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Market News

 November 28, 2013
New Arctic trade routes create opportunities for commerce and polluting

 The expansion of the Panama Canal is expected to create new economic opportunities for the United States and the world, but how the canal is used and whether or not it sees competition from emerging Arctic sea routes will also have implications for the climate.

In recent weeks, Vice President Joe Biden has been touting the job growth and efficiency gains the $5.25 billion Panama expansion will bring. The project, set for completion in 2015, will double the canal's current capacity by allowing for large-scale "post-Panamax" vessels to pass through.

"When exports can carry two to three times more in each container ship, that saves business. That saves money. That saves shipping costs. That saves fuel. And it makes manufacturers and farmers in America more competitive," Biden said last week in Panama.

But while the Panama Canal will enable more efficient transport, it could soon face competition from emerging Arctic seaways.

According to a report released this week by the Department of Transportation's Maritime Administration (MARAD), climate change may eventually make it feasible to pass through ice-free passages in the Arctic on a year-round basis. By using the Arctic instead of the Panama Canal, a ship traveling from Shanghai to New York could cut down its journey by 1,400 nautical miles and four days, thereby saving money on fuel and producing less greenhouse gas emissions.

The MARAD report determined, however, that the Panama Canal will remain the route of choice, at least in the near future. The canal currently offers higher-capacity usage and greater earnings per voyage by allowing for an intermediate stop at a Caribbean port. The Arctic, by comparison, offers few additional cargo pickup and drop-off opportunities.

Also, on some trade lanes -- like from Los Angeles to Rotterdam, Netherlands -- import/export volumes simply aren't high enough to justify taking the Arctic passage, despite the shorter distance and time savings. And even in cases where the Arctic passage theoretically makes sense, it would still need to be proved commercially viable.

"In any case, the availability of this route, at least over the next ten to twenty years, appears unlikely due to the uncertainties surrounding the rate at which ice will disappear and the investments that would be required in necessary escort vessels, staging ports, and channel preparation," said the MARAD report. "Other issues, such as national claims to the waters, must also be resolved."

More traffic, more emissions

But over time, as trade volume grows and ice continues to melt, how marine traffic is handled on both the Panama Canal and in the Arctic could lead to more or less climate-forcing emissions ending up in the atmosphere.

The marine sector currently produces 11 percent of all transportation-related greenhouse gas emissions and accounts for 11 percent of transportation-related petroleum use, or 5 million barrels per day. According to the International Council on Clean Transportation (ICCT), with no additional efficiency standards, marine fuel consumption is expected to double by 2040.

Research has shown that the expanded Panama Canal will encourage shippers to buy newer, bigger, more efficient ships that will reduce carbon intensity, or the emission rate per unit of cargo carried. By 2025, the larger canal is expected to hold marine emissions at 2007 levels while accommodating twice the amount of marine traffic.

But there is a limit to how great a benefit ship upgrades will be able to achieve, particularly without further policy action.

"Ships certainly are getting cleaner -- and ports are getting smarter, and more vigilant, about using technologies to reduce the local air emissions," said Jason Bittner, director of the University of South Florida Center for Urban Transportation Research, who has studied greenhouse gas emissions linked to the Panama Canal. "Volume is the key, however. If the projected volumes happen, at best it is status quo, not a reduction in emissions."

Also, while the Arctic may not be a viable trade route in the near term, marine traffic is expected to increase substantially in the coming decades. This fall, the first large sea freighter traveled through the Northwest Passage from Vancouver, British Columbia, to Finland. While in many cases the Panama Canal will be the preferred route for U.S. trade, the Arctic could host a significant chunk of trade between Asia and Europe.

In a speech last week at the Halifax International Security Forum in Nova Scotia, U.S. Defense Secretary Chuck Hagel underscored that climate change will create new risks and opportunities for the north.

"Climate change is shifting the landscape in the Arctic more rapidly than anywhere else in the world," he said. "While the Arctic temperature rise is relatively small in absolute terms, its effects are significant -- transforming what was a frozen desert into an evolving navigable ocean, giving rise to an unprecedented level of human activity."

Making Arctic travel cleaner

According to the ICCT, traversing the shorter Northwest Passage route through the U.S. and Canadian Arctic instead of the Panama Canal could reduce fuel burn enough to produce $80,000 in cost savings for the trip. These vessels will also emit less carbon dioxide.

However, ICCT researchers also note that the harsh Arctic conditions force ships to frequently alter their speed and operate below their optimum combustion efficiency. Variability in engine load results in greater emissions of particulates like black carbon that are known to accelerate ice melt.

"Increasing those emissions in a very close context to an area like the Arctic, where the deposition of black carbon on ice and snow has a potentially immediate and very negative impact, could counterbalance any benefit gained from reducing CO2 emissions," said Alyson Azzara, a researcher at the ICCT.

Not all black carbon is attributable to large container ships, said Azzara. In fact, the majority of the emissions in the Arctic today come from oil exploration vessels and bulk ships, not large container vessels, which have only just begun to use the northern passages. According to a recent study, black carbon concentrations from maritime travel in the Arctic could increase 50 percent by 2030.

But there are ways to address this. ICCT research finds that the adoption of diesel particulate filters, scrubbers or low-sulfur fuel, or a switch to liquefied natural gas, could reduce black carbon emissions by 40 to 90 percent. These benefits are most likely to be achieved through an overarching regulation like the Polar Code, an international code on safety and the environment currently being developed by the International Maritime Organization.

If the entire shipping fleet were to achieve the same carbon intensity of the 2011 top 5 percent most efficient vessels, the shipping sector's overall emissions in 2040 would be slightly lower than today's while freight movement doubles, according to a recent ICCT report.

"The increase in marine traffic is certainly a concern, but there is opportunity for reduction through technology," Azzara said. "We shouldn't just throw our hands up and say there's nothing we can do about it. Smart growth and smart application of technology and encouragement of new technology development to meet those needs is always something that should be taken into account."