Green Ship Fuels: Investment or Demand?

Credit: Venti Views/Unsplash
  • For the world’s commercial ocean shipping industry, it’s a long voyage to becoming carbon-neutral.
  • In 2020, worldwide shipping generated approximately 930 million metric tons of carbon dioxide, of which 140 million mt came from container ships, according to Statista.
  • Today, the number is close to 1 billion mt, or about 3 percent of all global emissions of CO2.

In the Switch to Green Ship Fuels, What Comes First — Investment or Demand?, intrigues a Supply Chain Brain news source.

The industry is acutely aware of the problem

The United Nations’ International Maritime Organization has launched multiple initiatives to cut greenhouse gas emissions from shipping by at least 50% by 2050, compared with levels of 2008. It has further pledged to phase out GHG emissions entirely “as soon as possible in this century.”

The World Shipping Council, representing liner shipping, has identified six critical regulatory and economic “pathways” to achieving zero-carbon shipping:

  • Establishment of a global price for carbon, combined with “buy-down” programs intended to level the playing field between greener modern-day ships and those still using conventional fuels;
  • Creation of a transparent, “well-to-wake” lifecycle analysis of fuels, to incentivize adoption of alternative and renewable fuels;
  • Integrated development of production and supply of zero-GHG fuels on a global scale, along with flexibility of implementation, in recognition that all parts of the world won’t be able to make the transition at the same pace;
  • Green Corridors Program, to speed up the transition to zero-GHG ships and fuels in coordination with shoreside energy infrastructure, incorporating both government initiatives and private investment;
  • New build standards for ships operating on zero-GHG fuels, and
  • Applied research and development for shipboard and shoreside systems, to ensure the safe use of zero-GHG fuels.

Key to the success of the decarbonization effort is the switch to green fuels. But the best type and exact price of those alternatives remain uncertain, and a potential roadblock to progress if all carriers don’t have equal access to them.

The container shipping industry needs to step up development of potential alternative fuels such as ammonia, methanol and synthetic liquefied natural gas (LNG), according to Jeremy Nixon, chief executive officer of Ocean Network Express and co-chair of WSC. “Many industries are competing for it,” he told the TPM 2023 conference in Long Beach, California, presented by the Journal of Commerce.

Cost is an issue

The new fuels are two to three times more expensive than current ones, a reality that could stall the transition to greener shipping if the investment decision is left up to individual carriers.

It’s important that early adopters not be disadvantaged. “We as carriers will pioneer new green solutions,” Nixon said, “but if our competitors are running at $1,000 [per 40-foot container in fuel costs] and we are at $3,000, we can’t survive.”

Regulators need to step in by setting a carbon price and reaching agreement on which fuel types to use, leveling up the cost across all carriers, Nixon said.

The shipping industry needs to spend some $3 trillion on new ships and fuel systems to reach the goal of zero-GHG, he said. “We need to all work collectively to decarbonize and green the world, and pass on costs in a logical and transparent way, right to the end-consumer.” Ideally, that means that every product in the retail shelf would bear a label indicating its CO2 footprint.

The assumption is that consumers will be moved to buy from greener producers, and that appears to be increasingly the case. Julia Bedanova, chief operating officer of baby furniture seller Million Dollar Baby Co., cited a 2022 study by BCG that 82% of shippers are willing to pay a premium for zero-carbon shipping. That’s an increase of 11% over 2021.

Supply chain partners offer carbon offsets

Million Dollar Baby’s supply chain partners offer carbon offsets for every shipment that it books with them. “It’s made me a more loyal customer,” Bedanova told TPM23. “Shippers and brands need to come to the table and say, ’We want this and are willing to pay a premium.’”

There’s a chicken-and-egg aspect to embracing green shipping technology. Does investment precede customer demand, or vice versa? “We need a big spike in demand [for alternative fuels],” said Paolo Montrone, senior vice president and head of global trades with freight forwarder Kuehne & Nagel. He said the industry can’t use the current scarcity of biofuels as an excuse for inaction. (Methanol, for one, has yet to be approved by IMO for use in ship engines.) The implementation of carbon taxes and other environmental regulations in Europe and the U.S. is forcing carriers to strive for zero-GHG operations.

“There will be a cost to not being green,” Montrone said at TPM23. At the same time, “it’s an opportunity to show you’re competitive, because the end-consumer is definitely interested in this.”

Nixon insisted that the shipping industry’s push for zero GHG should be centered on collaboration, not competition. He cited the work of the Global Centre for Maritime Decarbonisation, formed in Singapore in August, 2021 by the port and private shipping entities. Only through an industry-wide effort can carriers ensure the availability of green fuel options, he said.

There’s no time to waste, Nixon said. “We signed up for net-zero by 2050. We’ve got to start investing in assets right now that can use green fuels.”


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Source: Supply Chain Brain


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