WEF: MOL, Maersk showing readiness to procure green fuels but price gap remains main barrier to decarbonization

On the margins of COP28, shipping companies Mitsui O.S.K. Lines (MOL) and Maersk are actively sending a signal of readiness to procure green fuels and drive economies of scale.

Recent years have seen progress in what is referred to as the “chicken and egg dilemma” in the early years of the shipping industry’s decarbonization journey.

Today, over 180 ships capable of sailing on green fuels are on order from many shipping companies across several segments and growing. A market is emerging.

Maersk-owned Laura Maersk entered into service this year as the first container ship running on green methanol. The company prepares to launch its first large methanol-powered vessel in January 2024. Next year, several large ocean-going vessels will join the Maersk fleet and long-term they will be fueled by a landmark green methanol offtake agreement.

But only two years ago, Laura Maersk was the first methanol-enabled container vessel on the orderbook.

Japan-based shipping major MOL operates a wide variety of ship types, including container ships, bulkers, tankers, gas carriers, and roll-on-roll-off ships with a mission to decarbonize across all these segments. In 2021, the company unveiled an investment in low-carbon fields of about $1.81 billion. As part of its environmental strategy, the company accelerates initiatives including moving up the net GHG emission zero schedule by 2050, introduction of internal carbon pricing as well as promoting alternative fuels, operational efficiency and energy conversation.

At the Japan Pavilion within COP28, MOL exhibited the next-generation wind-powered vessel Wind Challenger and the ultimate zero-emission seagoing vessel Wind Hunter.

Back in 2020, MOL joined a corporate-academic partnership in a zero-emission initiative called the Wind Hunter project, seeking new applications for hydrogen fuel and wind power.

Earlier this year, the company revealed plans to launch the construction of Wind Hunter in 2024.

During the event discussing the importance of Transition Finance, hosted by the Ministry of the Environment and the Glasgow Financial Alliance for Net Zero (GFANZ), MOL President Hashimoto argued that multiple pathways are needed to decarbonize the shipping industry, which underpins various supply chains. He advocated for a phased investment approach, including immediate investment in LNG and methanol, which can be implemented right away, and investment in fuels such as ammonia and hydrogen, which require technological development.

The main problem the maritime industry is facing is the cost of alternative fuels and the fact that there is no singular zero-emission fuel alternative that can satisfy the volume of bunker fuel that is used today. The maritime industry is a melting pot of participants with an extreme diversity of attributes, and different solutions need to be nurtured with different partners for the decarbonization of all types of ships.

To decarbonize, the industry is dependent on scaling the production of zero-emission (green) fuels like ammonia, methanol, hydrogen and also battery to deploy and power zero-emission vessels. But green fuel alternatives are significantly more expensive than traditional bunker fuels and a common denominator across all shipping segments is that support from both within and outside the industry is crucial to fuel this wave of progress. As orders for new dual-fuel vessels are scaling up, the next step and admittedly a very difficult part, will be closing the price gap between bunker fuels and zero-emission fuels, according to the World Economic Forum.

It is estimated that the cost of converting renewable energy into a form that can be used as fuel on ships is three to four times higher than conventional fossil fuels. Fuel costs account for about 30-50% of operating costs, and this price difference is a barrier to the decarbonization of the shipping industry.

Given the higher price of green zero-emission fuels and its potential implications on overall freight costs in a tight margin industry, there is no clear pathway where in the value chain the green premium will be covered.

“The price gap between bunker and green fuel can jeopardise the urgent need to accelerate the decarbonization of logistics. But the greening of global value chains is a collective effort and we must shoulder the responsibility across the industry and collaborate outside the traditional maritime stakeholders,” the World Economic Forum said.

“Ship owners are ordering zero-emission fuel capable vessels and engaging in partnerships to guarantee the green fuel needed for these new builds, cargo owners are also committing to the sustainable zero-emission shipping products available in the market, but the engagement must increase significantly and rapidly to avoid stalling the momentum of the transition.”

The organization stressed that the decisive action from regulators continues to be key to supporting the maritime industry’s trailblazers and ensuring a level-playing field.

“Regulators can play a crucial role, introducing policies to remove barriers to scale the production of fossil free fuels, and incentivize the transition for cargo owners,” the World Economic Forum added.

“It is critical that we continue to work together across all segments and with stakeholders outside the maritime value chain to ensure incentives that level the financial playing field of decarbonizing shipping. The transition early on and gradually is essential, so that we can mitigate cost of both the green transition and the future impact of natural disasters. The cost of climate change is far greater than the cost of the green transition.”

Both the aforementioned Japanese and Danish shipping players are members of the World Economic Forum’s First Movers Coalition (FMC), an initiative established at COP26 in 2021 to boost demand for decarbonization technologies.

By December 2023, FMC has grown to 95 members and become the world’s largest private sector demand signal for emerging climate technologies. FMC members have collectively made 120 commitments. By 2030, these commitments will represent an annual demand of $15 billion for emerging climate technologies and 29 million tonnes (Mt) CO2e in annual emissions reductions.