Report: Targeted Subsidies, Hefty GHG Levy Needed to Ensure E-Fuel Adoption
A new report looking at what will be needed to spur the transition to e-fuels and the early adoption in the maritime sector concludes that targeted subsidies and a hefty GHG levy are needed to close the gap between scalable zero-emission fuels and other compliance options. The analysis was timed to the International Maritime Organization’s upcoming negotiations ahead of the Maritime Environment Protection Committee (MEPC) meeting this summer to adopt the second phase of the strategy for the decarbonization of the shipping industry.
“The path the sector is on now requires urgent and drastic correction from both commercial and policy actions to avoid significant risks to the sector and global trade,” warns the report presented by the UCL Energy Institute and maritime consultancy UMAS. “Without maximum efficiency,” the report warns, “the transition will be more expensive, more difficult and disruptive, and more prone to failure and delay.”
The research set out to explore how the transition can be stimulated, coordinated, and delivered, not just by the IMO, but also national governments, regional bodies, and industry stakeholders. They analyzed the viability and costs of the IMO’s Revised Strategy targets released after the 2024 MEPC session.
The study concludes that the transition from fossil fuels in shipping has much in common with other transitions but that current policies of fuel standards and a flexible financial mechanism, even with a multiplier that boosts credits for e-fuel, are unlikely to start an e-fuel transition before 2040. Further, they warn the industry risks becoming locked into alternatives that could make long-term decarbonization goals more difficult.
“This new analysis shows that the market will struggle to make an e-fuel business case before 2040, and therefore e-fuels such as green ammonia will not be available for shipping’s use in any volume,” says Dr. Tristan Smith, Professor of Energy and Transport at the UCL Energy Institute. “Some suggest that the role of a GHG levy is only for addressing equity, this study shows that it is not the only role, it is also a critical enabler of shipping’s energy transition and for minimizing the long-run costs to trade.”
GHG pricing starting at $30 per tonne of CO2e, the research warns looks unlikely to provide certainty of support to enable the energy transition to start and scale through the 2027-2035 period, and certainly would be unable to additionally support a just and equitable transition. They conclude that GHG pricing starting at $150 per tonne of CO2e, could generate sufficient revenue to support both the energy transition and ensure a just and equitable transition for affected communities.
Using the total cost of ownership approach, the study modeled a 14,000 TEU container vessel with different technology and fuel options. They used this to evaluate the effects of policy combinations (including a GHG Fuel Intensity (GFI) requirement, flexibility mechanism, and a levy and subsidy/reward mechanism) currently under discussion at the IMO.
They believe the early low-cost routes to compliance could become uncompetitive within a decade. The study says that early action is needed to support e-fuels to bridge the gap between e-fuels and low-cost early compliance options such as LNG, biofuels, and carbon capture and storage. They believe that a GHG levy and targeted incentive for e-fuels, such as a subsidy/reward that would be derived from the GHG Levy, is critical to ensure the industry is moving quickly on the correct transition course. The report says that there are political, technical, economic and commercial requirements to deliver on the goals for decarbonization.