Poor Access to Funding in Developing Countries Could Double Prices of E-Fuels
A recent study conducted by UMAS and UCL Energy Institute Shipping and Oceans Research Group has revealed that poor access to funding and higher costs of capital in developing countries could almost double the prices of e-fuels they produce, compared to developed economies. This disparity in pricing occurs even when renewable energy resources such as onshore wind and solar are more abundant in developing nations.
The study also warns that without targeted financial support mechanisms, future e-fuel production may become concentrated in already advantaged economies, leaving developing nations at a significant disadvantage. This situation goes against the “just and equitable transition” that the International Maritime Organization (IMO) committed to in its greenhouse gas (GHG) strategy.
The report proposes a solution to this issue by suggesting that a portion of the IMO funds be allocated to provide grants and concessional finance to offset the higher financing costs in low-income countries. This approach aims to close the equity of opportunity gap and ensure a fair transition for all nations. The estimated initial funds required for this element alone amount to around $50 billion, in addition to the funds needed for other aspects of a just and equitable transition.
The Cost of Capital Challenge in E-Fuel Production
The study, titled “The Cost of Capital Challenge in Delivering a Just and Equitable Transition for Shipping,” focuses on comparing the costs of producing e-ammonia—a promising low-emission shipping fuel—in Australia, Brazil, India, and various African nations. By analyzing the levelized costs of energy (LCOE) across these locations, the research highlights the impact of funding constraints on e-fuel projects.
Deniz Aymer, Senior Consultant at UMAS, emphasized the significant influence of funding costs on the competitiveness of e-fuel projects. Projects in Brazil, India, and Africa face higher funding costs and limited access to finance, leading to challenges in bridging the overall cost competitiveness compared to countries like Australia with lower costs of capital.
The analysis further reveals that e-ammonia projects in African countries could require prices up to 80% higher than equivalent projects in Australia due to funding constraints. This disparity creates a substantial barrier to achieving the IMO’s vision of an equitable transition in the shipping industry.
The Road to Sustainable Shipping
As the IMO sets ambitious emissions reduction targets for the shipping industry, the transition to zero (or near zero) emission fuels by the 2040s will require significant investments. The report estimates a total investment of approximately $1.6 trillion in land-side infrastructure, with $400 billion needed by 2030 alone.
If financial barriers are not addressed, investments are likely to flow towards developed economies, perpetuating under-investment in countries with abundant renewable resources. This trend could hinder the global efforts towards a sustainable and just transition in the shipping sector.