting POSCO International’s long-term LNG volumes from North America.

With the introduction of this LNG carrier, POSCO Group has further built up its LNG value chain, covering production, storage, and power generation. Moving forward, the Group plans to keep up with rapidly changing international environmental regulations and seek out new opportunities across its LNG business and other key areas by leveraging group-wide synergies and capabilities.

Globally, shipping accounts for 15 percent of N0x emissions, 8 percent of S0x emissions and 3 percent of greenhouse gas (GHG) emissions, while aviation accounts for just 1.5 percent of GHG emissions. Overall, emissions including GHG are increasing with booming trade and industrial activity, and policymakers are facing mounting pressure to deal with the crisis.

SEE ALSO: The Changing Waves of the Shipping Industry

Urgency of Clean Air

Experts found that in 2015, 6.5 million people died prematurely as a consequence of air pollution, with 92 percent of the deaths occurring in developing countries such as India, China, Pakistan, Bangladesh, Madagascar and Kenya. In these countries, up to 25 percent of all deaths are pollution related. In India alone, 2.5 million people died from pollution, China saw 1.8 million pollution-related deaths and even in the U.S., more than 155,000 deaths were linked to air pollution.

In China, fog-like smog covers cities. (Source: South China Morning Post)

As a result, governments and international organizations all over the world started implementing environmental policies under growing pressure from well-informed citizens. For example, China has shut down a number of factories across the country and has policies in place to heavily regulate emissions as part of their “Beautiful China” initiative. Also, the International Marine Organization (IMO) announced it will tighten the international sulfur cap for shipping emissions from the current 3.5 percent to 0.5 percent by 2020.

Such initiatives are great first steps, as making the switch to cleaner marine fuels such as low-sulfur fuel will lead to 137,000 fewer premature deaths caused by air pollution and 8 million fewer cases of childhood asthma. However, with increasingly stringent environmental regulations, the shipping industry is eyeing more sustainable and renewable fuel options.  

Liquified Natural Gas

Currently, the most common and feasible option available for minimal emissions is liquified natural gas (LNG). Many shipping companies are embracing this option ahead of IMO’s 2020 emissions cap as LNG emits zero S02 and particulate matter, and up to 25 percent less C02 and up to 90 percent less N0x.

As a result, major oil companies are channeling their resources towards LNG production and manufacturers are opting for LNG-powered ships to lower their life cycle emissions. However, the downside to LNG as shipping fuel is that LNG tanks require more space on vessels. They also add considerable weight, meaning the vessel will use up more fuel.

LNG is the most feasible option for shipbuilders and manufacturers looking to lower emissions. (Source: Oil Industry Insight)

This is where steel can play a vital role in equipping shipbuilders with the lightest and strongest material options. This year, Hyundai Mipo Dockyard will build the world’s largest LNG-powered bulk carrier capable of yielding 50,000 tons of cargo, which is seven times more than existing LNG carriers. The company chose to build their vessel using POSCO’s High Manganese Steel, which is lightweight, tough, super strong and is able to facilitate the storage temperature of LNG at -162℃. Not only that, the steel is also cost effective when compared to other material options for ships.

SEE ALSO: POSCO’s High Manganese Steel to be Used for the World’s Largest LNG-Powered Bulk Carrier

Renewable Energy

Another company making exciting waves in the shipping industry is Eco Marine Power. The technology company is developing an alternative energy solution called Aquarius Marine Renewable Energy that will allow cargo ships to run on wind and solar energy. Rigid sails and solar panels will be placed on the exterior of cargo ships to directly generate and store energy and energy levels can be monitored via a computer-based system. This year, researchers are planning to put the system to the test with a Japanese shipping company to monitor the system’s performance, energy generation and the vessel’s energy consumption.

Eco Marine Power will put its energy solution to the test this year. (Source: Eco Marine Power)

Last year, Chinese shipping company Hangzhou Modern Ship Design & Research Co launched a cargo ship powered by an electric battery powertrain. The 2000-ton capacity vessel runs on two 160 kW electric propellers, supercapacitors and lithium batteries that provide a range of about 80 km per charge. For now, it is being used for short trips to carry coal up and down the Pearl River in Guangdong Province, and at each end, the vessel only takes about 2 hours to charge.

China launched the world’s first fully-electric cargo ship. (Source: China Minutes)

Again, the challenge for companies experimenting with renewable energy options will be dealing with the additional weight of generators and battery packs. The feasibility of sustainable cargo ships lies in the vessel’s energy efficiency, and heavier vessels will take up too much energy. As 90 percent of all trade goods cross the sea at one point in their life cycle, it will be impossible to decrease shipping activities. Instead, manufacturers will have to partner with solutions providers like POSCO for high-performing, lightweight materials to achieve clearer skies and a future of green shipping.

Cover photo courtesy of Global Economic Dynamics.

In its October 2016 “Nerve of Steel” report, the Carbon Disclosure Project, or CDP, found that steel companies had quite a ways to go in order to meet targets set by the Paris Agreement – the industry as a whole would need to reduce emissions by 70% by 2050. While their report found that most companies were not doing enough to meet these targets, some companies, like POSCO, have been forging ahead with new technologies for more sustainable production.

Why are Reductions in Carbon Emissions Important?

In 2015, nations around the world met at the United Nations Climate Change Conference to negotiate the Paris Agreement. The goals of the Paris Agreement were to keep global warming below 2 degrees Celsius while also calling for zero net GHG emissions in the second half of the 21st century.

A 2-degree increase in global temperature is generally agreed upon by scientists to be the tipping point at which numerous problems arise including droughts, floods, and reductions in crop yields. However, many scientists also believe that if carbon emissions are not curbed quickly, and drastically, temperatures could rise by almost 6 degrees Celsius this century.

Due to the increasing urgency of curbing emissions, governments, businesses, and policymakers around the globe are working to find ways to cut GHG. To help inform this process, CDP transforms environmental performance data from cities, states, and businesses into detailed analysis on critical environmental risks, opportunities and impacts.

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Their “Nerves of Steel” report on the steel industry’s work to cut GHG emissions found few bright spots. The industry as a whole continues to be the main contributor of global carbon emissions with only a few companies, like POSCO, stepping forward to create more sustainable steel production technologies.    

Objectives and Findings of the CDP Report

CDP’s “Nerves of Steel” report found that overall progress in reducing emissions and energy use was limited and uneven across the industry. They found that in the past seven years more companies had increased their emissions intensity and energy intensity than had reduced them. Because of this lack of progress, they found that the steel industry was responsible for between 6-7% of total global emissions. Also, in order to meet Paris Agreement objectives, the industry as a whole would need to reduce emissions by a staggering 70% by 2050.  

Drew Fryer, a Senior Analyst at Investor Research at CDP noted that “The steel industry will have to play a huge part in achieving the 2-degree scenario laid out in the Paris Agreement. However, there has been no progress in reducing its emissions over the past decade. Steelmakers need to prioritize funding of a technology transformation to reduce emissions in order to ensure targets are met.”

Despite the grim outlook on the industry as a whole, CDP did highlight several companies that were working hard toward creating more sustainable steel production technology – among those top performers were POSCO, SSAB, ThyssenKrupp, and Hyundai Steel. See the table below for a full listing of CPD’s rankings.

How POSCO is Leading the Steel Industry in Sustainable Steel Production

CDP ranked POSCO first among all steelmakers for its work to produce steel through more sustainable processes. They noted that POSCO performed strongly across most key areas with below average emissions intensity. Also, unlike several other steelmakers, POSCO demonstrated an ability to reduce its emissions intensity significantly in recent years.

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While the report placed a strong focus on the industry not focusing on targets to limit global warming (six out of the 14 companies did not even publish targets beyond 2016), CDP noted that POSCO’s targets remain consistent with the goal to cut emissions significantly enough to reach the Paris Agreement objectives.

In particular, CDP highlighted POSCO’s FINEX technology that was developed and commercialized to provide incremental emissions reductions from steelmaking by eliminating sintering and coke oven processes. They also noted that the technology has the potential to be combined with carbon capture & storage (CCS) due to high concentrations of CO2 in waste gases, POSCO’s other active projects to separate and capture CO2, and their early stage work on carbon capture & use (CCU) and hydrogen-based steelmaking.

POSCO’s technological advancements in sustainable steel production have helped it reduce emissions while becoming more competitive.

In addition to these developments, POSCO continues its work to make its factories run smarter and more efficiently. AI and IIoT technology are helping to improve product quality for POSCO’s customers while also reducing waste and pollution. In addition, to be recognized by CDP as a leader in the steel industry, POSCO’s efforts have also been recognized by the Corporate Knights’ Global 100 list (#1 in Metals and Mining), and they have also been listed on the Dow Jones Sustainability Index for 12 straight years.

As the world works toward hitting emission reduction targets, governments, policymakers, and industry leaders must step forward to lead. POSCO’s work to limit emissions has proven that more sustainable production can also be more competitive.

*Cover image courtesy of the World Steel Association

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POSCO GIGA STEEL was developed to provide automakers with a high strength, lightweight material solution that also produces significantly less production emissions and is completely recyclable. Take a look at our infographic to find out more about POSCO GIGA STEEL and the benefits it offers for automakers looking for lightweight, sustainable steel solutions.  

In this contribution article, Dr. Roland Geyer, associate professor at the Bren School of Environmental Science and Management at the University of California at Santa Barbara, explores why we need to move beyond fuel efficiency as the sole determinant in measuring a car’s sustainability. Dr. Geyer argues that we need to look at the full life cycle of a car – from production to disposal.

Policies with the goal of reducing climate change impacts from cars focus on reducing tailpipe emissions. While automakers can respond by improving fuel economy with lightweight materials, this can lead to an increase in carbon emissions over the life of a vehicle. Taking a lifecycle approach to automotive environmental policy—from production to disposal—helps avoid such unintended consequences.

Tailpipe Mitigation is Not Enough

Most climate impacts from internal combustion vehicles come from tailpipe carbon dioxide (CO2) emissions. The other life cycle stages, which include vehicle production, fuel production, and vehicle disposal, have much lower greenhouse gas (GHG) emissions. Understandably, therefore legislators focus on curbing tailpipe CO2 emissions and increasing fuel economy. However, automotive climate policy with an exclusive focus on tailpipe emissions opens the door to unintended consequences. This is equally true for vehicles that use biofuels, electric power trains, or lightweight materials to increase fuel economy.

As use phase emissions are minimized, Production phase share of emissions in the total life cycle increases significantly.

Critics of biofuels contend that they can cause, directly or indirectly, more GHG emissions than they avoid. Skeptics of electromobility argue that the GHG emissions of producing electric vehicles—and the electricity to drive them—can outweigh their lack of tailpipe emissions. The production of lightweight materials is typically GHG-intensive, so their widespread use would significantly increase the climate change impact of vehicle production. Good environmental policy aimed at reducing climate impact from vehicles, therefore, needs to consider these “upstream emissions,” which could severely compromise or even negate their climate change mitigation goals.

Without LCA, some lightweighting strategies can lead to a net increase in total life cycle emissions—an unintended consequence.

The Unintended Consequences of Vehicle Lightweighting

Vehicle lightweighting, in particular, poses a threat to effective automotive climate policy. Lightweighting can increase total climate impact and defeat the purpose of the policy since the increase in emissions from vehicle production can be larger than the emissions saved due to improved fuel economy. The trend of increasing drive-train efficiency and decreasing carbon intensity of fuels and electricity will further reduce any benefits gained from decreasing the weight of the vehicle. The importance of addressing the unintended consequences of tailpipe-only regulation, therefore, will only grow in the future.

Therefore the 2014 revision to the EU’s regulation on CO2 emissions from new passenger cars states that “policy action should […] ensure that those upstream emissions do not erode the benefits related to the improved operational energy use of vehicles.”

Life Cycle Assessment Helps Avoid Unintended Consequences

The only way to avoid unintended consequences is to use life cycle thinking and life cycle assessment (LCA). LCA is a mature environmental assessment tool with global standards and close to 50 years of development and practice. It provides a rigorous methodology to account for all emissions generated during the life of a product, making it the ideal tool to identify and quantify environmental trade-offs.

Today LCA is widely used by academia, industry, government, and non-governmental organizations. Together with academia, companies and industry associations are leading the way in the deployment of LCA. Most car manufacturers are already using life cycle thinking and LCA, which is equally accepted by material producers.  

Environmental agencies around the world support LCA, including those of the European Commission, which call it the “the best framework for assessing the potential environmental impacts of products currently available.” Life-cycle-based environmental regulation is in its infancy and not without challenges. Nevertheless, environmental regulators and policymakers have begun to draft legislation with a life cycle perspective, such as California’s Low Carbon Fuel Standard. The regulation of automotive GHG emissions provides a unique opportunity to align regulatory practice with the state of the art in environmental product policy and launch a new area of successful environmental legislation free of major unintended consequences.