Increasing demand for globally traded goods looks set to triple volumes of sea freight by mid-century, in a sector that already contributes nearly 3 percent of global greenhouse gas emissions. The industry urgently needs to embrace a mix of the fuels of the future — including green methanol and ammonia — to scrub clean its climate impacts. First movers are leading the way on how it can be done.
Soaring demand for sea freight puts shipping on collision course with the climate
Shipping doesn’t often make the headlines, so our dependence on the industry is not fully appreciated until something goes wrong. When the Ever Given, one of the world’s largest container vessels, became wedged in the Suez Canal during a sandstorm in March 2021, the disruption caused to international supply chains reminded us how much the global economy relies on the shipping industry. A staggering 90 percent of all globally traded goods are shipped by sea and — given the world’s insatiable appetite for these goods — maritime trade volumes are predicted to triple by 2050.
However, while maritime freight remains a more environmentally friendly form of transport for moving goods than the alternatives, it is on a collision course with the climate. The bunker fuel that big ships burn on board to power them around the planet is one of the dirtiest of all fossil fuels. Vessels consume about 300 million metric tons of this heavy fuel oil every year, pumping 1,076 million metric tons of greenhouse gases into the atmosphere as of 2018. This accounts for 2.9 percent of global anthropogenic emissions, according to the International Maritime Organization (IMO) .
With oil products still powering 99 percent of all shipping, transforming the industry and charting a course towards full decarbonization is one of the most urgent tasks facing the global transportation sector. And given that a typical ship’s working life is 20 years or more, the time to act is now.
Green methanol is a scalable, market-ready clean shipping fuel today
The good news is that low-carbon technologies and fuels are available in the short and medium term that can power big vessels — including green versions of methanol, ammonia and hydrogen. Battery-electric power is also an option for smaller ships. But let’s look at "e-methanol" first, as it offers a viable short-term pathway to start decarbonizing the maritime sector.
Instead of making methanol the conventional way (with natural gas), green e-methanol is produced by combining green hydrogen — made with renewable electricity — and CO2, captured from biomass-based industrial flues. The result is a carbon-neutral fuel that can be burned in a combustion engine, readily available in the market. E-methanol has other advantages too. As a liquid, it’s easy and safe to handle, it can be stored, or "bunkered," using known — and in some ports already existing — infrastructure. Ships can be refueled the same way as they are now, using bunker barges.
A GHG price combined with a global fuel standard could spur production and would make green fuels more cost-competitive.
Green ammonia offers some promise as a zero-carbon shipping fuel in the medium term. It has an energy density similar to methanol, while its production — using zero-carbon hydrogen — uses nitrogen as a carrier of the hydrogen molecule, which can easily be extracted from the air, hence making it cheaper to produce over the long term. However ammonia is a highly toxic, flammable and corrosive chemical, posing serious risks to both human and aquatic life in the event of a spillage. That makes handling it and bunkering it very challenging. And while the first engines capable of burning ammonia should be ready by 2024, it’s unlikely the first big ship capable of running on ammonia will enter service before 2029, which — as we shall see below — is too late for the industry’s 2030 targets.
Targets matter, but someone must make the first move
The challenge for ship operators is to secure a sufficient supply of green fuel at a price that makes it commercially viable. Meanwhile, the challenge for fuel producers is to secure sufficient advance orders that enable them to raise the finance needed for new, carbon-neutral fuel production plants. The more volume that is produced, the more the price will fall. We are in familiar territory for the low-carbon transition — the dance between supply and demand, which requires someone with the courage to hit the dance floor first.
The World Economic Forum’s First Movers Coalition (FMC) is a global initiative to encourage private sector players in the hardest-to-abate sectors, including shipping, to make that first move and send zero-emission fuel producers and entrepreneurs the demand signals they need to scale up production. FMC requires its cargo-carrier members to commit to at least 5 percent of deep-sea shipping powered with zero-emission fuels by 2030, while the corresponding target for its cargo-owner members is 10 percent of the volume of internationally traded goods to be shipped using zero-emission fuels, rising to 100 percent by 2040.
Maersk, one of the world’s largest shipping carriers and a member of the FMC, has made a major first move in the sector. After eyeing the development of green methanol with great interest, Maersk has taken the plunge and placed orders worth several billion dollars for 19 new, "dual fuel" ocean-going container ships designed to run on either e-methanol or regular fuel oil. The vessels will be delivered starting in 2023, when a smaller feeder ship will hit the waters, with larger 16,000-17,000-container ships arriving after 2024. The vessels will generate annual CO2 emissions savings of around 2.3 million metric tons a year, once they all burn green methanol. Danish-headquartered Maersk is not the only carrier making a move into methanol-fueled vessels. Other carriers have put in new-build orders for vessels that can sail on methanol; among these are Cosco and CMA-CGM.
As demand surges, supply may struggle to keep pace. Maersk alone needs 5 million metric tons of green methanol through to 2030 to power its new dual-fuel ships cleanly. After scouring six continents for suppliers, the company has decided to invest in a series of its own strategic partnerships around the world to scale up green methanol production. These include partnerships with startups, established producers and governments, in geographies from North and South America to China, Egypt and Spain, as well as on Maersk’s home turf in Jutland. So far, the company has signed partnerships with the ambition to secure more than 1.5 million metric tons in offtake agreements, so it still has a way to go.
Time for key shipping players to join the decarbonization convoy
The projected demand for green shipping fuels looks set to create huge opportunities. To decarbonize the global shipping industry will require the equivalent of the world’s entire current renewable energy production to replace fossil fuel use. The Getting to Zero Coalition, which launched in 2019 with the World Economic Forum and the Global Maritime Forum as partners, addresses the key issue of commercializing zero-emission vessels operating along deep-sea trade routes by 2030. It aims to set the sector on a pathway to zero through broad industry action and an updated policy framework. Fuel production is a key concern and challenge, but also an opportunity for many regions in the world.
Several strategically located countries in the Global South are well-placed to ramp up production of clean hydrogen-derived shipping fuels. The P4G-Getting to Zero Coalition Partnership has identified concrete business opportunities in South Africa, located along key maritime shipping routes: Mexico, with over 100 ports on its Atlantic and Pacific coastlines; and Indonesia, with its proximity to busy shipping lanes through the Strait of Malacca and the Sunda Strait.
Maersk’s ambition — to go net zero across its entire business by 2040 — sends a clear demand signal to the market. To hit this goal, the company has set near-term targets that include using 25 percent green fuels across its entire fleet, a 50 percent reduction in emissions per transported container (compared to 2020), and a principle of only ordering newly built vessels that can be operated on green fuels. The deadline for all of these targets is 2030.
Counting the cost and containing the green premium
There are risks, of course, to making the first move. Maersk’s dual-fuel ships cost 10-12 percent more than conventional ships to build. Green methanol costs several times more than fossil-based bunker fuel. Maersk may have already made partnerships for some 1.5 million metric tons of green methanol, but it could have signed more if the price was right.
A GHG price combined with a global fuel standard could spur production and would make green fuels more cost-competitive. While consumer goods companies may pay a green premium to shift their goods, the container ships they use only account for around one-fifth of global maritime traffic. It may be harder to persuade other types of shipping carriers — such as crude oil tankers — to pay more for their fuel, as they face less societal pressure than the clients of the container industry.
The European Union’s emissions trading system (ETS) is being revised to apply to maritime emissions, and this will help level the playing field between green and conventional fuels albeit at a regional level. The proposal on the table will see the ETS apply to the entirety of emissions arising from voyages between EU ports and cover 50 percent of emissions from journeys between EU and non-EU destinations.
Meanwhile, President Joe Biden’s Inflation Reduction Act, passed in August, has introduced some significant tax credits for hydrogen production that will translate into lower prices for fuels such as e-methanol whose production is dependent on green hydrogen. While this move by the U.S. has not been universally welcomed, the hope is that it may yet encourage a "race to the top" among governments seeking to create an enabling environment for the low-carbon transition rather than unhelpful protectionist measures.
Regional measures can serve as stepping stones and show that regulation has a concrete impact, but a global industry such as shipping requires a global level playing field to enable all companies operating in the sector to compete on equal terms. An all-important step towards this goal is the revision of the IMO’s greenhouse gas strategy, currently being negotiated before the deadline of summer 2023.
Tide is turning against polluting ships
However, let’s be clear: We cannot afford to let short-term crosswinds around cost or regulation blow us off the course that the whole maritime freight value chain must take long term. The stakes are too high. For cargo carriers and owners alike, sending a demand signal is the top priority. Long-term offtake agreements are the way forward, offering a triple-win that provides carriers with certainty around future fuel prices, producers with certainty around future volumes and investors certainty around market viability.
The tide is turning against ships that pollute both sea and air with the noxious fumes given off by bunker fuel. Customers and employees alike will no longer accept the quantities of GHG that moving goods around the planet emits. Consumer-facing brands from Amazon to Walmart have science-based targets that cover their Scope 3 supply chain emissions. Investors have ambitious climate targets too. More companies from all over the world are showing interest in zero-emission transportation. They all need solutions to deliver on their ambitions and — by helping provide those solutions — shipping can forge stronger relationships with its customers and its shareholders. It’s not just the right thing to do for the planet; it’s also the right business decision too.
This article was co-authored by Jonathan Walter.
