Shipping’s Carbon-Cutting Fuel Tanks So Far Remain Empty

Imagine going to a car dealership for a new vehicle that’s climate friendly and being told that it isn’t clear what clean fuels will be available to fill it up, or how much those fuels will cost. You probably would walk away or opt for a car that runs on gasoline.

That’s the dilemma faced by the shipping industry as it looks to shift to cleaner vessels to meet emissions reduction goals.

The industry has agreed to boost the global fleet’s energy efficiency by at least 40% over the next decade and cut overall greenhouse-gas emissions from ship exhaust in half by 2050 compared with 2008 levels.

The difference with cars is that a cargo ship’s lifespan is around 25 years and it takes around two years to build a cargo vessel. If the owners want to meet the deadlines without crashing their operating budgets they will have to start buying zero-emission vessels within a few years, but there is no consensus yet on how green ships will be powered.

“We can build green vessels, but with no consensus on what kind of fuel will be used, the deadlines are just a theoretical exercise that can’t be met,” said a senior executive at Korea Shipbuilding & Offshore Engineering Co., one of the world’s largest yards. “First you need the fuels, then the necessary volumes and a global bunkering network that will all have to come together at a competitive price. We’re only at the start of a long and expensive process.”

The focus on new fuel sources marks the biggest change in ship power since the sector switched from coal to the high-polluting heavy oil known as bunker more than 100 years ago.

The deadlines, set by the International Maritime Organization, the United Nations marine regulator in 2018, likely will become more stringent in 2023 when the body meets to review its strategy. Shipping services provider Clarkson Research Services Ltd. has estimated that it may cost the industry more than $3 trillion for ships to switch to new forms of power.

The choices by carriers will carry high stakes for shipping customers.

Shipping executives say they would seek to pass at least some of the costs of switching fuel sources along to cargo owners. That would drive up expenses in international supply chains for big retailers like Walmart Inc. and Amazon.com Inc., mining companies, and agricultural exporters moving raw materials in bulk.

Such companies also are looking to reduce the carbon footprint across their supply chains, so they may be able to incorporate some of the cutbacks in shipping pollution into assessments of their own operations.

If there is ample supply of new fuels, freight rates for transport on green ships may be similar to the price of shipping on vessels that run on traditional oil. But industry executives say they are bracing for higher costs.

“The tricky thing is that any zero-emission alternative is so far more expensive than oil,” said Lars Robert Pedersen, deputy secretary general of Denmark-based shipping trade body Bimco. “If you have to run a ship on fuel three times as expensive as bunker oil, you are out of business. The freight rates won’t cover it because cargo owners will go with the cheapest vessel.”

The alternative fuels attracting the most attention and investment so far include ammonia and biofuels. The International Energy Association said this month that if the global energy sector reaches net-zero emissions in 2050, ammonia could account for 45% of energy demand from shipping.

The Korean Registry of Shipping said earlier this month that more ammonia plants would come on line starting in 2025, allowing production of the chemical as a fuel at an estimated $650 to $850 per metric ton. By comparison, the bunker fuel currently used averaged $454 per ton for mid-May deliveries.

Ammonia is already a traded commodity, but there are complications with using it on ships.

“Ammonia is very toxic if it spills,” Mr. Pedersen said, “It also burns poorly and it’s difficult to ignite. The ratio of ammonia versus oxygen in the combustion chamber has to be very accurate. If not, the engine will cough and stall.”

‘If you have to run a ship on fuel three times as expensive as bunker oil, you are out of business.’

— Lars Robert Pedersen, deputy secretary general of Bimco

An executive at a major state-owned shipbuilder in China said ammonia-powered ships would need special ventilation systems because of the chemical’s toxicity and because engine parts like valves can corrode quickly once exposed to ammonia.

“The ship must have gas masks and personal protection equipment for everyone aboard, in case it leaks,” he said. “This means the fuel won’t work for passenger vessels. It’s too much of a risk.”

Sustainable biofuels could provide about 20% of total shipping energy needs, according to the IEA. Danish shipping giant A.P. Moller Maersk A/S will add to its network what is expected to be the first ship that will run on biomethanol in 2023 and says it plans to make its fleet entirely carbon-neutral by 2050.

Biomethanol can be sourced from paper-mill waste and other byproducts, or by mixing hydrogen with carbon dioxide trapped from industrial exhaust systems.

Palm oil and sugar cane are main sources of biofuels, raising critical environmental questions because of the impact of sourcing the materials. Farming of those materials can involve cutting back rainforests, which can have a negative environmental effect and defeat the purpose of reducing CO2 levels in ship operations.

The U.S. and the European Union both are aiming to reach net-zero greenhouse-gas emissions by 2050 as part of their commitments to the Paris Agreement on climate change.

Net-zero emissions mean that the amount of greenhouse gasses produced will be equal to the amount taken out of the atmosphere.

“With climate change in the forefront, you would expect orders of green ships to be coming in,” the state shipbuilding executive in China said. “But it’s not happening. We got blueprints and some inquiries, but the orders are for conventional ships.”

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Write to Costas Paris at costas.paris@wsj.com

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