GCMD: We May Need Carbon Price in $300s/MT to Make Alternative Bunkers Attractive

Lynn Loo is CEO of the Global Centre for Maritime Decarbonisation. Image Credit: Lynn Loo / LinkedIn

Lynn Loo, CEO of the Global Centre for Maritime Decarbonisation, has set out some rough estimates for the cost of alternative fuels, suggesting we may need carbon prices at least in the $300s/mtCO2 to close the price gap between them and conventional bunkers.

Loo set out her estimates in a LinkedIn post on Wednesday, using a rough estimate of 3 mtCO2 per tonne of VLSFO consumption.

Ammonia

"A green ammonia producer told me his cost for making green ammonia is $450/mt; he'd like to sell it for $700/ton," Loo said in the post.

"Assuming a 25% premium for transport and bunkering (rough because ammonia is not being bunkered today), and accounting for the energy density difference between liquefied ammonia and VLSFO, this green ammonia would cost $1,750/mt VLSFO-equivalent.

"With VLSFO at $700/mt today, an implied emissions price of $350/mtCO2 on VLSFO is needed to close the cost gap."

Methanol

"Biomethanol production ranges from $320-770/mt," Loo said.

"Taking the average ($550/mt), and assuming the same percentage profit margin as green ammonia above, the sale price is $850/mt biomethanol.

"Accounting for the energy density difference, and assuming a 15% premium for transport and bunkering (lower because methanol is easier to handle and barges are likely simpler), this biomethanol would cost $2100/mt VLSFO-equivalent, or $470/mtCO2.

"As a first mover, AP Moller-Maersk paid $2500/mt VLSFO-equivalent for its first bunkering demonstration.

"Assuming the same percentage profit margin and transport and bunkering premium, the biomethanol production cost is well within the range cited above ($670/mt biomethanol). At this purchase price, the implied emissions price needed is $600/mt CO2.

Biofuel Blends

"B24 biofuels cost $250/mt more than VLSFO," she said.

"Accounting for the fact that B24 consists of 24% biofuels, we need an emissions price of $330/mtCO2."

Lower Prices Needed

The analysis implies a need for a significant drop in alternative fuel production costs, as well as a high carbon price set by regulators, for widespread uptake of these alternatives in the shipping industry.

The renewable power element of alternative fuel production costs is expected to come down over time as production is scaled up. But the biomass element is likely to become more expensive as more industries compete over limited supply.

"This estimate assumes that the alternative fuels have no emissions; accounting for well-to-tank emissions would increase the cost gap, requiring a higher CO2 price to offset this premium," Loo said.

"This analysis also neglects the emissions of other GHGs.

"Nonetheless, this exercise gives us a sense of the magnitude of the implied emissions price.

"With [EU allowances] at €81/ton CO2, or $90/ton CO2, we are still a long way from covering the green fuel premium.

"I realised from this analysis that prices of green fuels need to come down significantly, even with strong fuels standards and a robust emissions price.

"The world is likely unable to support such high implied emissions prices."