THE GREEN e-fuel theory goes something like this:

First, build a massive solar/wind farm. Hook it up to an electrolyser, which cracks water into hydrogen and oxygen. Take the hydrogen and add nitrogen (to make e-ammonia) or carbon (to make e-methanol or methane). Fill up your ship and rejoice.

This would cost an awful lot. Meeting the IMO’s emissions targets would require shipping to replace the equivalent of 200m-300m tonnes of oil with zero- or near-zero carbon fuels by the 2040s. We’d need something like $1.6 trillion invested on land, with about $400bn needed by 2030 alone.

Say we put a price on carbon to close the cost gap and create a green fuel standard so we know what is and isn’t ok to burn instead. That raises billions of dollars. How do we spend it?

Well, we could hand out production subsidies to build the massive solar farms, with the prize going to the lowest-cost bids. Africa, Brazil and India receive vast sums to build new, green fuels they can export, alongside cash to help out with the pricier fuel.

Except, as a new UCL study reveals today, they wouldn’t see the money. This is because it’s almost always cheaper to build in places with cheaper finance, such as Australia, even if the developing countries’ green resources are as good, or better.

So richer countries with cheaper debt would gain the funds, and existing disadvantage would only get worse. Fixing this would need targeted rewards — something like $50bn in grants or low-cost loans — just to create “a basic equality of opportunity”, says Tristan Smith of UCL.

This is the latest in a long and important body of evidence that shows how important getting this policy right really is.

UCL’s modelling has found relying on a fuel standard with credit trading instead of a simple levy, — as favoured by China, Brazil and others — would fail to raise enough cash to meet the IMO’s goals. Maersk and Vitol have made similar warnings. The IMO needs to work all of this out in 2025, much of it by April.

If it does not, then the negotiators go home and work out how to levy their own national or regional taxes on ships instead, Trump-style. Instead of one burdensome green regime, shipping gets several.

That’s a nightmare worth taking seriously. Good policy is boring, but it matters.

Declan Bush
Senior reporter, Lloyd’s List

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