The shipping industry is being blamed by climate activists for emitting a solid portion of the world’s atmospheric carbon dioxide. Under pressure, the industry has been trying to find an alternative to the traditional fuels it uses, all petroleum derivatives. It has, however, encountered a problem. All the potential—presumably greener —alternatives are so expensive, no one can afford them.
The shipping industry accounts for about 3% of global carbon dioxide emissions. For activists and politicians, this is too big a percentage, and it needs to come down. One of the ways to bring it down has been the idea of putting a carbon tax on ships. The International Maritime Organization shelved the proposal last year after months of discussion, but revived it this year following lobbying by the United States and Saudi Arabia.
On the face of it, the collapse of talks on carbon taxes, which would have encouraged the switch from petroleum fuels to alternatives with a lower emissions footprint, did not change the shipping industry’s intention to become greener. Yet, according to a new report from the Financial Times, the face of it is misleading.
The FT cited a recent survey that found shipping companies had all but quit trying to diversify away from hydrocarbons because hydrogen and other alternatives have remained stubbornly expensive, with no hope in sight that they would ever become affordable enough to make sense.
The report cited the International Chamber of Shipping’s latest Maritime Barometer Report, which found that shipping executives who believe ammonia would become commercially viable as fuel over the next ten years had fallen to 12% this year from 31% last year. The conviction that hydrogen would become a viable alternative to fuel oil fell by 18% to 10% this year, according to the survey.
On the other hand, industry executives’ conviction that traditional fuels are here to stay rose, with 50% expressing such conviction in this year’s survey, versus 41% in last year’s—and that’s despite the historic disruption of energy flows resulting from the war in the Middle East.
The results of the survey are in tune with other recent updates about green hydrogen that can be summed up with the observation that it is still out of reach as an affordable, widely available alternative to hydrocarbon fuels, despite the war-related surge in oil and gas prices. Germany, one of the champions of green hydrogen, earlier this year all but canceled one large-scale project due to “political and economic conditions”, even though it also approved 1.5 billion euros in government financing for another green hydrogen project.
Yet governments can afford to be generous with their financial support—until they run out of money. The shipping industry cannot afford to spend money on fuel alternatives that are not just too expensive and unlikely to become cheaper, but also in limited supply. The International Energy Agency earlier this year reported that the nascent green hydrogen has been plagued by project delays and cancellations, and downward revisions of production targets. According to one study released last year, only a meager 7% of 190 green hydrogen projects announced over three years were completed on schedule.
Green hydrogen, in other words, has been rather slow to take off, and that is not good enough for one of the world’s most essential industries. “Decarbonizing the maritime sector is a complex challenge that goes beyond shipping, closely tied to the global shift from fossil fuels to renewables,” Rystad Energy said last October. “Our findings suggest progress will likely lag behind the IMO’s current expectations due to infrastructure limits, technology readiness, and energy system interconnections. While the industry is committed, practical constraints demand a realistic approach.”
On top of this, the shipping industry is having to contend with a much less certain geopolitical environment, the International Chamber of Shipping’s survey concluded. “Global shipping is entering a period where uncertainty is no longer an interruption to business, it is the backdrop against which decisions are made,” the ICS said in June.
“Everybody wants to be green, nobody wants to pay for it,” one shipping executive said in comments on the ICS’s survey findings, as quoted by the Financial Times. This is a rather succinct summary of the overall energy transition landscape. Green premiums were meant to be something temporary, but with little evidence they are going to disappear in the observable future, those who have to pay them are naturally beginning to get cold feet.
Instead, shipowners are focusing on energy efficiency and hedging with dual-fuel vessels that can run on both traditional and alternative fuels. Should alternative fuels such as ammonia and methanol ever become commercially viable, the industry would be ready to embrace them. Until they do, however, it is sticking with fuel oil and liquefied natural gas.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com
