TOWARDS NET-ZERO SHIPPING
The shipping sector contributes about 3% of global green-house gas emissions. Although major international organizations like the IMO have set targets to reduce emissions, these targets are not in line with the IPCC’s 1.5-degree scenario.
Amplifier together with sus.lab have produced a comprehensive report towards zero-carbon emissions in shipping by 2050 for the Baltic and North Sea regions.
The report analyses new technologies, identifies gaps in infrastructure development, assesses the economic viability and opportunities of alternative fuels and discusses the impact for the environment. Moreover, this report will provide an actionable guideline for ship owners, port operators, investors and policy makers to support this transition towards a more sustainable and green future of maritime transportation.
The report was launched on the 28th of October at a special event in Hamburg, Germany
OUR FINDINGS IN A NUTSHELL
A little more than a year ago, IPCC published the 1.5-degree report – putting out the goal of “net-zero” by around 2050. This goal suddenly moved the need for action from the distant future into the immediate present. It also made it very clear that every sector will need a strategy for complete decarbonization – there will be very little room for compensation.
For shipping, this goal was translated into a 2030 target by the “getting to zero coalition” coalition, launched in September at the United Nations Climate Action Summit with over 70 signatories from the whole value chain, including for example Maersk, the Ports of Antwerp and Rotterdam, Shell and Unilever. The coalition set the target of “technically feasible, commercially viable, and safe zero-emission deep-sea vessels entering the global fleet by 2030”.
Shipping already has a broad portfolio of efficiency measures available that could be implemented immediately and profitably, with slow steaming probably being the simplest and one of the most impactful – but also route optimization, improved hull designs, and wind assistance.
Net-zero however also means that efficiency improvements will not be enough – we will need zero-carbon options like battery/ electric, hydrogen, and ammonia. So, over the last 4 months, we spoke to around 30 experts from the maritime industry, researchers and innovators, went through dozens of reports and finally distilled three focus areas for action.
Deploy fully electric and diesel/ electric hybrids at scale (new and as retrofits) on short distances up to ~100nm.
Pilot hydrogen and ammonia for larger ships and the longer distances that cause about 90% of total global maritime emissions.
Develop new business and financing models for zero-carbon fuels.
The main surprise was the economics: Battery/electric ships are already more profitable than diesel e.g., on many of the short-distance ferries in the Nordics. Predicted costs for hydrogen and ammonia vary widely, but with a chance of cost parity with MGO. Interestingly, while for current HFO and MGO engines the cost of fuel is the main cost driver, in the future there will be a much richer playground for optimization. Fuel cells, for example, have high CAPEX cost, but higher efficiency, smaller space requirements, significantly reduced maintenance and thus crew costs, as well as the potential for lifetime extension by smart load management. For hydrogen, tank costs are significant, so it could be worth adapting tank capacity to the journey or stopping more frequently.
Examples of new business models that could benefit from these cost-saving opportunities include new bunkering solutions like containerized batteries and energy packs, or offshore hydrogen bunkering stations. Fuel cells and batteries could also enable remotely/ autonomously controlled vessels, and first design concepts exist already
A second key outcome was that ammonia deserves more attention: Ammonia has only recently entered the discussion as a potential fuel but in our view has the potential to provide a faster route to scale-up than hydrogen, as the whole production and supply chain is more mature. Ammonia as it already produced at scale (140 mio tons per year) for the fertilizer industry and shipped globally on the seas. This also means that components like pumps, tanks, valves etc. are readily available at industrial scale and cost. Hydrogen is also already produced at scale from fossil fuels, however, for long distance shipping liquefied hydrogen would be needed – and for that the infrastructure and components for producing and handling is missing today.
All in all this means that we need pilots on the water. We need to test new combustion engines and fuel cells that will be coming on the market within the next 1-5 years, develop procedures for safe handling of ammonia’s toxicity and the -253 degrees of liquid hydrogen and get started on the cost reduction curve – in time for scale-up after 2030. Pilots will also act as a signal to the rest of the value chain that will unleash investments and help regulators with transparency on the cost gaps that incentives will need to cover.
Funding to get started is available today: The EU ramped up innovation grants for the shipping sector in 2019 and EUR 40 billion is expected for climate-related innovation as part of the ‘Horizon Europe’ 2021-2027 program. Also, national programs, venture capital funds, ship finance banks and opportunities to transfer costs to the end-customer can be leveraged to close the funding gap.
To conclude - the transition to zero-carbon fuels will certainly be challenging. Essentially, it requires building entirely new value chains from fuel supply to new shipping engines as well as the supporting financing and business models – all within the coming 10-15 years.
There are many uncertainties on technology performance and costs, the pace at which infrastructure can be developed, future carbon prices and on which technology will make it.
At the same time, there is a great opportunity, not only to radically improve the environmental footprint of shipping but also economically. One of our interview partners said that he sees the North and Baltic Sea region as the ‘Silicon Valley of zero-emission technologies’ for the shipping sector. We think the ingredients are all there – a strong ecosystem of all relevant players across the value chain, organizations and individuals willing and capable to take on the challenge and supportive financial institutions and regulators.