The Path to E-Fuels: A Call for Subsidies and GHG Levies in Maritime Sector

A recent report has shed light on the necessary measures required to drive the adoption of e-fuels in the maritime sector. The report, presented by the UCL Energy Institute and maritime consultancy UMAS, emphasizes the need for targeted subsidies and a substantial GHG levy to bridge the gap between scalable zero-emission fuels and other compliance options. This call to action comes ahead of the International Maritime Organization’s upcoming negotiations at the Maritime Environment Protection Committee (MEPC) meeting this summer, where the second phase of the decarbonization strategy for the shipping industry will be discussed.

The report warns of the urgent need for corrective actions from both commercial entities and policymakers to avoid significant risks to the sector and global trade. Without swift intervention, the transition to e-fuels could be costly, challenging, and prone to failure and delays.

Research conducted by the UCL Energy Institute and UMAS delves into how the transition to e-fuels can be stimulated, coordinated, and effectively implemented by international bodies, national governments, regional organizations, and industry stakeholders. The study scrutinizes the viability and costs associated with the IMO’s Revised Strategy targets unveiled post the 2024 MEPC session.

The analysis indicates that the shift from fossil fuels in shipping aligns with other energy transitions, but current policies, including fuel standards and financial mechanisms, are insufficient to kickstart an e-fuel transition before 2040. There’s a looming risk of the industry getting locked into alternatives that could hinder long-term decarbonization objectives.

Dr. Tristan Smith, Professor of Energy and Transport at the UCL Energy Institute, highlights the challenges, stating, “The market’s struggle to establish an e-fuel business case before 2040 implies that green ammonia and other e-fuels may not be readily available for the shipping industry. A GHG levy is not just about equity; it’s a vital catalyst for shipping’s energy transition and cost minimization.”

The research suggests that a GHG pricing starting at $150 per tonne of CO2e is crucial to support the energy transition and ensure a just and equitable shift for affected communities. Lower pricing levels may not provide the needed certainty to kickstart and scale the energy transition between 2027-2035.

Using a total cost of ownership approach, the study evaluates different technology and fuel options for a 14,000 TEU container vessel. Policy combinations like GHG Fuel Intensity (GFI) requirements, flexibility mechanisms, and levies/subsidies are analyzed to understand their impact on compliance routes.

The report emphasizes the urgency of supporting e-fuels to bridge the gap with early compliance options like LNG, biofuels, and carbon capture and storage. It underscores the importance of a GHG levy and targeted incentives to steer the industry towards a swift and effective transition course, considering political, technical, economic, and commercial factors.