A Business-Approach to Reducing Maritime Shipping Emissions
It was just over a year ago when I exchanged the coveralls I wore as a nuclear-trained submarine officer for the suits and ties of the business world. Desiring to continue my service outside the military, I focused my aspirations and MBA experience on a subject transforming the world of business: the energy transition. ClimateCAP, a program established by top MBA schools to encourage more student involvement in energy, climate, and sustainability, provided me an opportunity to pursue my interests. As a ClimateCAP Fellow, I produced A Route to Reducing Maritime Emissions, an independent study on maritime decarbonization (view full report here).
Maritime shipping is an important part of the global economy in need of decarbonization. Ninety percent of all international trade travels by sea, a flow of goods valued at $7.6 trillion, or 7 percent of global gross domestic product. In 2023, maritime shipping contributed nearly 3 percent to overall global greenhouse gas emissions, a figure in jeopardy of rising. The International Energy Agency’s clean energy tracker notes efforts to reduce shipping emissions are “either in the wrong direction or substantially insufficient to get in line by 2030 with a Net Zero by 2050 scenario trajectory.”
Maritime shipping is a “hard to decarbonize” sector. The powertrain of a ship is designed around the fuel it uses, which has traditionally been fuel oil. While high in emissions, fuel oil is cheap and very energy-dense, which is ideal for ships, as they have significant spatial and weight constraints. However, cleaner fuels cannot simply be “dropped in” as substitutes; even if they could, most are less energy-dense and would reduce the ship’s effective range drastically.
Ships also are expensive and long-lasting, some costing well over a hundred million dollars and operating for up to 30 years. Those commissioned today will likely still be in service by 2050 and will be costly to overhaul. Combining these two aspects makes hitting net zero by 2050 a very difficult endeavor. My research highlights several considerations for cutting maritime shipping emissions.
Completely eliminating maritime shipping greenhouse gas emissions will require the adoption of alternative shipping fuels. There are three ways to lower shipping emissions: reduce underlying demand (i.e. nearshore production and ship fewer goods across the ocean), increase fuel economy, or choose a cleaner fuel. While reducing shipping demand has its merits, short of a prolonged global trade war, eliminating the transportation mode by which most trade flows is unlikely. More efficient use of fuel is an option which could decrease emissions and fuel costs by up to 40 percent but remains an incomplete solution. The last option is transitioning to alternative maritime fuels, mainly clean variants of LNG, methanol, or ammonia.
While one alternative maritime fuel has yet to dominate, LNG is a great option to lead the way for maritime decarbonization. Before diving into fuel options, we must first recognize there are several key hurdles which exist regardless of the pathway chosen. Any biofuel will be challenged with a disperse and limited supply of feedstock, such as biogas from landfills, livestock, or forestry cuttings and residuals. Maritime shipping will also face intense competition for these resources from the air transportation sector and power/utility sector seeking to accommodate load growth from emissions-conscious data center hyperscalers. Furthermore, most fuels produced synthetically through the combination of cleanly produced hydrogen and captured carbon or nitrogen will require exorbitant amounts of renewable energy. For instance, converting the global fleet to synthetic fuels would require the capacity equivalent of about 300 nuclear, 10,000 wind, or 20,000 solar power plants depending on the fuel chosen. Finally, clean alternative fuels will likely result in a significant green premium that most customers will not voluntarily pay.
LNG has key near-term advantages over methanol and ammonia: fossil-fuel LNG is cheap, abundant, and offers an attractive improvement in emissions; shipbuilders are experiencing the most book orders for LNG-powered ships; and minimal changes to ships and infrastructure would be required to introduce molecularly similar yet cleaner biogenic and synthetic fuel variants. Biogenic or synthetic methanol could emerge as a dominant alternative in the long run, as it is easier to handle, the most energy dense fuel option after accounting for onboard containment infrastructure, and the preferred choice amongst early clean fuel adopters like Maersk. Synthetic ammonia could also prevail in the long run, having key advantages in cost and scalability.
Strategic partnerships can help shoulder the high capital needs and risk for building alternative fuel projects. One way these partnerships could take form could be through long-term clean shipping contracts and offtake agreements. These reduce uncertainty for investment in the maritime fuel transition by establishing known prices and quantities of clean shipping services and alternative fuels. Consider this illustrative example: first, an environmentally conscious shipping customer, Amazon, pays a premium contract to Maersk to move freight in a sustainable manner; next, Maersk has the certainty to purchase new methanol-powered ships and sign long-term off-take agreements with renewable methanol producers for the amount of fuel to uphold their new contract; finally, the renewable methanol producers themselves have an agreement from a creditworthy customer – a high certainty of future cash flow – they can use to convince equity partners and project debt providers to help finance a new fuel production project.
Additionally, reducing the cost and risk associated with investing in the maritime fuel transition could be accomplished by maintaining or expanding clean energy tax credits and enacting policy restrictions on greenhouse gas emissions. The combined inclusion of the maritime sector in the EU’s Emissions Trading System (ETS) and FuelEU Maritime is an example of regulating maritime shipping emissions which other nations could opt to follow. With 40 percent of all containerized trade passing through Europe, the U.S., and Asia, U.S. and Chinese emissions regulations alone could have a pronounced influence on global clean shipping adoption. Without emissions regulations, shipowners transitioning to cleaner but more costly fuels could be undercut by their competition. Should a level playing field be enabled with regulation, the incremental costs of maritime fuels could be passed on to customers and diluted: for instance, a 50 percent shipping premium worldwide would likely only increase global prices 0.18 percent and reduce global GDP by 0.08 percent.
Lastly, moving fuel and fuel feedstock in a cost-effective manner will require large amounts of fluid and power transmission infrastructure. Rural areas rich in renewable resources and buildable land suitable for clean fuel production are usually far away from the densely developed coastal areas where fuel will be bought and traded. Transmission infrastructure, though great for moving fluids and power vast distances at low cost, has been notoriously difficult to permit and build – notably in the U.S. Several solutions exist to facilitate the deployment of transmission infrastructure including the use of existing pipelines and rights of way, proper community engagement techniques, and optimal project siting.
Bringing the maritime sector to net zero will require significant effort by shipbuilders, shipowners, shipping customers, fuel producers, and policymakers. While fossil fuel LNG offers a cost-competitive, cleaner alternative to fuel oil today, alternative fuels that offer a more complete reduction of emissions lack the necessary scale and cost to be adopted. Without significant advances in clean fuel production technology and cost, the end customer will be the ultimate deciding voice in the matter. They need to either signal they are willing to pay a premium for clean attributes of the products they consume or elect policymakers likely to enact regulations to limit shipping emissions. Consumer inaction will ultimately preclude the complete, timely decarbonization of shipping.
If you are interested in finding out more about ClimateCAP, The Goizueta Energy and Clean Tech Association (GECTA), or my research, please contact me at sam.haber@emory.edu.
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