Zero-carbon shipping: A sea of opportunities for developing countries

The obstruction of the Suez Canal earlier this year served as a vivid reminder of the importance of maritime transport for economies around the globe. The blockage was resolved within a matter of days, but a much more existential challenge remains for the shipping industry.

Simply put: How to tackle climate change?  The maritime transport industry is under increasing pressure to curb its greenhouse gas (GHG) emissions, which account for approximately 3% of global emissions annually.  The sector is highly dependent on heavy fuel oil—a high-carbon fossil fuel that closely resembles tar. In light of this, decarbonizing the current global sailing fleet of approximately 100,000 ships represents a mammoth task that will require more energy efficient ships as well as revolutionizing the industry’s entire fuel supply chain.

A new World Bank report, “The Potential of Zero-Carbon Bunker Fuels in Developing Countries,” finds that energy efficient technology alone will not be enough to decarbonize the industry. Rather, the feasibility of reaching net-zero emissions hinges on the adoption and use of zero-carbon bunker fuels. Moreover, a second report, “The Role of LNG in the Transition Toward Low- and Zero-Carbon Shipping,” shows that alternative fuels like liquefied natural gas (LNG) have an uncertain, and at best limited, GHG reduction potential.

So, what are the most promising options available to inform the decarbonization of the shipping industry? Leveraging expert support from the University Maritime Advisory Services, the World Bank analyzed three categories of future zero-carbon bunker fuel options:

• Biofuels: Biofuels (such as biomethane, bioethanol and biomethanol) are produced from a biogenic feedstock which is currently derived from plants, agricultural waste, or in the future, algae. Biofuels emit CO2 when burned in an internal combustion engine, but retrieve CO2 from the atmosphere during the production of their feedstock. Thus, they are usually labeled as net-zero fuel from a lifecycle perspective.
• Ammonia and hydrogen: The second category of zero-carbon fuels considered were “green” and “blue” ammonia and hydrogen. Green hydrogen is produced from water using renewable electricity, while blue hydrogen is made from natural gas making use of carbon capturing and storage technology. Either kind of hydrogen can then be used as a fuel or be further processed into ammonia. Both hydrogen and ammonia can be used in internal combustion engines and fuel cells.
• Synthetic carbon-based fuels: Synthetic carbon-based fuels, such as synthetic methanol and synthetic methane are produced by combining green or blue hydrogen with carbon retrieved from the atmosphere.

After assessing each zero-carbon fuel’s features from an environmental, economic, and technical perspective, ammonia and hydrogen stood out as the most promising future zero-carbon bunker fuels due to their scalability, their cost-effectiveness, and low GHG lifecycle emissions in the long term. Furthermore, both fuels can be produced from either renewable electricity (resulting in “green” ammonia or hydrogen as the preferred option) or from natural gas, with the resulting carbon emissions captured and securely stored underground (resulting in “blue” ammonia or hydrogen as a potential alternative in the near term), thereby overcoming any concerns regarding production capacity constraints. The analysis conducted does not rule out biofuels and synthetic carbon-based fuels, but found some limitations regarding their sustainable large-scale availability and cost-competitiveness.

A shipping “triple win”: Cleaner, cheaper and a trillion-dollar opportunity particularly for developing countries.

According to estimates, decarbonizing shipping represents a more than $1 trillion investment opportunity for business and development.  The transition of the shipping industry toward ammonia and hydrogen is likely to change the landscape of the global bunker fuels market, creating new opportunities for developing countries, particularly for those with significant renewable energy resources, such as Brazil, India, Malaysia, and Mauritius. Future investments in this more inclusive and decentralized bunker fuel market will support developing countries general economic development, as well as help them achieve their wider energy transition flexibly and at a lower cost. A high-level assessment conducted within the report, outlines which countries are best positioned to become future producers, suppliers, or exporters of zero-carbon bunker fuels.

To initiate and accelerate shipping’s energy transition the playing field between polluting and non-polluting fuels must be levelled,  for example through the implementation of a meaningful carbon price. This would compel ships to pay for each ton of GHG released into the atmosphere, applying the “polluter pays principle”. Revenue generated from such a mechanism could be used to fund further research on zero-carbon fuels, as well as support a fair energy transition in developing countries that need it most, such as small island states.

While a meaningful carbon price would create enabling conditions, the uptake of zero carbon fuels can ultimately only be facilitated through global cooperation between ship owners, shipyards, engine manufacturers, fuel producers and distributors, classification societies, and charterers. Progressive organizations such as the Getting to Zero Coalition, play a crucial role in fostering such cross-industry alliances. Until zero-carbon bunker fuels become available at scale, ship owners are encouraged to invest in no-regret options such as energy efficiency and maximum fuel flexibility technologies.

While decarbonization may look daunting as a large-scale transformative challenge, the shipping industry has already weathered three energy transitions during its long history (from wo/manpower to wind, from wind to coal, from coal to oil). Decarbonization of the shipping industry must be recognized as a once in a generation opportunity . Both developed and developing countries alike stand to benefit from a wide range of business and development opportunities as they tap into a more adaptive and accessible zero-carbon bunker fuel market.

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