In focus: The hard truths and wake-up calls in the global energy transition

As the world races towards a net-zero emissions future by 2050, it’s imperative to acknowledge some hard truths and heed the wake-up calls emerging from the latest reports and analyses. The energy transition journey is undoubtedly complex, laden with challenges and unearthing difficult realities as it progresses against the backdrop of today’s tumultuous geopolitical landscape.

The Transition’s Sluggish Start

The latest report from the Norwegian-based classification society DNV highlights a sobering reality: despite the rapid expansion of renewable energy infrastructure, fossil fuels still play a pivotal role in meeting global energy demands. Renewable energy sources have only managed to match the surge in energy demand, not replace fossil fuels.

In fact, the hard truth is that the absolute supply of fossil fuels continues to grow, which threatens our collective aim of restricting global warming to the crucial 1.5°C target set out in the Paris Agreement. To meet the Paris goals, CO2 emissions must be drastically reduced by 50% by 2030.

In its seventh Energy Transition Outlook DNV explores when renewable energy will truly start to replace fossil energy, how the cost of the various energy sources and technologies will develop over time, when emissions will peak, and how fast they will decline.

The report projects that this significant reduction is unlikely to materialize until after 2050, with CO2 emissions estimated to be merely 4% lower than 2023 levels by 2030.

As disclosed, CO2 emissions will be only 4% lower than today in 2030 and 46% lower by midcentury, which is associated with 2.2°C of global warming above pre-industrial levels by the end of this century.

Remi Eriksen, Group President and CEO of DNV, commented: “Globally, the energy transition has not started, if, by transition, we mean that clean energy replaces fossil energy in absolute terms. Clearly, the energy transition has begun at a sector, national, and community level, but globally, record emissions from fossil energy are on course to move even higher next year.”

The Delicate Balance: Carrots and Sticks

The global energy transition’s success hinges on achieving a delicate balance between the ‘carrot’ and the ‘stick’ principle – incentivizing investments in green energy while making fossil fuels less attractive through higher costs.

For businesses, this transition to cleaner energy isn’t merely driven by global decarbonization demands but also by prudent financial decisions. Carbon taxes and increasing capital expenses for traditional energy are shifting the balance in favor of renewables. The cost of transition is steep, but the cost of inaction in this climate crisis is immeasurably higher.

The maritime industry is undergoing a significant transformation in fuel composition, shifting from predominantly oil-based fuels to low- and zero-carbon alternatives.

This transition, projected to reach 84% by 2050, is expected to be helmed by ammonia (36%), followed by biofuels (25%), and e-fuels (19%). Electricity, although relatively modest at 4%, remains part of the future energy mix.

The hard truth, however, is that the successful transition to these new fuels depends on critical factors such as the availability of advanced biofuels and renewable hydrogen for e-fuel production, as well as incentives for the industry’s cleaner practices.

The dearth of widespread, practical solutions leaves shipowners waiting for viable options, rendering the ambitious regulatory targets challenging to achieve within the specified timelines. This critical issue underscores the pressing need for advancements in alternative fuel production, supply chains, and supportive policies to accelerate the industry’s decarbonization efforts.

Dry bulk owner Pacific Basin anticipates a limited uptake of methanol-fuelled bulkers in the short term due to fuel availability constraints and expects dual-fuel ships that hit the water soon to run on fossil fuels during their initial operation.

What is more, retrofitting existing ships to run on alternative fuels is also facing challenges due to insufficient yard capacity and qualified workforce.

Earlier this week, Safe Bulkers announced that it has entered into contracts for the acquisition of two dual-fuel Kamsarmax newbuilds as part of its fleet renewal strategy.

The two 81,200 dwt vessels, which are capable of running on methanol, will be acquired at attractive prices, the company said.

However, at the recently held Cyprus Maritime conference, Safe Bulkers chief executive Polys Hajioannou revealed that the decision was prompted to avoid penalization and was not about making money.

Specifically, owners who want to be early adopters have to pay higher costs for future-proof newbuildings running on alternative fuels. What is more, they will have to pay more to bunker these fuels which are predominantly more expensive than their fossil-based counterparts.

Therefore, the energy transition in the maritime sector, like in many others, is yet to become a lucrative investment and palatable to the consumers, who will ultimately be the ones paying premiums for cleaner fuels and regulatory surcharges.

The conference in Cyprus also heard deep reservations and frustrations from shipowners regarding the ambitious zero-carbon targets and timelines set for the maritime industry highlighting the issue of regulations being imposed before practical solutions were available.

Many shipowners expressed their belief that the current regulations were unrealistic and questioned the availability of zero-carbon or renewable fuels and the necessary maritime technology to support them at scale.

Some attendees argued for the need for realistic targets and international harmonized regulations to create a level playing field. Still, there was a widespread sense that the industry was not ready for the upheaval caused by these regulations, and concerns were raised about the potential loss of competitiveness to China.

Global Hydrogen Adoption

Hydrogen is a promising player in the transition, but there are stark realities to consider. While the world is expected to spend $6.8 trillion on hydrogen production for energy purposes by 2050, hydrogen’s role in the global energy mix is projected to be just 5% by that year.

Though some regions may see a higher hydrogen share, the global goal of reaching 15% of the world’s energy demand by 2050 remains distant.

DNV forecasts that hydrogen’s future demand as an energy carrier will grow from its current negligible levels to surpass 238 million tons of hydrogen annually by the year 2050. The predominant application of hydrogen will be in manufacturing (58%), followed by transport (20%), and buildings (14%), with the remaining portion allocated to electricity generation and various other purposes.

That being said, the International Energy Agency (IEA) recently warned that new projects in the low-emissions hydrogen sector could be hindered by the slow roll-out of financial incentives and increased cost pressures.

DNV delves into various ways of hydrogen transport, predicting that it will primarily be transported via pipelines for medium distances within and between countries, but it is unlikely to be transported between continents.

 Over 50% of hydrogen pipelines worldwide will be repurposed from existing natural gas pipelines, potentially rising to as much as 80% in specific regions, as the cost of repurposing pipelines is projected to be only 10–35% of the cost of building new ones.

Moreover, by 2050, less than 2% of global hydrogen will have been transported via ships, and only about 4% through interregional pipelines, according to DNV.

The Role of Progressive Policies

The outlook becomes more hopeful when considering the influence of progressive policies. Comprehensive decarbonization initiatives have gathered steam in recent years, spearheading the regional transition towards cleaner energy and creating a ripple effect globally.

The Inflation Reduction Act in the United States, committing $240 billion to clean energy investments, is a testament to policy-driven change. The European Union’s Green Deal, REPowerEU, and Fit for 55 policies are making Europe’s net-zero emissions goal more achievable.

Furthermore, the shipping industry is set for a faster transition with the EU’s emission trading system and the International Maritime Organization’s (IMO) ambitious decarbonization strategy targeting net zero by 2050.

Notable developments in marine energy are also gaining momentum. Earlier this week, California Governor Gavin Newsom signed SB 605 wave and tidal energy bill into law, marking a significant step forward in bringing a new renewable energy resource to the state and further solidifying California’s commitment to a sustainable and clean energy future.

The legislation calls for an extensive study and assessment of wave and tidal energy potential off California’s 840-mile coastline. The bill was unanimously passed in both the California State Senate and Assembly.

The Urgency for Acceleration

In the midst of these hard truths, the urgency for acceleration in the global energy transition cannot be overstated. To prevent irreversible climate damage, we need to act swiftly and decisively.

While the transition has begun at sector, national, and community levels, it hasn’t yet started on a global scale. The energy transition is no longer a choice; it’s a necessity.

Therefore, governments, businesses, and individuals must collaborate to make the ‘carrot’ more enticing and the ‘stick’ more effective, the ultimate goal being to speed up the transition journey.