While considerable uncertainty still exists with this extrapolation, some observations and implications can be made from this graph:
· When entering into force in 2028, existing ships burning liquid fossil fuels will initially pay only a modest penalty of about $28/ton of CO2 emitted ($380 for 4% of emissions, and $100 for 13% of emissions). But Remedial Unit penalties increase each year.
· Fossil LNG-fueled ships (with an estimated well-to-wake GFI reduction of 21%) will not face any financial penalties through the end of 2030, and don’t face the Tier 2 penalties until 2034.
· Minimizing economic penalties is anticipated to utilize the transition to ever-increasing percentages of biofuels, and eventually to zero and near-zero GHG (ZNZ) fuels such as e-methanol, e-ammonia, or green hydrogen.
· IMO proposes providing financial incentives to early adopters of ZNZ fuels (initially defined as fuels with a GFI of 11% or less compared to fossil fuels). Still, these incentives have not yet been agreed upon, so forecasts of early adoption rates remain speculative. Note that the current estimated cost of ZNZ fuels is 5-10 times that of fossil fuels.
· Increasing blends of biofuels look to be the mid-term solutions for most ships for the next 15 or more years: biodiesel for liquid-fueled ships and biomethane for gas-fueled ships until ZNZ fuels and their specialized shipboard equipment become more widely available.
· An alternative approach for the mid-term appears to be OCCS (onboard carbon capture and sequestration), provided the infrastructure for proper handling and storage ashore can be developed. A 30% capture rate can extend a ship's service life for 7-8 years, and a 50% capture rate can extend it for nearly 15 years.
· New dual-fuel LNG, or LNG-only burning ships, and converting existing vessels to LNG will be strongly favored for the next 5-10 years. These ships can gradually blend with bio-methane (and eventually e-methane) to continue operating beyond the mid-2030s without GHG penalties.
· The viability of current liquid-fueled diesel ships largely depends on the availability and cost of biodiesel. A new-build single-fueled diesel ship could conceivably reach its full-service life by paying the ever-increasing penalties or gradually transitioning to biodiesel.
· In the long term, newbuild ships in the 2040s will need to adopt ZNZ fuels. The most probable options under consideration are e-methanol, e-ammonia, or liquified hydrogen and fuel cells. Economics will drive these choices toward one solution, but we think hydrogen, while technically possible, is the least likely based on economics. The choice between e-methanol and e-ammonia will be based on whether a somewhat lower cost of e-ammonia is sufficient to make up for the technical and safety disadvantages compared to e-methanol.
These will be interesting times for marine engineers and shipping company decision makers. All the options are technically feasible, and the decisions will be primarily based on the timing, prices, and availability of biofuels and e-fuels. It remains to be seen if IMO’s NZF is a sufficient technical and economic driver to reach their 2050 net-zero goal, or if it just leads to a polluter pay scheme which generates considerable revenue for IMO’s Net Zero Fund.
LINK TO PART 1 OF OUR BRIEF >
