Three pathways to shipping’s decarbonization

The world has been set an ambitious but critically important goal: to keep global warming “well below” 2°C, making efforts to achieve 1.5°C relative to pre-industrial times – as set out in the Paris Agreement. In this context, emissions of greenhouse gas (GHG) from ships will need to reduce so that the shipping industry ensures its contribution to achieve the goal. This means a transition towards a fully decarbonised shipping system. A transition in line with the IMO’s vision of a complete phase out of fossil fuels or one that allows meeting the IMO’s ambition to reduce GHG emissions by at least 50% relative to the value in 2008 by 2050.

It is estimated that approximately 3% of GHG emissions come from shipping activity and this is due to the use of ‘bunker’ fuels. Since steam replaced wind as the main means of propulsion, ships have relied on ‘dirty’ fossil fuels. These fuels release carbon dioxide and are the main source of the increasing contribution of shipping to the global GHG emissions.

There is a steady and growing recognition amongst an increasing number of shipping stakeholders that the long-term solution to tackling the issue of shipping’s decarbonization is to switch to ‘net’ zero carbon fuels. At the end of January this year, Lloyds Register in collaboration with UMAS launched a report called “Zero-Emission Vessels: Transition Pathways” (ZEVs). This study assessed ways in which shipping can switch to net zero carbon fuels.

The Lloyds Register/UMAS study outlines three potential pathways to zero emission vessels. These pathways set out a number of key milestones that need to be achieved in order to drive forward a rapid shift in technology development and deployment that would allow the shipping industry to reach decarbonisation by 2050.

Drivers of change

There are at least three main areas that will drive the switch to net zero carbon fuel: the economic performance of the ZEVs, environmental considerations, and the development and implementation of international regulations and policies.

The future competitiveness of a ZEV is a key driver for change. The transition pathways study looked at this in great detail across a variety of ship types and sizes. Two key drivers for the uptake of ZEVs were identified as the future price of energy sources (renewable electricity, natural gas and biomass) and the associated future price of the net zero carbon fuels. Future fuel prices are an extremely important driver as voyage cost is one of the main costs to consider when assessing the economic performance of a ship. Moreover, relative to the oil fuels, the net zero carbon fuels have different physical characteristics which influence how these fuels are handled and stored which may result in additional costs. Characteristics such as a lower energy density will require larger volumes of fuel to be stored on vessels; technology for generating power from the fuels such as fuel cells are likely to take up more space than conventional fuel storage; and engine technologies. These factors are likely to have an impact on cargo capacity and higher costs for storage and propulsion technologies. Understanding and optimizing these types of costs will be a key driver for the competitiveness of a ZEV.

In addition to economic implications, environmental considerations are another important driver of change. Future fuels that are able to meet expected standards in terms of GHG emissions plus other emissions such as SOx/NOx, particulates etc., and which contribute to broader sustainability criteria will increase their acceptability to stakeholders as potential options for maritime applications.  Net zero carbon fuels will also need to satisfy more stringent requirements in regard to emissions of air pollutants which are likely to increase at regional and national level.

A key aspect in the decarbonization of shipping will be the development and implementation of strong international regulations and policies. At a global level progress in GHG policy is very important. Shipping policies entering into force over the short and medium term are likely to have a very significant impact on what technologies are developed and deployed. There are a growing number of regional, national and even port-based regulations and policies that are having impacts on the viability of certain existing technologies. Further development of such regulations and policies is beginning to provide signals that there is a clear intention to reduce GHG emissions and the environmental impact of international and national shipping. These actions are beginning to provide increasing certainty in the sector which can assist the enabling of finance for strategic investments aiming to ensure the supply of net zero carbon fuels to the most suitable ships.

Necessary and reasonable solutions

The transition pathways study aimed to evaluate the solutions that are in-line with a decarbonization trajectory whilst at the same time being realistic in terms of technological solutions. It did so by identifying those technologies that will have the best chance to compete in a much more dynamic marine fuels market in the future.

The study identifies three possible pathways. The first is based on a large availability of renewable electricity and as a consequence electric fuels are the dominant fuels in shipping. Fuels and technologies including hydrogen and ammonia produced through electrolysis in addition to other fuels such as e-methanol along with energy storage technologies e.g. batteries could form the major share of the future fuel mix. The second pathway is based on the development of biofuels; assuming a fundamental change in large areas of land use is acceptable and sustainable, this pathway sees ‘bio-gasoil’ and bio-methanol covering a major share of the fuel mix. Finally, the third pathway is made up of a mix of electric-fuels, biofuels, and hydrogen and ammonia produced from natural gas with carbon capture and storage (CCS); this pathway is named the ‘equal mix pathway’.

Hydrogen and ammonia can play a key role in the first and third pathways. Whether they are produced from renewable electricity or natural gas with CCS, there are conditions under which these fuels can close the competitiveness gap with conventional fossil fuels, therefore increasing the uptake of ZEVs. The study quantifies these conditions at fleet average level. On the one hand, these conditions are linked to the “fuels development” e.g. cheap renewable electricity or natural gas in strategic locations. On the other hand, these conditions are linked to the future development of key technologies for the production (e.g. electrolyser and CCS) and for on board use (e.g. fuel storage systems, fuel cells). On the question of hydrogen versus ammonia, the development of hydrogen storage technology could reduce its costs and make direct use of hydrogen more competitive relative to ammonia. For large ships the implications for cargo capacity could compromise hydrogen competitiveness against ammonia (and e-methanol) despite a great reduction in storage cost.

In all pathways, biofuels (bio-gasoil and bio-methanol) would be part of the fuel mix. However, in the second pathway, the assumed large availability of worldwide bio-energy capacity drives competitive prices for these fuels which in turn makes them the most reasonable option.

There are also common milestones in all three pathways such as policy pressure, the minor role of LNG and batteries, and the public sphere pressure.

The first is the relatively strong policy pressure which includes policy to stimulate R&D, prototypes and pilots in the early 2020s. This is followed by command and control regulations in various combinations with economic instruments, for example a price on carbon.

A minor role is seen in all pathways for LNG. LNG’s viability is influenced by two elements: the extent the required GHG reduction is derived from in-sector efforts rather than enabling carbon market linkage, and whether it is possible to rapidly ramp-up LNG infrastructure and achieve the return needed on these investments over the period that it remains in demand. In all pathways it was assumed that despite an initial use of LNG as fuel, in the medium-term natural gas would find a greater opportunity as a feedstock (in combination with CCS) to produce hydrogen and ammonia. Other fuels such as bio-LNG and e-methane could find a minor role in the market, exploiting the potential use of existing LNG infrastructure.

Batteries used on board vessels with an electric motor as the main propulsion system can play a role as a suitable energy source for very small ships (e.g. small RoPax and small cruise vessels) and over short distances. The high cost of batteries and relatively high energy volumetric density create significant limitations for their use in any other type of ship even when factoring in a reduction of bunker capacity.

Public sphere pressure is also very important in all pathways. First adopters are likely to be driven by an expected increase in consumer pressure in the sectors to which they are most directly linked e.g. cruise, RoPax and container shipping sectors and port areas. The pressure to reduce emissions in port areas highlights the importance of the role of ports and national administrations in providing incentives in the short-term.

Call for actions

The study focused on a subset of the fleet and specific fuel pathways. The results indicate that there are a number of options and combinations of options that will need to be developed and deployed over time in order to drive the decarbonization of the sector. This means that the identified milestones could be very different from ship to ship and location to location. In addition to the geographical differences, the variety of types and sizes of ships is another element that stresses the importance to focus on a greater level of detail specifically in relation to ship type and size (in addition to operational factors such as trade routes etc.,). They will facilitate the identification of valuable propositions that fit the specific commercial interest of stakeholders.

In conclusion, our work indicates that it is very likely that marine net zero carbon fuels will be produced from either renewable electricity, biomass and natural gas with CCS. The development of infrastructure for these fuels will be scaled based on the analysis and learning from first adopters’ demonstration projects and feasibility studies. It is clear that it is time to allow new choices and more collaboration which will enable informed strategic decisions and business optimisation.