Getting the math right: Crunch time for shipping’s net-zero ambitions
Ideally, the industry could identify ‘the best’ of the alternative fuels, but none of them have the scalability to propel the entire global merchant fleet alone
TODAY, more than 80 per cent of the world’s traded goods are moved by shipping but the industry also accounts for up to 3 per cent of global greenhouse gas (GHG) emissions as it is heavily dependent on fossil fuels.
There has been intensive discussion in recent years on the use of alternative fuels for shipping, and there have been positive actions to enable this. Vessels capable of utilising a multitude of alternative low-emission fuels such as bio and e-methanol, bio and e-methane, biodiesel, and ammonia are on their way, and some are already in operation.
Several countries in the region have also been forward thinking and are strongly supporting the maritime decarbonisation agenda. Singapore is taking a leading role by promoting a fuel-agnostic approach.
As the world’s largest bunkering hub, Singapore is developing ammonia, hydrogen and methanol value chains to support international shipping.
The Maritime and Port Authority of Singapore (MPA) is also driving global collaboration for decarbonisation and efficiency through the establishment of six Green and Digital Shipping Corridors (GDSCs).
Closing the gap between fuel types
Ideally, the shipping industry could identify “the best” of these alternative fuels. But none of these fuels have the scalability to propel the entire global merchant fleet alone.
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They tap into different feedstocks, and there are significant supply chain bottle necks in production. Demand signals for these fuels must increase immediately to stimulate the currently nascent supply.
Global regulations are needed through the International Maritime Organization (IMO) for green fuel standards, fossil fuel phase-out timelines and the implementation of effective mid-term measures to close the significant cost gap between fossil fuels and green fuels.
In 2025, the IMO aims to reach agreements on these topics. The outcomes of those decisions will significantly impact the industry, our customers’ ability to pay for decarbonisation and the pace of the energy transition.
At Maersk, we acknowledge and are encouraged by the good and productive progress of the negotiations to date. There are many promising developments, for example, related to a global fuel standard as well as on the overarching aim of closing the price gap between fossil and alternative low-emission fuels.
Yet, the math applied in current fuel standard proposals has an unintentional consequence; it is not fuel-agnostic, and financially, it heavily favours liquified natural gas (LNG, fossil methane).
Vessels burning LNG will get a disproportionate financial benefit far exceeding what is merited by its reduction of GHG. LNG can reduce GHG emissions by 10 to 20 per cent compared with conventional fuel oil, and must be acknowledged as a relevant part of the transition, as these vessels can also run on bio and e-methane.
However, bio and e-methane cannot scale to supply the entire shipping industry, and there will be little to no financial incentive to run them on the lower emission alternatives for the next decade with the current proposals, meaning that the bottlenecks in the low-emission fuel supply would be exacerbated. It will not get the industry to net-zero.
Actually, the math makes the principle of pay-to-pollute the financially most attractive strategy for most shipping companies in the next few decades.
Consequences of current regulatory proposals
If this element remains in otherwise promising regulatory proposals, the financial business case for LNG is likely to be most compelling compared with any other fuel pathways in the boardroom of any shipping company.
This would have some unfortunate consequences for global shipping.
Firstly, the limited potential of the bio-methane and e-methane pathway will not be able to decarbonise the huge fleet of LNG vessels incentivised by IMO regulation, hence burning fossil LNG and paying the fine will be the most optimal strategy financially.
Secondly, there will be limited to no demand in the market for low emissions fuels such as blue and e-ammonia and bio and e-methanol. Hence, these supply chains will be significantly delayed or even mothballed, further incentivising the pay-to-pollute pathway based on fossil LNG.
Luckily, we still have time to get the right result. The IMO member states will meet again in early April to agree on a proposal. We believe it is important that the future IMO regulation is fuel-agnostic and provides an equal financial incentive for each of the alternative pathways.
Close collaboration among stakeholders needed
2025 is no doubt a pivotal year for IMO policy setting, but it is equally important to reinforce the need for the industry to continue working with stakeholders including maritime authorities, port authorities and operators, customers and fuel suppliers to decarbonise this hard-to-abate sector.
For example, Maersk has partnered Hong Lam Marine to successfully conduct the world’s first ship-to-containership methanol bunkering operation of a Maersk container vessel in Singapore in July 2023, with the support of MPA, other government agencies and research institutes.
This is a significant milestone for the Republic’s development towards a multi-fuel future, and a testament to the country’s commitment as the world’s largest bunkering hub to meet the new marine fuel needs of international shipping through safe and efficient bunkering operations.
As a coalition partner in the Singapore-Rotterdam GDSC, Maersk is among the global value-chain partners contributing towards the testing and use of alternative fuels such as methanol and ammonia along this high-volume Asia-Europe trade lane.
It is also very positive to see that decarbonisation remains a key theme for this year’s Singapore Maritime Week, happening soon in March.
With global maritime leaders attending this highly watched annual event, it will be an opportune time to discuss how to jointly continue propelling the industry forward on its course to net-zero.
The writer is senior vice-president, head of decarbonisation, AP Moller-Maersk
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