Cooperation key to unlocking 1st wave of zero-emission shipping projects

The key economic, technical, and regulatory barriers to the early adoption of zero-emission technologies can be overcome by the first movers through collaboration, a new report developed by the Energy Transitions Commission for the Getting to Zero Coalition shows.

The first wave of commercial-scale pilots to be implemented in the next five to ten years will focus on proving the technological and commercial viability of zero-emission shipping end-to-end from carbon-free marine fuel production to cargo owners.

These ‘full ecosystem’ pilots will build on ongoing technology trials and represent the critical ‘proof point’ on the way to realising the 2030 ambition of having viable zero-emission vessels to be operating along deep-sea trade routes.

The report outlines a blueprint of key actions to be taken by the first movers to make tangible progress towards zero-emission pilots over the next three to four years:

1. Join forces to fast-track technology trials and regulatory approvals
2. Choose pilot locations that offer privileged access to low-cost renewable electricity
3. Seize opportunities to repurpose and retrofit existing infrastructure and assets
4. Co-invest in critical equipment such as bunkering assets and vessels
5. Form consortiums with key-value chain actors to establish voluntary offtake agreements and distribute cost across the value chain to the end-consumer

Though first movers will have to contend with higher investment and operational costs, the report shows that this can be mitigated through a green fuel premium, which would help distribute the additional cost throughout the value chain up to the end-consumer.

“Despite the higher business to business costs of operating zero-emission vessels, the impact on end consumer prices is likely to be limited. The increase in the cost of a high-end athletic shoe will represent around 0,5-1% of the total cost,” says Michael Parker, Chairman, Global Shipping, Logistics & Offshore, Citi and Co-Chair of the Getting to Zero Coalition’s Motivating First Movers workstream.

To lower investment costs, early adopters can also retrofit existing infrastructure, and establish industrial clusters of industrial sectors.

“The economics of zero emission shipping will depend massively on the cost of zero emission fuels. Commitments from cargo owners to procure “green shipping” services at a premium price will be crucial to unlock a first wave of commercial scale projects. A combination of tactical corporate decisions reducing fuel costs, enhanced public support to investment, and collaborations across the maritime value chain can also boost the commercial viability of zero-emission shipping for first movers“, comments Faustine Delasalle, Director, Energy Transitions Commission.

The report emphasizes that governments have to play a decisive role in supporting the shipping industry’s transition to zero emission. This ranges from direct grants, offering concessional loans to first movers, waiving electricity taxes and grid fees, co-investing in zero emission pilots, to exploring measures such as a carbon levy.

“Governments have a crucial role in incentivizing and accelerating shipping’s green transition. By supporting first movers, governments can help generate the technology learnings and economies of scale that will allow the market to take over, similarly to the role governments has played within renewable energy technologies such as solar and wind,” adds Kasper Søgaard, Head of Research at the Global Maritime Forum, a Partner of the Getting to Zero Coalition.

The first wave of pilots will prove the technological and commercial case for zero emission shipping, create demand signals for fuel producers and engine manufacturers, set the template for regulatory measures, and provide the foundations of the long-term infrastructure needed for the decarbonization of maritime shipping.

As explained, the specific set of partners involved in an end-to-end zero-emission pilot will vary by fuel pathway and vessel type, but a set of ‘core actors’ will need to be at the centre of any project.

These are fuel producers, bunkering suppliers, classification societies and regulatory authorities, engine, fuel storage equipment providers and shipbuilders, vessel operators and owner, cargo owners, financial institutions and governments.

The analysis in the study focuses on green ammonia and green methanol use in pilots involving containerships, but insights are expected to be relevant for other potential zero-emission fuel options.

The study finds that, on a per tonne basis, the cost of green ammonia is approximately two and a half times the cost of conventional HFO fuel.

Correcting for energy density means that ‘first movers’ would face green ammonia costs around five times the cost of HFO. The cost increase would be similar for green methanol. High fuel cost subsequently cascades across the value chain and would represent more than 90% of total voyage cost for ‘first mover’ pilots.

In turn, the energy intensity of green hydrogen production makes electricity the dominant cost driver for green ammonia and methanol production. For green ammonia, approximately 70% of the final fuel cost relates to electricity. Methanol production is less energy-intensive than green ammonia (electricity representing only 60% of fuel cost), but the need for carbon as an input in the methanol synthesis process means it is likely to present a higher total cost for the first wave of projects.

Despite the cost difference relative to HFO, the potential cost to the end consumer of a shift to zero-emission shipping is relatively low, given that freight costs are generally a minute portion of consumer good prices, the study said.

For instance, the cost increase to a $100 high-end consumer product, such as a pair of shoes, would be less than +1.5% for both fuels.

This price impact suggests that the cost of decarbonisation for the maritime sector – even for the first wave of ‘full ecosystem’ pilot projects – can be managed through relatively modest price increases for end-use markets and consumers.

“Finding ways to pass through this cost to consumers despite the global and competitive nature of the maritime sector will be key to bring zero-emission shipping closer to market; and lowering the cost premium associated with the first wave of commercial-scale pilots should make it easier for ‘first movers’ to develop a viable business model,” the study said.