How green corridors can enable the transition to zero-emission shipping

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March 1st, 2022

Green corridors offer a way to scale zero-emission shipping industry solutions to meet climate targets by 2050. We examine how two trade routes could work.

 

By

Head, Research and Analysis, Global Maritime Forum

And

Associate, Energy Transitions Commission


 

  • Zero-emission fuels and vessels will need to be deployed at scale over the next decade to meet emissions targets by 2050.
  • Green corridors offer a solution to scale pilots and demonstrations for sustainable shipping into industry-wide solutions.
  • World Economic Forum test these hypotheses in The Next Wave: Green Corridors, by examining two potential trade routes: Australia-Japan and Asia-Europe.

 

The decarbonization of shipping – responsible for 3% of global greenhouse gas (GHG) emissions but more than 80% of global trade – is rapidly moving up the agenda, for policymakers and industry alike. Last autumn more than 200 organizations from the maritime ecosystem signed the Getting to Zero Coalition’s Call to Action for Shipping Decarbonization, urging the adoption of a sector-wide goal of zero emissions by 2050 and the commercial deployment of zero-emission vessels by 2030.
The good news is that the technologies to produce zero-emission fuels and vessels are nearly market ready. Pilots and demonstrations of zero-emission vessels are underway, and the key technologies for the largest ships should be available by the end of 2024. Yet deploying these solutions globally at scale, is complex: the shipping industry is diverse, disaggregated, and globally regulated by the International Maritime Organization (IMO) in the interests of 174 member countries. While global action will be crucial in the long run, it is just as crucial to start somewhere.

 

How green corridors could work in principle

 

The creation of green corridors – specific trade routes between major port hubs where zero-emission solutions are supported and demonstrated – can cut through this complexity. Essentially, the idea is to shrink the challenge of coordination between fuel infrastructure and vessels, in the value chain and between countries, down to a more manageable size, while still retaining the scale necessary to create impact.

 

Along a green corridor, policymakers can put in place enabling ecosystems with targeted regulatory measures, financial incentives, and safety regulations, that enable a subset of the industry to take its first steps. Industry can choose a fuel pathway and create systems for mobilizing demand and sharing costs and benefits among a more limited set of actors, with a high degree of trust and confidence. And these corridors can have “spill-over effects” that can result in the reduction of shipping emissions on other corridors.

 

In our report The Next Wave: Green Corridors, we test these hypotheses by examining two potential green corridors, both of which could serve as high-impact catalysts for the transition to zero-emission shipping globally.

 

The Australia-Japan iron-ore corridor

 

The 65 million tonnes of iron ore exported annually from Australia to Japan, make this one of the largest dry-bulk trade routes in the world. As a potential first mover corridor, the route benefits from favourable production conditions for green hydrogen production, with companies active in Australia already having announced plans to build approximately 30GW of hydrogen electrolyser capacity by 2030, with much of this capacity located near to the centres of iron ore production and ports from which it is shipped. Given that zero-emission shipping fuels are likely to be derivatives of green hydrogen, investors in zero-emission ships on this route could potentially benefit from security of supply and cost advantages.

 

Nonetheless, zero-emission ships here as everywhere will be more expensive to operate than fossil-fuelled vessels – we estimate a 50-65% increase in the total cost of ownership for vessel operators in 2030. The cost gap can be reduced, however, by forming joint ventures and/or utilising innovative mechanisms to share costs and emission reductions among the relatively few companies in the value chain along this route. Additionally, policy mechanisms such as contracts for difference can also be used to bridge the cost gap. If such a mechanism specifically targeted this route, it could bridge the entire cost gap at an annual cost of $250-350 million.

 

The Asia-Europe container corridor

 

Among the largest shipping lanes in the world, the Asia-Europe container route is responsible for generating more GHG emissions than any other single global trading route. Despite its size and the comparatively large number of companies with a stake in its operation, it too is a promising candidate for developing a green corridor.

 

The route has multiple potential bunkering (e.g. refuelling) ports, so that fuel supply could originate from Europe, the Middle East or Australia (transported to relevant Asian ports). Given the announced hydrogen electrolyser capacity by 2030 across the three regions have already exceeded 60GW, fuel supply is likely to be available for initial decarbonization efforts on the route. Additionally, there is growing demand for decarbonization across the route’s value chain, including cargo owners. Moreover, the characteristics of a significant part of the freight shipped on the route can allow cargo owners to share costs with end consumers without significant increases in retail prices.

 

Even with the assumption that zero-emission fuel supply for the route will be sourced from low-cost locations such as the Middle East or Australia, a 35-45% increase in total cost of ownership is expected for vessel operators in 2030. Given the expected demand from cargo owners – recently evidenced by the coZEV 2040 Ambition Statement – mechanisms such as targeted demand coalitions and a corridor specific book-and-claim system could enable sharing of the additional cost across the value chain. While such mechanisms are complex to develop and implement globally, a set of corridor-specific agreements between companies with a shared interest in greening the corridor could lower the threshold for action and help set a template for a global solution.

 

Policy can also play a significant role – while the corridor touches more countries than the iron ore route, the implementation of the EU’s Fit for 55 package alone could reduce the cost gap by 25%, or if revenues from the corridor were recycled to support zero emissions ships, eliminate it completely.

 

Steps towards the future of zero-emission shipping

 

The two corridors explored in depth the report are not the only options: indeed, our analysis suggests that a number of feasible alternatives exist. But these two examples provide important lessons for the industry’s transition. In order to draw those lessons as clearly as possible, we have even proposed a roadmap for building these corridors, plotting the steps needed to overcome initial barriers and enable a meaningful roll-out of the corridors by 2030.

 

Figure: A potential credible, ambitious roadmap for decarbonization of the iron ore corridor.

A potential credible, ambitious roadmap for decarbonization of the iron ore corridor

 

Figure: A potential credible, ambitious roadmap for decarbonization of the containership corridor.

A potential credible, ambitious roadmap for decarbonization of the containership corridor

 

A global transition to zero-emission shipping will be complex for everyone: the IMO, national governments, and the maritime industry. But if the best way to eat an elephant is one bite at a time, green corridors may be the right size for this moment: big enough for the industry to sink its teeth into, but not too big to swallow. Our work suggests that feasible, high-impact opportunities to build green corridors exist, and that these could do a great deal to generate momentum towards zero-emission shipping.

 

 

This article was originally published by World Economic Forum, on January 05, 2022, and has been republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License. You can read the original article here. The views expressed in this article are those of the author alone and not of the WorldRef.


 

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