Financial headwinds may hinder e-fuels production in developing countries, making equitable transition unattainable

Poor access to funding and higher costs of capital in developing countries could almost double the prices of e-fuels they produce, compared to developed economies—even when renewable energy resources such as onshore wind and solar are superior, according to a new study.

Without targeted financial support mechanisms, future e-fuel production could concentrate in already-advantaged economies, and thus risk leaving developing nations behind, despite their favorable renewable resources, in clear contradiction to the “just and equitable transition” that the IMO committed to in its GHG strategy, the study released on March 20, 2025, by UMAS and UCL Energy Institute Shipping and Oceans Research Group, shows.

The report proposes a solution, which is for a portion of the IMO funds to enable grants and concessional finance to help offset the higher financing costs in low-income countries, thereby to close this “equity of opportunity gap”. This is only one element of the overall needs for revenues for ensuring a just and equitable. An initial estimate for the scale of initial IMO funds required just for this element is provided as around $50 billion – in addition to the funds needed for any reward mechanism and wider just and equitable transition needs.

The report titled, “The Cost of Capital Challenge in Delivering a Just and Equitable Transition for Shipping,” compares the costs of producing e-ammonia—a promising low-emission shipping fuel—across Australia, Brazil, India, and African nations. The study leverages the wealth of global data available on renewable energy projects to compare the levelized costs of energy (LCOE) across these locations.

“Access to funding and its cost has a huge impact on the comparative competitiveness of e-fuel projects which require large upfront investment over multi-year lead times. As the cost of capital increases, the relative disadvantage compounds and so very quickly you get to point where projects with better-quality renewable resources cannot out-compete projects with low costs of capital,” Deniz Aymer, Senior Consultant at UMAS, explained.

The analysis found that renewable projects in Brazil, India and Africa face higher funding costs and are more limited in the amount of finance they can access and so, even with high-quality renewable resources, these projects can struggle to bridge the overall cost of renewable energy achievable in countries such as Australia, where costs of capital are lower.

By adding the steps required to produce hydrogen and synthesize e-ammonia, the impact of changes in costs of capital and project timescales is explored using project financing models. The analysis shows that e-ammonia projects in African countries could require offtake prices 80% higher than equivalent projects in Australia due to these funding constraints, which creates a fundamental barrier to achieving the IMO’s vision of an equitable transition.

“This evidence is critically important to the ongoing attempts to find a consensus on mid-term measures (by mid-April) – it shows that unless IMO agrees measures that can produce stable revenues at a level able to fund both energy transition, and just and equitable transition. The outcome will undermine either, or both of its strategy commitments,” Tristan Smith, Professor of Energy and Transport at the UCL Energy Institute, commented.

The IMO has committed to ambitious emissions reduction targets, requiring shipping to access 200-300 million tonnes of oil equivalent—zero (or near zero) emission fuels by the 2040s. This transition will require approximately $1.6 trillion in land-side investment, with about $400 billion needed by 2030 alone.

The report highlighted that if the financial barriers are left unchecked, investments will naturally flow to developed economies and risk perpetuating the existing under-investment in countries with high-quality renewable resources, predominantly around the equator and global south.

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