Green shipping corridors could significantly benefit from a global fuel standard and regional policies, yet they require additional support to achieve early adoption, according to a new report.
The Current State and Future Outlook
Under current and proposed policies by the International Maritime Organization (IMO), the European Union, and the United States, the case for green shipping corridors will improve but fall short, according to a recent report by UMAS, UCL, and the Global Maritime Forum. The report, titled ‘Building a Business Case for Green Shipping Corridors’, examines the commercial hurdles facing green shipping corridors and how future regulations might influence their viability.
Understanding the Challenges
Green shipping corridors focus on establishing the maritime value chain for sustainable fuels such as hydrogen-derived e-ammonia and e-methanol. So far, these projects have struggled with a significant cost gap. However, as global and regional policies evolve, the economic case for these initiatives will begin to improve. Despite this progress, targeted support will still be necessary to ensure the uptake of e-fuels.
The Role of Regulations
Policies like the IMO’s new Global Fuel Standard (GFS), the EU’s Emissions Trading System (ETS), and the US Inflation Reduction Act (IRA) are crucial in reducing the costs of green shipping corridors. These policies play a vital role in facilitating shipping’s transition to renewable energy sources. However, they alone are insufficient to fully bridge the gap between the cost of e-fuels and other compliance options.
Opportunities and Options
The report explores potential opportunities for green shipping corridors in three shipping sectors: gas carriers, container ships, and bulk carriers. It highlights how a combination of public and private efforts could accelerate the early adoption of e-fuels. Over the near term, biofuels and blue ammonia are currently the lowest-cost options, but as production costs fall and compliance requirements become stricter, scalable e-fuels like e-ammonia are expected to become more competitive.
The Importance of Green Shipping Corridors
With 62 green shipping corridor initiatives already announced, support for these pioneering projects is essential to develop sustainable fuel production and invest in necessary infrastructure. These early mover projects will pave the way for the wider decarbonization of the shipping industry.
“Upcoming regulation will shift the business case for green shipping corridors – as well as shaping how the wider shipping industry approaches compliance. To fully bridge the cost gap, however, targeted support for e-fuels is needed. But this short-term support will pay future dividends by ensuring that scalable and sustainable fuels are available to the wider industry when needed,”
The Need for Targeted Support
According to the study’s authors, without clear demand signals and additional public support, bridging the cost gap on e-fuels will be challenging. Without such support, some of the announced green shipping corridors risk failing to fulfill their role as first movers.
“The findings of this study make it very clear that without clear demand signals and additional public support over the near term, closing the cost gap on e-fuels will be challenging. Without this support and guardrails on fuels, some of the announced green shipping corridors are at risk of failing to fulfil their crucial role as first movers, and stalling before implementation or gravitating towards least-cost compliance options,”
Collaboration and Investment
Strategic partnerships across the value chain are essential for sharing risks and rewards, ensuring equitable cost distribution, and advancing green shipping corridor projects. Long-term commitments from cargo owners and ship owners will help de-risk investment and drive e-fuel adoption.
“The most important role Green Corridors can play is to coordinate and kick-start the value chain for tomorrow’s shipping fuels. Participants in corridors will need to be creative in how they leverage a range of regulations, but it’s clear from this work that the scale of their impact will depend on policymakers delivering targeted support for e-fuels,”
Actionable Solutions
To accelerate progress, the report outlines actionable solutions for industry and policymakers. Business models will need to adapt to comply with incoming regulations, and mechanisms such as contracts for difference (CFDs), e-fuel auctions, and multipliers for achieving compliance with e-fuels are crucial.
Economic Support
Economic support could be provided through a levy on shipping industry emissions, which the IMO could underwrite. In the absence of a global levy, national governments may need to directly support corridor projects.
“It is clear that there is increasing recognition by governments that a levy-based fund and reward mechanism, complemented by an IMO fuel standard, is the best way forward,”
Last month, the ICS and 47 governments jointly submitted a text for a future mandatory GHG emissions pricing mechanism for the global maritime industry.
Conclusion
The journey towards a greener maritime industry is complex and requires a concerted effort from policymakers and industry leaders. By implementing targeted support measures and fostering strategic partnerships, we can overcome the challenges and unlock the potential of green shipping corridors.
Your Thoughts?
We value your insights on this critical issue. What strategies do you think are essential for promoting the adoption of green shipping corridors? Share your thoughts in the comments below, subscribe to our newsletter for more updates, or join the conversation on social media.