A new insight brief from the Getting to Zero Coalition and the Global Maritime Forum found that the International Maritime Organisation’s (IMO) new policy measures are ambitious and capable of driving a shift toward scalable zero-emission fuels, but their success depends on offering significant incentives and gradually increasing penalties for non-compliance.
The brief, “IMO’s policy measures: What’s next for shipping’s fuel transition?” supports that long-term cost modeling shows that dual-fuel ships using liquefied natural gas and ammonia will be the most cost-competitive options until the mid-2030s, with ammonia taking the lead from around 2037.
However, with the multiple compliance pathways that exist today and the increasing GFI stringency and higher penalties progressively favouring scalable zero-emission fuels, pushing the industry away from fossil fuel-based options such as liquefied natural gas (LNG) and toward e-fuels based on green hydrogen.
While the analysis finds that e-fuels have the highest potential for shipping to achieve its long-term decarbonisation targets, early uptake and value chain development are needed if they are to reach commercial viability in time.
Implications for the e-fuel transition
- The measures as currently defined can be complied with by many different ship specifications and fuel pathways, but the steepening GFI curve and likelihood of increasing RU prices will narrow the potential compliance options in the future to scalable zero-emission fuels such as e-fuels. The development of the value chain for e-fuels cannot be delayed until the late 2030s if it is to reach technological and commercial viability in time for full scale up. This requires a growing portion of the global fleet to adopt such fuels already in the first years of the measures.
- Many shipowners indicate that they are likely to focus on near-term cost-optimisation strategies during the initial compliance period (2028-2030), while those who already have a long-term strategy for scalable zero-emission fuels will seek to leverage the compliance system to maximise early opportunities and gains from their investments.
- The TCO analysis, however, shows that ammonia is likely to be the most competitive pathway from the mid-2030s onwards, even without rewards and increased RU prices. This suggests that ammonia dual-fuel vessels could be a preferred option already today. Rewards, revenue generation to fund them, and higher future RU prices are required to generate a first-mover business case for e-fuels rather than their blue alternatives.
- Industry interviews indicate a mix of approaches. Many companies cite e-fuel supply uncertainty and commercial risk as challenges hindering their planning even post-MEPC 83.
- The ability to bring forward the maturity of scalable options such as e-fuels and reach the milestone of 5% scalable zero-emission fuel use by 2030 will depend on how many companies are willing and able to integrate a long-term view on e-fuels into their short-term compliance strategies, which in turn hinges on critical further work from the IMO.
The IMO’s new framework is a historic step forward, but unless e-fuels become competitive early on, there is a risk that the sector will run into bottlenecks as its decarbonisation efforts scale up. The industry can no longer afford to do nothing.
…said Jesse Fahnestock, Director of Decarbonisation, Global Maritime Forum.
Furthermore, as short-term uncertainties on the further development of policy elements remain, TCO modelling gives a clear indication of the likely development of technologies’ comparative competitiveness and the competitiveness of ammonia in the long run.
According to the data, LNG has a near-term lowest comparative cost between 2030 and 2035, which can be extended to 2037 with onboard CCS. Ammonia, specifically blue ammonia, appears to be closely competitive with the two LNG options initially, and then significantly more competitive from 2037.
Blue ammonia is expected to generate surplus credits until around 2037. After its lowest-cost compliance position changes from overcompliance to base position, it stops generating surplus credits in 2037 but remains the lowest cost option.
Under the modelled fuel price projections, e-ammonia becomes the lowest cost compliance position after 2045.
