INSIGHT: A Proactive Approach to Making Green Fuels Cost-Effective

Mikael Wideskog is director of sustainable fuels and decarbonisation at Wärtsilä Marine. Image Credit: Wärtsilä

According to a recent Wärtsilä Marine report on sustainable shipping fuels, regulations, such as the EU Emissions Trading Scheme (ETS) and the FuelEU Maritime Initiative (FEUM), will close the price gap between conventional bunker fuels and alternative fuels within the next decade, creating a policy blueprint to accelerate the global transition to sustainable fuels.

The EU ETS rewards operators that utilise zero-carbon or near-zero fuels with lower payments and similarly FEUM, set to take effect on 1st January 2025, mandates vessels to achieve gradual reductions in the greenhouse gas intensity of bunker fuels.

Wärtsilä's analysis shows that these two regulations alone are expected to nearly double the cost of using fossil fuels by 2030 given the cost penalties involved in using conventional bunker fuels.

Image Credit: Wärtsilä

Simply put, these regulations create a financial incentive to transition away from fossil fuels and the more demand there is for alternative fuels, the more incentive there is for the energy value chain to invest in supply of cost-competitive sustainable fuels.

"This shift towards fuel parity is not just a distant vision but an imminent reality, projected to occur within the coming years if industry and policy makers work decisively. By 2035, driven by robust regulatory frameworks and innovative technological advancements, it should become more cost-effective to use sustainable fuels over conventional fossil fuels," explains Mikael Wideskog, Director of Sustainable Fuels & Decarbonisation, Wärtsilä Marine.

"The economics are reasonably simple if we work off an incentivising approach to driving change.

"There is an urgent need for practical methods to reduce costs and expedite the shift towards sustainable fuels on a global level. Fuel EU and the EU ETS are proof of how policy can influence operational decision-making and investment agendas.

"However, all of industry needs to be brought along together and to do so requires collaboration, coordination and engagement across industry, governments and policy makers.

"The maritime industry does not stand in isolation – all other major industries face similar quandaries and their own unique challenges in finding ways to operate more sustainably.

"It's important we don't get lost in naval-gazing and realise we are a sizeable and influential part of a bigger puzzle."

The Economic Reality of Transitioning to Green Fuels

The shipping industry faces a significant economic challenge in the widespread adoption of zero and near-zero carbon fuels. The 2023 UN Review of Maritime Transport estimates that achieving full decarbonisation by 2050 will require an investment of up to US$5 trillion in near-zero fuels and propulsion technologies, along with an annual liquidity injection ranging from US$8 billion to US$28 billion.

This investment is necessary to replace approximately 270 million tonnes of heavy fuel oil (HFO) with alternative fuels annually. Although the immediate availability of alternative fuels including methanol and ammonia is limited, demand is increasing quickly.

Proactive operators are recognising the financial incentives and are preparing their vessels for cleaner fuels as traditional fuel costs rise.

"The transition to sustainable fuels requires a collective effort that extends beyond individual companies," Mikael adds.

"Industry-wide collaboration is essential for achieving decarbonisation goals. Pooling purchasing power can reduce overall fuel prices and minimise supply chain costs for individual companies.

"Intra-industry collaboration also enables smaller companies to access valuable knowledge and resources.

"Moreover, cross-sector collaboration is crucial.

"The agriculture sector, for example, will see significant demands for blue or green ammonia as a fertiliser ingredient. Seaborne trade for ammonia as a hydrogen carrier can also help decarbonise heavy industry.

"Ensuring clarity for fuel producers about the future energy landscape will incentivise investment and highlight the shipping industry as both a consumer and enabler of clean fuels.

"Only then will we see adequate supply-demand balance.

"Engagement with regulators, of course, is equally important in establishing a stable policy framework for alternative fuels. Certainty and stability through methods such as carbon pricing, fuel standards, and fossil fuel phase-out timeframes will create a favourable environment for clean fuel investment."

Investing in Agile Assets

One of the critical pathways to decarbonisation is making it possible, and operationally viable, for vessel owners to signal their intentions today by investing in fuel flexibility and energy efficiency solutions – rather than just adopting a wait-and-see mentality, according to the Wärtsilä report, 'Sustainable fuels for shipping by 2050 – the 3 key elements of success'.

The report emphasises that individual operators can transform uncertainty and risk into competitive advantage and lower operational costs by opting for future-fuel ready dual-fuel engine technologies, which are already available.

"Our engines have built-in upgradability to future fuels, with significant part commonality between different fuel versions and a modular design," Mikael explains.

"This fuel flexibility allows vessel owners and operators to meet current emissions requirements while maintaining access to various fuel types, ensuring they can easily adapt and modify their engines in the future without needing a complete replacement."

In 2022, Wärtsilä introduced the Wärtsilä 32 Methanol engine and the MethanolPac fuel supply system. Additionally, Wärtsilä has since expanded its portfolio of methanol capable engines, along with launching the first commercially available engine capable of using ammonia, which further enhances the feasibility of a range of multi fuel offerings.

"The trajectory towards net-zero in the shipping industry is becoming increasingly clear," Mikael adds.

"As regulations tighten and emissions policies become more decisive, the financial landscape will inevitably shift towards making sustainable fuels more cost-effective than fossil fuels.

"The quicker the industry acts, the sooner it can realise the benefits of this transition.

"By embracing these strategies, the shipping industry can navigate the path to a sustainable and economically viable future, ensuring that green fuels become the norm rather than the exception."