With net-zero targets high on the world’s agenda, the race is on to identify the new green fuels of the future. The shipping industry will play a huge role in transporting these fuels, but the entire energy value chain must come together to put the appropriate infrastructure in place, align market incentives and make these targets a reality to achieve a decarbonised future not just for shipping, but for the whole world.

The Clean Energy Marine Hubs (CEM Hubs) initiative is bringing together these stakeholders—from energy producers, investment institutions, ports and shipowners to governments—to break down silos and has created a platform for collaboration to de-risk the development of the maritime value chain that will be required to transport 50pc of these new low- and zero-emission fuels.

The UN’s Intergovernmental Panel on Climate Change delivered a stark and sobering message in its latest report. Described as a “final warning” by UN secretary general Antonio Guterres, the report says urgent climate action is needed if we are to secure a liveable future for the world.

History has taught us the importance of aligning fuel production, supply, infrastructure and offtake demand

Scientists have warned for a long time that action needs to be taken to limit global warming to 1.5°C above pre-industrial levels to prevent devastating consequences, from extreme weather events to food and water insecurity. Over the past year, the war in Ukraine has brought into sharp focus how heavily the world still relies on fossil fuels, also amplifying calls for an accelerated green energy transition. Yet there are still industries and governments dragging their heels when it is clear decarbonisation is not optional: it is necessary. It is up to all of us in the energy value chain to work together and address these challenges.

The situation is not as simple as just making a switch to using new green fuels. For a start, we do not know for certain what these new fuels will be. Once we do know, we then have the challenge of being able to produce them at scale. Investment is needed for the industries that will use them and, of course, we need to be able to transport the fuels from production centres to offtakers. This a challenge but also a tremendous opportunity for business development and for countries to develop new industries.

Governments have huge potential to drive forward the green transition, but it takes more than issuing a press release or signing a memorandum of understanding. There needs to be clear industrial strategies set out with timelines that industry and the finance community can have confidence will be delivered. Recent analysis from the Tyndall Centre for Climate Change Research at the University of Manchester identified that only 4pc of announced projects to produce green hydrogen-based fuels have reached FID.

These are fuels that all sectors, including shipping, need to be able to use if we are to achieve those vital climate change targets. However, it is difficult to make a business case for investment when only 4pc for what is promised is in the pipeline. We need a greater focus on delivery and less on headlines.

Industrial transformation

According to the IEA, government projects could produce 24mn t of low-carbon hydrogen by 2030, but this is just a small fraction of what we need. To be on track to hit climate targets, the world needs 50–150mn t of low-carbon hydrogen by that date. This is a scale of industrial transformation that creates a massive opportunity for a range of stakeholders.

Clearly much stronger commitments are needed if this opportunity is to be realised in a timeframe that is required to address climate change impacts. Governments must prioritise the strengthening and expanding of their low-carbon fuel policies to give clarity to energy producers, the shipping industry and consumers so they have the confidence they need to invest at the right time and in the right location.

Some governments are committed to working together with industry to find solutions. Canada, the UAE, Norway, Panama and Uruguay are five governments leading the way in engaging with a taskforce of CEOs to develop the CEM Hubs initiative.

50pc – Share of new fuels to be transported by ship

CEM Hubs is a unique partnership between industry groups the International Association of Ports and Harbors and the International Chamber of Shipping under the Clean Energy Ministerial framework. We are working with the five governments above to create a platform that breaks down the silos between the various players in the entire value chain, so we can collaborate to de-risk the development of the production, use and transportation infrastructure needed to meet our climate goals.

The initiative aims to accelerate the deployment of this infrastructure to de-risk the investment needed so the world can have access to low-carbon fuels. We will need production of new fuels located close to ports so the maritime sector can transport them to market and ultimately use them itself.  

LNG lessons

History has taught us the importance of aligning fuel production, supply, infrastructure and offtake demand. In the case of LNG, for example, it took 15 years to put in place the appropriate landside infrastructure, while ships were ready to carry LNG well before then. Landside markets drove the uptake of these new products, and only when the infrastructure was in place did other markets emerge, including the use of LNG to power ships. The development of this new market was initially led by bilateral agreements that took time to mature, and a more global market where all had access to LNG followed. We need to learn the lessons of this to create the frameworks that will fast track the development of the new low- and zero-emission fuels market. 

New production hubs will need to be established within easy access of ports to ensure shipping can collect, transport and deliver net-zero fuels globally. Establishing these hubs comes with significant difficulties when the fuels of the future are uncertain. It is not feasible that every hub be equipped to handle every future fuel, and as we enter an uncertain era there is a major challenge to determine what fuels are needed, when and where.

We will need production of new fuels located close to ports so the maritime sector can transport the fuels to market and ultimately use them itself

There needs to be alignment so that ports, energy producers and local and national authorities work together to understand where fuels are coming from and where they are travelling to. This in turn will support infrastructure for transportation by the shipping industry. The International Renewable Energy Agency has identified that 50pc of the new hydrogen-based fuels will be transported by ship, and it will be vital that we align the value chain as we do not have the luxury of time.

To make sure this can happen, governments need to send strong market signals to all stakeholders in the energy transition. Investments cannot be made based solely on political statements, but the current lack of clarity from governments is creating a fear of stranded investments. If governments fail to address these fears, progress will be limited. This is not good for industry, governments, energy producers or, ultimately, economies.

CEM launch

The CEM Hubs initiative will be formally launched in July by ministers at the Clean Energy Ministerial meeting, hosted by the Indian government and as part of their G20 agenda. This is a significant step not just for shipping but for all parts of the energy value chain to come together and create a platform that will be focused on action rather than words.

A huge 90pc of global trade is transported by ships, and 36pc of this trade is in energy products. The shipping industry will be a vital cog transporting 50pc of new green fuels around the world, acting as an enabler for governments and other industries to achieve their decarbonisation targets. The shipping industry, which currently uses 4pc of global oil production, will also want to access to the same fuels it is transporting in order to decarbonise itself.

Collaboration is key to accelerating the green transition and addressing climate change. We need to change the mindset that climate change is an issue unique to any one industry, and instead recognise that this is a global crisis and, as a result, a global cross-sectorial approach must be taken to solve it. An initiative such as the CEM Hubs, whilst long overdue, is here now and offers an opportunity to shape the future for the benefit of us all.

Esben Poulsson is chair of the Clean Energy Marine Hubs Taskforce and former chair of the International Chamber of Shipping

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Author: Esben Poulsson