Major shipping companies have largely aligned their net-zero targets with the International Maritime Organization's mid-century time frame, but further regulatory efforts may be needed to ensure the production of enough sustainable marine fuels for the industry to meet the UN agency's mandate.

The currently limited supplies of green fuels, and their higher cost compared to traditional fuels, might not prevent shippers from meeting 2030 interim targets for greenhouse gas emission cuts. For those, companies may be able to rely heavily on deploying energy-saving equipment and optimizing operations.

But for deeper decarbonization, the industry must have robust volumes of green fuels available, and at reasonable prices.

"It will require new fuels ... from the time after 2030, this will be very much about availability of green fuels," said Philipp Niesing, head of marine decarbonization solutions at MPC Capital, an investment firm and asset manager that leases vessels to major ship operators.

Uncertainty about future green fuel supplies, including exactly which fuels are most likely to be available, has discouraged many shipping companies from outlining detailed pathways to decarbonization. And of the 10 largest shipping companies by market capitalization that have set interim goals, such as for 2030, some have been less ambitious than the IMO.

The IMO's targets for reducing lifecycle GHG emissions for shipping — agreed by member states last year — aim for net-zero by or around 2050, with interim cuts of 20%-30% from 2008 levels by 2030, and 70%-80% by 2040.

Those targets demand "swift action, substantial investment and technological innovation," said Jesse Fahnestock, director of decarbonization at industry body Global Maritime Forum. "[That] may be challenging for companies to achieve within the given time frame."

Without specific pathways to meet 2030 and 2040 targets, there also is not enough pressure on shippers to take action, said Jean-Marc Bonello, principal consultant at UMAS International. Bonello warned that companies can delay taking significant steps toward earlier targets, while using "net-zero by 2050" as an "easy tagline" to show off their green credentials.

Multifuel future

Industry debates over the future of ship fuels, also called bunker fuels, have persisted for years. Many analysts expect to see a much more diverse bunker fuel mix by 2050 as shipping firms decarbonize.

Joe Bettles, market analyst at the Maersk Mc-Kinney Møller Center for Zero Carbon Shipping, said it would be "prudent" for shipping firms to be fuel-agnostic, as supplies of any one green fuel may be inadequate to decarbonize the whole industry.

"In order to have enough low- and zero-carbon fuel overall, we may need a portfolio approach with ultimately multiple different sustainable fuels as part of the fuel mix," Bettles said.

Excluding biofuels, low-carbon alternative energy sources such as ammonia, methanol and hydrogen are expected to account for 33.2% of global bunker consumption in 2050, compared with just 0.6% in 2023, according to S&P Global Commodity Insights analysts. In addition, LNG is expected to account for 15.6%, while traditional bunker fuels such as fuel oils and gasoils are still projected to account for over 46.5% that year.

Shipping companies have been adapting to such projections, with some forced to pivot away from initial plans to focus on a particular fuel after realizing that supplies would lag demand by a wide margin.

According to data from ship classification society DNV, 16% of the global newbuild orderbook as of August was made up of vessels capable of running on non-oil fuels. Nearly 9% of the orderbook is for LNG-capable vessels and 5% is for ships able to run on methanol.

Such ships generally come with a dual-fuel design that allows them to also run on conventional, oil-based fuels and could cost 15% to 25% more to build. Bettles said the extra build cost is "manageable," however, and worth paying to get fuel flexibility for a vessel's lifespan of 20 years or more.

A.P. Møller - Mærsk A/S, for example, one of the world's top three container lines by shipping volume, had initially chosen methanol for its future fuel needs and is already due to receive at least 36 methanol-capable vessels via newbuilds and retrofit projects between 2023 and 2027, according to company announcements.

In August, however, Maersk outlined plans to acquire up to 60 newbuild container ships designed to be powered by conventional, oil-based fuels and either methanol or LNG in 2026–2030. Previously, Maersk avoided including LNG in its future plans. The fossil fuel has 20% to 30% lower GHG emissions than conventional oil-based marine fuels, but using green methanol can cut emissions by at least 65%.

During Maersk's second-quarter earnings call, CEO Vincent Clerc said the changed stance was due to "a high level of uncertainty" about future prices and availability of green fuels, and regulatory regimes for GHGs.

"This is an opportunity to balance out bets. ... [So] we don't suddenly have disadvantages for one reason or another," Clerc said, adding that methanol, LNG and ammonia could all be future fuels and that oil-based bunker fuels would remain for many years.

Maersk is also looking to use biomethane in its LNG-capable ships for deeper decarbonization. The company has a more ambitious net-zero time frame than the IMO's, aiming to hit that target by 2040.

Chicken-and-egg dilemma

Even as shipping companies adjust vessel orders to reflect possible fuel futures, the fundamental chicken-and-egg dilemma for green fuel supplies remains unsolved. While most prospective fuel producers are only willing to ramp up output after securing long-term offtake deals, few shipping firms are willing to commit to those, despite many ordering dual-fuel ships. Observers said the latter's reluctance stems from high prices for green fuels due to their scarcity.

"The substantial cost gap between conventional fuel and green methanol and ammonia remains the biggest blocker to uptake of zero-emission fuels," Fahnestock said. "There is also a mismatch between what zero-emission fuel producers need to kickstart production projects and what shipping companies are currently willing or able to commit to."

The August average price for 0.5%-sulfur marine fuel oil, the prevalent bunker type, stood at $13.24/gigajoule in Rotterdam, according to the Platts assessment by Commodity Insights. This compares to $18.10/GJ for delivered gray methanol bunker, produced using fossil fuels, and green methanol can cost at least twice as much. The green ammonia price on a cargo basis for delivery into Northwest Europe is $50.02/GJ.

There is growing awareness that policy changes are needed to help solve the problem, but even ambitious regulatory regimes may not be enough, depending on their scope.

The EU, for example, extended its Emissions Trading System to cover shipping as of 2024 and will introduce GHG standards for marine energy from 2025, but many industry players are calling for global regulations due to the cross-border nature of the sector.

One global option under consideration involves a GHG tax for fuels. In 2025, IMO member states are due to finalize new technical and economic regulations for marine fuels, for implementation starting in 2027. This could include a GHG tax of $100 per metric ton of CO₂ equivalent or more.

Shipping players said such a tax would be essential to make green fuels more competitive. Although some shippers and cargo owners, such as members of the Zero Emission Maritime Buyers Alliance, are voluntarily paying more to transport their goods on ships fueled by sustainable fuels, they are small in number and not sufficient to lead to industrywide decarbonization.

EXPLORE FURTHER: See the top 10 maritime shipping companies' net-zero and related emissions reduction goals. Click here for the downloadable file.

"Achieving the ambitious 2030 and 2050 IMO targets will depend on effective measures put in place by the IMO," Bettles of the Maersk Mc-Kinney Møller Center for Zero Carbon Shipping said. "In the absence of effective policy that creates the right incentives, the cost gap between sustainable alternatives and fossil fuels is too big to close through voluntary action."

MPC's Niesing suggested that regulations are needed to prompt shipping companies to sign long-term procurement deals for green fuels, which would facilitate more investment in production.

"You cannot wait for the end customers to voluntarily pay a green premium for the transportation," Niesing said. "You need legislation, to really progress in terms of decarbonization."