The Shipping Industry Won’t Meet its Decarbonization Goals without Investing More in Low-carbon Fuels

International shipping keeps the world’s economy afloat, carrying approximately 80% of all global trade from port to port — and emitting substantial greenhouse gases along the way. Counted as a country, shipping would rank among the top-10 largest polluters globally.

To do its part in capping global temperature rise and averting the most dangerous impacts of climate change, the shipping industry must reach net-zero emissions by 2050. And momentum is building in this direction: The International Maritime Organization (IMO) recently set a target to hit net zero “by or around” 2050 depending on “national circumstances.”

While some have criticized the IMO's target as ambiguous, vague and "woefully inadequate," the path to meet even current commitments remains unclear. Today, almost all lower-carbon fuel sources for shipping are nascent and expensive, and some could even increase emissions if not done right. No clean and commercially viable solution has yet become available at scale.

Given these challenges, reaching net-zero shipping emissions by 2050 will require not just stronger commitments but a revolution in clean fuel technologies, efficient ship design and supportive infrastructure — coupled with extensive funding to enable this transition.

Why Is Decarbonizing Shipping So Important?

Most commercial shipping vessels currently run on heavy fuel oil, a thick tar-like substance which has been used in shipping since the 19th century. Heavy fuel oil has a high energy density, meaning it can propel ships a long distance on a small amount, and is relatively cheap because it is a byproduct of the oil refining process that produces diesel and petrol.

But these benefits come at a cost. Heavy fuel oil not only contributes to climate change — shipping is responsible for 3% of all human-driven emissions each year — but also creates myriad environmental and health risks. The sector accounts for 9% of sulphur oxide and 18% of nitrogen oxide emissions annually — harmful atmospheric pollutants that affect the respiratory system and cause acid rain. Heavy fuel oil also creates black carbon (soot), which, in addition to darkening the surface of the Arctic and amplifying global warming, poses human health risks such as heart and lung disease.

With maritime trade volumes set to triple by 2050, emissions will only continue to rise unless the industry takes swift action to correct course. While challenging, this transition presents a massive opportunity: New research commissioned by the High Level Panel for a Sustainable Ocean Economy (Ocean Panel) shows that measures to decarbonize shipping could result in annual emissions savings of 2 gigatonnes in 2050 — equivalent to taking over 400 million cars off the road every year.

What Progress Has Been Made So Far?

In 2011, the IMO set minimum fuel efficiency requirements for ships, marking the first-ever mandatory GHG-reduction regime in the international transport sector. Efficiency measures like slow steaming (reducing the speed of ships), bulbous bows (placed at the front of the ship to reduce drag and increase fuel efficiency), and propeller and hull upgrades have helped reduce the carbon intensity of shipping by over 30% since 2008. Using wind sails to assist propulsion can also help reduce fuel use by up to 30% when combined with energy-efficient ship designs like slender hull forms.

However, these solutions have only limited emissions-reduction potential. Most come with downsides, such as increased shipping times and costly retrofitting processes, and are best suited for smaller, slow-speed vessels with flexible schedules. With energy efficiency largely explored, the shipping industry will need to rapidly scale its use of low- and no-carbon fuel options to fill its emissions gap.

What Low-carbon Fuel Options Exist and How Do They Stack Up?

Estimates suggest that to align with 1.5 degrees C pathways, 5%-17% of shipping fuel will need to be zero-emissions by 2030, rising to 84%-93% by 2050. Currently, though, zero-emissions fuels are well off track to meet these targets, largely due to their higher economic, technical and infrastructural barriers compared to heavy fuel oil.

So, what are the options and can they help the industry meet its net-zero goals?

Liquified natural gas is only a stopgap solution.

So far, the only commercially viable alternative fuel for shipping is liquefied natural gas (LNG), which has been in use for around 20 years. LNG emits approximately 25% less carbon dioxide than conventional marine fuels, however, it is still a fossil fuel with a high risk of methane leaks. (Methane is a potent gas with 28-34 times the warming power of carbon dioxide.) Even the most popular LNG ship engine for cruises was found to offer no climate benefits, emitting up to 70% more life-cycle greenhouse gases than ships powered by conventional marine fuels, when methane leaks and upstream emissions are included.

Additionally, a recent study found that switching the global shipping fleet to LNG could lead to financial losses of up to $850 billion by 2030. This is based on the assumption that by 2030 the industry will be rapidly moving away from fossil fuels and expensive LNG-capable fleets will rapidly lose their value.

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Overall, many see natural gas as a temporary “bridge fuel” to aid the transition to zero-carbon fuels, but fewer than a third of shipping operators plan to use it in the next five years to avoid making what might turn out to be the wrong choice in a 20 to 30-year investment.

Methanol is popular but expensive.

Industry giant Maersk is already investing in “green” methanol, a climate-neutral fuel made from captured carbon dioxide and clean hydrogen (hydrogen produced using renewable energy with low to no emissions). Methanol can already be used in existing ships as it can be stored as a liquid at atmospheric temperature, and storage facilities are available at 88 of the world’s 100 largest ports.

However, the biggest obstacle to green methanol is sourcing its ingredients. The infrastructure to capture carbon dioxide and obtain hydrogen using renewable resources is not yet available at scale, leading to high costs. Unless incentives for growth are implemented, experts suggest other, more cost-effective fuels are likely to dominate the future market.

Ammonia and hydrogen are the best fuels long-term but will be slower to scale.

Ammonia — a renewable fuel made up of nitrogen and hydrogen — is currently one of the most promising solutions as it emits almost no carbon dioxide, has a high energy density and is relatively cheap compared to other zero-emissions fuels. However, using ammonia as shipping fuel involves safety hazards, primarily toxicity. Onboard and onshore staff must be specially trained and carry protective equipment, and vessels must be designed to a high level of safety to reduce the probability of leaks. This, along with the need to scale-up the production of green hydrogen, makes ammonia more costly than traditional fuels.

Hydrogen fuel is also increasingly seen as an important solution for decarbonizing shipping. If produced using renewable energy sources, hydrogen fuel burns with zero carbon emissions and water as the only byproduct. It also has approximately 3 times the energy density of heavy fuel oil and is non-toxic, colorless and odourless. However, hydrogen is a flammable and easily diffused gas; to use it as a fuel, crews must be specially trained and ships would need to implement costly infrastructure to store the hydrogen at cryogenic temperatures of -253 degrees C (-423degrees F) through pressurization. These safety concerns, as well as high retrofitting and operational costs, are deployment barriers shared with ammonia.

Biofuels and electric ships are helpful but limited in scope.

Biofuels and electricity are also being explored as alternatives to heavy fuel oil and are already seeing limited use when blended with other marine fuels.

Biofuels, which are made by converting biomass such as vegetable oils or animal fats into fuel, can be renewable and low in carbon emissions. However, their sustainability depends on the type of biomass and animal feedstock used to produce them. There are also ethical complications of cultivating resources for biomass where food could be grown instead. Significant environmental and economic barriers inhibit the large-scale adoption of biofuels, but there is increasing research into how they can help accelerate the low-carbon transition.

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A combine harvesting soybeans on a large farm field. While crops like corn and soy can be used to produce low-carbon fuels, cultivating farmland for this purpose can put strain on food systems. Photo by BanksPhotos/iStock

Electric battery packs and shoreside power are another zero-emission option for the global shipping industry. Given current infrastructure, electric options are only realistic for short-sea trades or small domestic ferries. However, they could increase if used in combination with other fuels; for example, in electric motors that could be charged from diesel-driven generators.

What Needs to Happen to Reach Net-zero Shipping Emissions?

There’s simply no way around it — before the shipping industry can transition to zero-carbon fuels, the generation of renewable energy must increase.

Producing fuels such as hydrogen, ammonia and methanol requires considerable amounts of energy, meaning these fuels can only mitigate overall emissions if that production energy is also decarbonized. For example, hydrogen fuel can be produced as a byproduct of fossil fuel refining, leading to significant GHG emissions and compromising its potential as a zero-carbon solution. Only 30% of the world’s energy is produced using renewables at present. While the clean energy transition is gaining momentum, it is not expected that the industry can produce enough zero-emissions fuel to reach net-zero targets by 2050 unless countries rapidly scale up renewable energy investment and deployment.

To truly align with the goals of the Paris Agreement, the shipping industry will also need stronger commitments than those set by the IMO’s 2023 strategy. This presents a major opportunity for shipping companies, national governments and other key players to show leadership on this issue. There has already been progress in this area with initiatives like the Green Shipping Challenge, launched by the U.S. and Norwegian governments at COP27 and supported by the Ocean Panel, which encourages governments, ports and companies to make commitments toward net zero.

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A large cargo ship sails past a wind farm in the Netherlands. Expanding renewable energy sources like wind power will be critical to producing zero-carbon shipping fuels at scale. Photo by kruwy/iStock

Countries can implement policy measures to incentivize this transition. The European Union moved in 2022 to include emissions from shipping in its carbon market (the EU Emissions Trading System), which will charge vessels a fee for emissions and aims to encourage the sector to expedite the transition. More examples of leadership like this will be needed on a global scale to achieve net-zero. Campaigners have also called for a levy on GHG emissions from international shipping, from which proceeds would help fund climate solutions in the developing world. While many, including the World Bank and national governments, support this proposition, it seems unlikely to be agreed before 2027 at the earliest.

Finally, the transition will require a massive increase in funding for low-carbon fuels and infrastructure. The process of making alternative fuels commercially viable, safe and reliable to use on vessels, scaling them up and deploying them across the global shipping industry will be expensive; estimates say it will cost around $1-$1.4 trillion to achieve the industry’s decarbonization goals.

The sector already has access to some finance mechanisms — such as debt finance from the current signatories of the Poseidon Principles amounting to more than $185 billion — and large shipping companies are expected to increase low-carbon investments in the future. The IMO’s 2023 strategy also creates a business case for both increasing public and private investment and aligning new and existing finance, which can help drive national and regional policy. But the main challenge will be financing these solutions in time to meet the goals of the Paris Agreement.

Charting the Course to a Zero-carbon Future

While the transition to zero-carbon shipping may be daunting, it also presents a unique opportunity. Not only can the sector help curb climate change, but it can become a leader in climate innovation, helping other energy sectors reach their decarbonization goals through the development of low-carbon fuel infrastructure. This shift can also improve coastal air quality, reduce human health risks and premature death from shipping pollution, and create jobs associated with new fuel supply chains.

As pressure mounts, the industry must accelerate transformative actions, increase funding, and adopt strong policy frameworks to ensure it can deliver this critical transformation on time.

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