Green Fuels Are Accelerating Shipping Decarbonization

Last year in Dubai, representatives from around the world came together to take stock of climate progress and reaffirm their commitments to reducing carbon emissions. One of the most ambitious targets came from a surprising sector. In a joint declaration made at COP28, five CEOs from the world’s largest shipping companies demanded an end date for building fossil fuel-only shipping vessels.

A decade ago, this kind of ambition would have still been considered a pipe dream. Shipping—alongside other industries like steel and cement—is notoriously hard to decarbonize in large part because of the vast amount of fuel required and the inability to directly electrify the required machinery. That fuel use is a major source of greenhouse gasses; shipping alone accounts for 3% of global emissions, while cement and steel each contribute around 8% of global greenhouse gas emissions. But thanks to the rollout of green hydrogen, these heavy industries are able to start reducing their climate impact. And when it comes to decarbonization, shipping in particular has become somewhat of an unsung hero.

“In terms of the development that has happened over the last two to three years, it has been truly amazing,” says Oleksiy Tatarenko, leader of the hydrogen initiative at the Rocky Mountain Institute. Shipping used to be considered a very conservative sector, with a more hands-off approach to reducing emissions, he says. Now, companies “are decarbonizing fast. Not just pilots, but deployments worth billions of dollars.”

Behind these changes is green hydrogen, which has long been touted as one of the prime mechanisms to decarbonize heavy transport and heavy industry. In contrast to traditional hydrogen, which is generated from carbon-intensive raw materials such as coal or natural gas, green hydrogen is produced by splitting water into hydrogen and oxygen using renewable electricity. Because green hydrogen in its pure form is difficult to store and transport (it requires either really cold temperatures or extreme pressure), shipping companies further process that hydrogen into green methanol or green ammonia. These “low-carbon” fuels are 65-95% less polluting than fossil fuels. Green methanol almost completely eliminates the emission of harmful air pollutants like sulfur oxide and particulate matter and can be used like fossil fuels to power ships long distances. But it’s only recently that they have begun to be deployed at a larger scale, and the high costs of producing green hydrogen still make it economically challenging.

“It used to be a chicken or the egg situation,” says Morten Bo Christiansen, the senior vice president and head of energy transition at A.P. Moller – Maersk, one of the world’s largest shipping companies. Green hydrogen producers were not sure if there would be demand; shipping industries weren’t sure if there would be supply, he says. This uncertainty initially stalled shipping’s green transition. But now, “the industry is ready. The ships are being ordered. The money is being put on the table.”

In 2023, the International Maritime Organization (IMO), which oversees the shipping industry, pledged to reach net-zero emissions from international shipping by 2050. It also committed to ensure an uptake of alternative zero and near-zero emission fuels by 2030. There are now 168 new contracts on the books for methanol-powered container ships between now and 2026.

Maersk has set its ambitions higher, and plans on hitting net-zero emissions by 2040, with low-carbon fuels making up a core pillar of its strategy. In 2023, Maersk deployed the world’s first ever container ship that can run off of green methanol, named Laura Maersk. In February, the container ship Ane Maersk, capable of long-distance travel between Europe and Asia, set sail on its maiden voyage from South Korea. It is the first of Maersk’s 18 large methanol-enabled vessels that will be delivered between 2024 and 2025.

But experts warn that while the hype over green hydrogen is real, it has its limitations.

“Green fuels sound like a magic solution,” says Christiansen. “ But it’s a very ineffective energy system. Anything that can be electrified with batteries should be electrified with batteries because it is by far the most effective.”

Direct electrification from renewable energy is almost always the most effective solution. Rather than using clean energy to produce hydrogen fuel, many experts argue that renewables should be a direct power source. Barring that, batteries charged by renewable energy are much more effective than green fuels because only a small amount of energy is lost charging and discharging. Green fuels like hydrogen, in comparison, have to go through many steps before becoming a usable power source—meaning only a small amount of the original energy is left in the end fuel product.

That’s why for experts, green hydrogen has an important yet limited role. “For heavy industry and heavy transportation like steel and shipping, this is where we see green hydrogen has a large role to play”, said Taransko. That’s compared to things like electric vehicles, buildings, and generators, which are better off powered directly by renewable electricity or batteries. The biggest challenge with switching some industries to green hydrogen, however, is the cost. “For steel, we are competing with natural gas and coal,” says Taransko. “In shipping we are competing with bunker fuel, literally the bottom of the barrel, what would be qualified as a waste fuel.”

While making green hydrogen cost-effective in the medium-term will be a challenge, some experts see that changing in the future. According to a 2023 analysis by Deloitte, the data and insights sponsor for Futures, if green hydrogen follows the cost-reduction path that renewables did in the last two decades—the cost of utility-scale solar for example fell 85% between 2010 and 2020, and wind turbine prices have fallen by as much as 78% since 2010 —it will be competitive with its fossil fuel counterparts by no later than 2035. It could also be a financial boon for emerging economies that invest in becoming producers of green hydrogen, with some experts predicting that the green hydrogen market could reach $1.4 trillion by 2050.

For Christiansen and the shipping industry, the fact that the bigger problem now is economics rather than technology is actually good news. “We can see the solution. It is there in front of us,” he says. ”All it takes is character and leadership and some political will to get it done.”

Deloitte is the Data and Insights Sponsor for Futures. TIME’s editors have sole control over how data from our partners are used in stories.