"The potential for a decarbonisation of shipping is huge: research shows that 82% of European shipping customers are willing to pay a premium for zero-emission shipping services." A new study by The Boston Consulting Group (BCG) on the European shipping industry has found that the growing demand for low-carbon shipping solutions and the increasing premiums that customers are willing to pay will provide a strong incentive for shipping companies to make the transition to decarbonisation.

The BCG Decarbonising Shipping 2022 study shows that 82% of the 125 European companies surveyed said they would be willing to pay a premium for low-carbon shipping services, an increase of 11 percentage points from 2021. In addition, the premium that customers in the European region's shipping industry are willing to pay has increased by more than 30% year-on-year to around 3%, which will generate an additional $10-20 billion in revenue for the region's shipping industry.

At the same time, the attitude of some hesitant customers appears to be changing, with the proportion of European shipping customers with a low willingness to pay (≤2% premium) decreasing from around 40% in 2021 to around 30% in 2022.

The shipping industry is certainly moving in the right direction, but there is still a lot of work to be done," said Peter James, partner in BCG's Infrastructure, Cities and Transport practice. Policymakers hold the grip of a carbon tax, among other things, and end consumers can help pay for decarbonisation through small increases in everyday consumer spending."

Chen Qinglin, Managing Director, Global Partner, Co-Head of BCG's Climate and Sustainability Practice in China, and Head of BCG's Transport Logistics and Transportation Practice in China, agrees, "Through our research with key stakeholders in Europe, we have found that there is an increasing demand from our clients for low-carbon shipping solutions."

"We recognise that the demand for low-carbon shipping in China is still in its formative stages." Chen Qinglin said bluntly, "Given the importance of shipping to China's export economy and the size of the shipping industry in key coastal regions, BCG expects that as carbon peaks are reached, companies up and down the supply chain will accelerate their quest to achieve decarbonisation. The double carbon target will drive the shipping industry towards a more ambitious decarbonisation vision."

"For Chinese shipping companies, the question is when to start the decarbonisation journey. And when it does, it will come sooner and earlier than expected. In a highly competitive industry, where profits are often low, whoever acts first is likely to be the last to win." Chen Qinglin said.

In addition to the year-on-year increase in willingness to pay, more European shipping customers say they will be more loyal to zero-emission shipping companies. Overall customer loyalty is higher (71% in 2022 compared to 67% in 2021), with a significant increase in loyalty from the low willingness-to-pay segment. in 2022, only 11% of respondents said they would not want to be loyal to a zero-emission shipping company, down from 20% in 2021. The strong customer commitment to supporting zero-emissions shipping offers clear opportunities for shipping companies to drive closer partnerships with their customers and to share the costs and benefits of the decarbonisation value chain.

Research shows that customer demand is becoming an important driver of the shipping industry's move towards carbon neutrality. Among the multiple drivers of increased willingness to pay premiums, customer demand increases from 19% in 2021 to 34% in 2022. This increase is made up of two components, with approximately 9% of the increase associated with the high willingness-to-pay (willingness to pay a premium >2%) segment and approximately 5% of the increase associated with the low willingness-to-pay segment.

Another driver of willingness to pay a premium is that shipping customers can use carbon neutral shipping to build a competitive advantage. An increasing number of European companies surveyed believe that the competitive advantage gained through carbon neutrality will ultimately be of financial benefit to their business. Decarbonisation is seen more as a competitive asset rather than just a compliance obligation.

The BCG report notes that European shipping customers' willingness to pay a premium is expected to increase further as governments increase their regulation of carbon emissions. In the future, regulation will not only be a key driver of willingness to pay premiums, but will also grow in importance. Over the past year, regulatory measures that have been put in place include, but are not limited to: the EU's inclusion of shipping in the carbon emissions trading system and the introduction of the EU Maritime Fuels Initiative; the Clean Shipping Act of 2022 (Draft) introduced by US lawmakers in July 2022; and Japan's public support for a carbon tax.

As a major emitter of carbon, greening the shipping industry is critical to achieving the Paris Agreement's goal of curbing global warming, and shipping companies have made decarbonisation a priority and allocated budgets. BCG's research found that while the vast majority of European shipping customers are in favour of paying a premium for carbon-neutral shipping services, the level of premium they can accept is not sufficient to drive the industry towards the 2050 goal of net zero emissions. A key question for European shipping companies is therefore how to increase the premium that customers are willing to pay, achieve decarbonisation, and do so in a way that is prompt, timely, cost-effective, consistent with customer expectations and sustainable?

Policymakers and regulators have a great deal of influence in promoting change and need to move forward with setting a carbon tax to fuel the green transition. In addition to carbon taxes, policymakers can provide fiscal incentives to companies that adopt green solutions and support green investment and innovation. In addition, environmental and climate change legislation could be strengthened, for example through strict reporting requirements.

Industry players need to actively promote a green culture and improve consumer perceptions of green products. Shipping companies and their customers alike should promote the benefits of choosing green alternatives in ways other than emissions reductions. Indeed, BCG's research has clearly shown that in several industries, consumers place a higher priority on other social and environmental issues than on carbon emissions. In addition, shipping companies need to understand how their customers react to green products and take action to work closely with them to identify the factors that are most important to them and to determine which ways they can get a premium and which ways they cannot.

Ultimately, the shipping industry's decarbonisation and willingness to pay is on track. Nevertheless, the gap between current and targeted behaviour remains wide. To close and eventually close the gap, policy makers, shipping companies, shipping customers and financial institutions must be fully aware of the urgent need to act and take all necessary cooperation in managing and reversing climate change. The risks are imminent and strong sustainable development action must be taken immediately.