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Report: Financial and Regulatory Barriers Delay Zero-Emission Fuel Supply

zero emission fuels
Barriers are holding back the projects needed to produce shipping's zero-emission fuels

Published Dec 4, 2023 2:29 PM by The Maritime Executive

 

Zero-emission fuels such as methanol and ammonia are an important focus in the efforts to reach the shipping industry’s decarbonization targets, but a new report highlights that leaders across the industry believe financial and regulator hurdles are slowing the developments. Presented as a perspective on how to start addressing the barriers affecting zero-emission fuel projects, the report calls for unconventional partnerships and business models supported by regulatory and financial collaborations to overcome the barriers to lay the foundations for a zero-emission future in shipping.

While there has been a lot of publicity and discussion about these zero-emission fuel projects, the report concludes that “more than 95 percent of the projects centered on producing these fuels have not yet passed the final investment (FID) phase.” They highlight that this is despite the rising demand for the fuels as indirectly indicated by the more than 180 dual-fuel ships already on order and more planned. 

“We are in the middle of what needs to be the decade of action if maritime shipping is to achieve net-zero emissions by 2050,” writes Mette Asmussen of the World Economic Forum and Peter Jonathan Jameson of Boston Consulting Group in the forward of their new report. “We need to eliminate these emissions through scaling of technologies that can power deep-sea vessels.”

Despite the positive momentum, the report highlights that the shippers and carriers that helped to launch the First Movers Coalition for shipping in 2021 are saying that barriers in the maritime value chain and beyond are hindering decarbonization from progressing at the speed needed.

Interviewing industry stakeholders, the report highlights that the nexus between demand and supply is an important dynamic and will help to increase the confidence to invest in the supply side. The interviews with more than 20 stakeholders shed light on the barriers that they believe are holding back the investment decisions and progress that is required.

Ten barriers were identified as limiting the projects from getting past the key FID milestone. The report categorizes the barriers into segments including customer and consumer demand, economic and financial issues and regulatory, as well as supply chain and infrastructure challenges and organizational issues within the companies. They point to issues such as the “green premium” and the lack of clear signals and willingness to cover the costs as well as the gap in offtake agreements and the lack of credible cost estimates. 

Existing financial instruments and funds they also conclude are “not fit for purpose in terms of horizons and risk appetite.” At the same time, they point to a lack of near- and mid-term mandates or a global carbon price. Finally, they point to infrastructure issues for the storage and transportation of e-fuels.

The report concludes that while collaborations are underway to overcome the barriers, more needs to be done to get the first movers to take bold actions to advance the development of alternative fuels. “Although daunting, these barriers need not all be overcome simultaneously,” the report asserts. 

They call for steps in addition to the support of green corridors that can consolidate shipping’s demand for methanol and ammonia with other sectors to hedge end-market risk. They also see the need to drive offtake agreements suggesting steps including reverse auctions using public-private demand aggregation. 

The report also calls for using innovative contracting and financing mechanisms. They suggest that steps such as capacity payments, dynamic contract pricing, and offering equity stakes to strategic buyers could help to overcome the current financial challenges.

The report follows on from a statement last Friday, December 1, by five of the CEOs of the largest shipping companies highlighting the challenges they see in meeting the decarbonization objective. Their message called for greater collaboration and regulator efforts to support the industry during this period of transition.