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Money Guides the Maritime Green Transition
Written by Ulla Tapaninen Posted on 03 December 2023 Reading Time 16 minutes
It is often said that 'the only green that the maritime sector follows is the dollar’. The maritime green transition will become true when it is financially justifiable and increases the competitiveness of shipping companies.
1. Environmental Regulations
In 2018, the International Maritime Organization (IMO) set a goal of reducing greenhouse gas emissions of shipping by 50 per cent by 2050, and in July 2023, it tightened significantly its goals. The revised IMO Greenhouse Gas Strategy includes an enhanced common ambition to reach net-zero greenhouse gas emissions from international shipping by 2050. Also, in July 2023, the European Parliament finally decided on the maritime Fit for 55 package, which will regulate the carbon content of shipping fuels, fuel distribution and taxation and include shipping as part of the emissions trading system. From the beginning of next year, 2024, the trading of greenhouse gas emissions in the European Union (EU) will be extended to shipping. However, emissions trading is only the latest regulation change related to maritime greenhouse gas emissions. The first international regulations to reduce shipping’s greenhouse gases occurred over a decade ago.
2. Ships’ Technical and Operational Regulations
In 2011, the IMO set goals by which the structure of new ships must be designed so that ships’ fuel consumption and, thus, greenhouse gas emissions are reduced. EEDI, the Energy Efficiency Design Index, calculates the ship’s energy efficiency index (carbon dioxide emissions per tonne-mile). For the ship to operate, the index value must be lower than the reference value set by the IMO. Reference values are different for different ship types. They are gradually becoming stricter, so new ships will become less emitting.
In 2021, the IMO set a requirement that existing ships must also meet its energy efficiency requirements. Furthermore, like the EEDI, the Energy Efficiency eXisting ship Index (EEXI) gradually tightens. For this, ships must decrease their energy consumption by reducing their speed or introducing emission-free forms of energy, such as wind or solar power.
In 2021, the IMO also approved the much more controversial regulation CII – i.e., the Carbon Intensity Indicator. It moved from the ship’s structures to the ship’s operation, where the ship must reduce certain amounts of greenhouse gas emissions concerning the transport performance. There has been much discussion about this regulation in the industry because the transport performance is calculated as transport capacity and not how much goods have been transported (in units or tons). Therefore, ‘transport’ exists, even if the ship is empty. Moreover, ships that travel short distances have relatively more port time than ships that travel long distances and thus get worse results than others. This regulation may be further refined.
3. Emissions Trading
Next year, the EU will introduce a market-based control tool, the ETS, which stands for Emission Trading System. A similar system is also being considered at the IMO, but there are no decisions yet. ETS means that after each year, an operator must surrender enough allowances to cover its emissions; otherwise, heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another operator short of allowances. In the EU, the European Commission defines the amount of emission allowances.
In practice, the more greenhouse gases are released into the atmosphere, the more emission allowances must be purchased, and the higher their price rises. The goal is, therefore, a situation where it is most economical for shipping companies to reduce their emissions by adopting operational measures or alternative fuels, among other possible measures, instead of buying emission allowances. Since the carbon emission market is shared with other industrial sectors, the system also directs activities where it is the easiest or cheapest to do, and those companies then sell the rights to companies in other industries. Emissions trading will be introduced for shipping for the first time this year, considering some of this year’s emissions, and it will be tightened in the following years. Next year, 2024, the shipping companies must purchase allowances for 40 per cent of their emissions. The situation will tighten in the following years, and in 2027, rights must be purchased for 100% of emissions.
4. Regulations for Fuels
The EU has also set a goal that the annual calculated carbon content of the fuel used at sea should decrease. This FuelEU Maritime means that part of the fuel used must be carbon-free, in which case biofuels or other new non-fossil fuels such as methanol are used. This regulation is also gradually tightening, and it is likely to impact shipping significantly. Fuel EU Maritime, on the other hand, demands that the carbon intensity of the fuels used by the shipping industry gradually decrease from 2% in 2025 to up to 80% by 2050. In other words, in practice, shipping must gradually give up traditional fossil fuels. However, it should be noted that even one ship running on fossil-free fuel reduces the emissions of a shipping company’s entire fleet, and thus, the shipping company can switch to emission-free ships one at a time over several years.
5. Have Regulations Worked?
It has been shown in several international articles that these tightening greenhouse gas regulations have already succeeded in reducing ships’ fuel consumption by tens of percent. Barreiro et al. (2022) show in their extensive study that their energy efficiency has improved substantially when companies have adapted to EEDI regulations. Simultaneously, the investments have saved money for the shipping companies. The improvement methods collected by Barreiro et al. (2022) in their literature review are modification of hull parameters; propulsion system optimisation; hybrid propulsion system and alternative energy sources, like shaft generators and steam turbines; periodic cleaning of the hull, optimisation of the engine and propellers; waste heat recovery; cold ironing; hybrid battery-diesel propulsion; fuel-cells; wind power; solar photovoltaic system; and hydrogen cells. Finally, they have also described the effect of the operational measures like slow steaming, route optimisation and trim optimisation. Based on their study, the energy efficiency improvement of new ships relative to the baseline EEDI value 2013 in the value of 2013 are:
1) Containerships 58% more efficient.
2) General cargo ships 57% more efficient.
3) Gas carrier 42% more efficient.
4) Oil tankers 35% more efficient.
5) Bulk carriers 27% more efficient.
In other words, shipping companies are already investing in more energy-efficient vessels because of regulations and saving money. However, promoting energy efficiency will not lead to zero emissions; alternative zero-carbon fuels are needed.
These alternative zero-carbon marine fuels that are widely available for shipping companies do not exist. Although liquefied natural gas (LNG) is considered an alternative fuel in many cases, it is not because it is a fossil fuel. Moreover, depending on the calculation method, if the LNG methane slip is taken into account, its greenhouse gas emissions can be even worse than the bunker (Anderson et al., 2015). So, the question rests on defining which alternative fuel could be the shipping solution.
6. Choosing Alternative Fuels
The price of different fuels naturally influences the choice of fuel in the future and how much it costs to use that energy form compared to, for example, the current fuels. However, this approach is far too narrow a perspective. The matter should also be looked at from the following perspectives:
Energy density. How much of the fuel in question should be stored on the ship, and how much will it displace other cargo space and thus become more expensive than traditional fossil, very energy-dense fuels?
Fuel primary energy source. What is the primary energy source of the fuel in question, and how much emission losses occur when the energy changes form?
Manufacturing technology. Has a commercial manufacturing technology already been developed for the fuel, and is it under development? Can you already buy the fuel somewhere?
Legislation related to the use of fuel. Is its use permitted and safe? Are there already instructions and training for the ship’s crew on fuel use?
Storage on board and in port. Is it possible to store fuel on board and in ports?
Distribution logistics. Can the fuel be transported to and stored by its users?
Engine technology. Are there ships that can use that fuel, and what does such an engine cost compared to other options?
Technology development will change all the factors listed above and their price for the shipping companies. If the fuel is not yet produced, stored or distributed today, the situation may be different in a few years. International regulations that calculate emissions differently and punish or support different solutions make the matter more complicated. This is why various pilots and experiments are crucial to determining which fuels will become more common and cheaper.
7. How do the Greenhouse Gas Emissions of Various Alternative Fuels Differ?
When comparing fuel solutions, the most important long-term perspective is how much greenhouse gases its use produces – most often, this is compared to the current use of heavy fuel oil. In this case, a distinction must be made between where the energy was originally produced and what form it was then transformed into so that it can be used at sea. Fuel energy sources can be divided into two categories based on their basic energy: non-renewable and renewable. Non-renewable energy sources include coal, lignite, oil, natural gas and nuclear power. Renewables are wind, sun, and biofuels. Some energy sources, such as oil or natural gas, can be used as marine fuel. Some energy sources, such as wind energy or biomass, are converted into another form instead. This second form is currently usually electricity. Several forms of transport, such as road or rail transport, are becoming electrified at a rapid pace. However, storing electricity for a long sea voyage is difficult, so the electricity is to be transformed into another form of energy, e.g., hydrogen. Hydrogen-based fuels can be stored for a long time, and hydrogen is a somewhat more efficient battery than traditional batteries.
8. Alternative Fuels
A few marine alternative fuels are listed below. Traditional fossil fuels such as diesel is missing from this listing; instead, we focus on the so-called alternative low-emission fuels.
Electricity – Electricity has the potential to be one of the most low-emission fuels for shipping in the future. Currently, the most common electrical solution is shore power, i.e., the ship is in port while connected to the power grid, and it does not need to use separate auxiliary machines in the port. Ships require a considerable amount of energy, and on longer journeys, especially in ice conditions, the number of batteries required for electricity is significant. Electricity, as such, is best suited for short-distance transport, such as archipelago or urban water transport. In several Nordic countries, the newest small ferries are indeed electric. On longer journeys, the number of batteries the ship needs would reduce the cargo space too much. Various solutions have been thought of, for example, using containers as batteries that can be changed in ports or stabilisation systems as batteries, but these more exotic solutions are not yet in use.
Biofuels – The easiest solution for shipping would be if the current fossil fuels could be replaced directly with biodiesel or gas. Biofuels are referred to as first and second-generation biofuels. First-generation fuels are made from, for example, food waste, and second-generation fuels are made directly from, for example, trees grown for that purpose. Unfortunately, the production of biofuels is significantly less than consumption. It is assumed that those forms of transport, such as air transport, where the fuel energy density is important, will use most of the future biofuels. Then, there would not be enough of it for maritime use. However, biofuels will play a big role in future maritime transport.
Hydrogen – The problem with using hydrogen is its low energy density. Even when liquefied, hydrogen requires more than three times more space than heavy fuel oil to produce the same amount of energy. Because of this, pure hydrogen is no longer often seen as a potential fuel, but instead, people think about converting hydrogen into ammonia, methane, or methanol, which have more energy in a smaller space. This change can happen either by using electricity or biological fuels. Unfortunately, some energy is also always lost in this change, so every hydrogen-based fuel is inevitably a slightly worse solution – on the other hand, it solves the hydrogen space problem.
Ammonia – Ammonia when liquefied, is already significantly better in energy density than hydrogen, so it does not need as much space on the ship. On the other hand, the liquid tank itself requires much space on board. However, the problem with ammonia is its toxicity, which places slightly more demands on it as a fuel.
Methane, LNG and Biogas – LNG is already a commonly used fuel in shipping, especially because it contains no sulphur at all, so no sulphur scrubbers are needed. However, it produces almost the same amount of carbon dioxide as heavy fuel oil and low-pressure engines release pure methane, a greenhouse gas even more significant than carbon dioxide, into the air.
Methanol and Ethanol – Methanol and ethanol are other liquids where hydrogen has been converted into an energy form with a higher density, thus requiring less storage capacity than hydrogen.
Nuclear Power – Nuclear power has served as a shipping fuel for decades, for example, in the icebreaking of Russia’s Arctic regions. So-called small reactors are now being worked on as an alternative fuel, but there are many risks associated with nuclear power, and it is still uncertain whether commercial solutions that can be used in general can be obtained.
9. How Do Shipping Companies Prepare For New Fuels?
Several different fuels have been presented above. However, the fuel itself does not tell about greenhouse gas emissions; instead, we must look at how it was produced. Although most of the new hydrogen-based fuels are not yet based on a renewable energy source, these fuels allow ships to be built ready for the new technology, and when the green fuel is available, the fuel can be switched. Still, it must be remembered that the mere availability of fuel is not enough; distribution, storage, et cetera, are needed. Therefore, the entire transport sector and the states must anticipate this change.
Electricity is the most likely solution for short trips, but different hydrogen-based fuels are planned for longer trips. In electric hybrid solutions, the ship uses electricity in addition to its fuel (from land, batteries, or fuel). This makes the use of the engine more efficient, optimises energy consumption, and in certain situations (e.g., in the harbour or on the harbour fairway), it is possible to travel on electricity alone. Currently, ships are often built with engines that can use several fuels, mostly ammonia or methanol and fossil fuel or gas. Multi-fuel engines usually use fossil liquid fuel, but they can also use gas, LNG or other liquids such as hydrogen or its derivatives. In this way, shipping companies are also prepared for various developments in the future and can use cheaper or better available fuel when possible.
10. Ship Financing
The advantages of fuel savings and different types of alternative fuels have been discussed. However, they influence ships’ operating costs, so we should also look at the capital costs and, in particular, ship financing. Shipping financing is quite often the most important shipping company’s success factor, whether it gets a loan with moderate interest for its next vessel or any other alternative financing option.
Today, shipping companies face a situation where more and more ship financiers want the ships they finance to be productive and competitively operational in the future when the greenhouse gas emission regulations are in full force. A recent study by Fricaudet et al. (2023) shows that most investors aim to support shipowners in their green transition but want tightening environmental regulations to support their efforts. Several European banks have already highlighted that regulation of financial reporting and capital were needed, such as the EU taxonomy and differentiated capital requirements for green and brown assets.
The main ship financiers are committed to the ships’ environmental performance through the so-called Poseidon principles. In October 2023, it was announced that the Poseidon Principles, with 34 leading banks already on board, represent nearly 70% of global ship finance portfolios (Poseidon Principles, 2023a). Accordingly, the Poseidon Principles include the following aspects (Poseidon Principles, 2023b):
Principle 1: Assessment of climate alignment. On an annual basis, signatories will measure the carbon intensity and assess climate alignment – carbon intensity relative to established decarbonisation pathways – of their shipping portfolio using the methodology established by the Poseidon Principles
Principle 2: Accountability. Signatories will rely on classification societies or other IMO-recognized organisations and mandatory standards established by the IMO to provide unbiased information used to assess and report on climate alignment

Principle 3: Enforcement. Standardised covenant clauses will be made contractual in new business activities to ensure access to high-quality data.

Principle 4: Transparency. Portfolio climate alignment scores will be published on an annual basis.
11. Case Study: Electrifying Urban Waterway Traffic
There are no widely available zero-emission alternative fuels available for sea-going vessels. However, for shorter distances, like island or urban waterway traffic, electricity is becoming increasingly common. Battery backs needed for longer distances take much space in vessels, but while the travel distance is short, the batteries can also be smaller. In a study carried out by Otsason and Tapaninen (2023), the authors calculated the greenhouse gas emissions and costs of two commuter ferries operating in city traffic in a river in Antwerp, Belgium. A fully electric and diesel-fuelled catamarans alternated the same route. Total energy and fuel consumption were measured for one month of regular operations for both ferries. Based on these measurements, the well-to-wheel impacts of greenhouse gas emissions were calculated. Consumption data were collected directly from these vessels’ integrated alarm monitoring and control systems.
The results showed that the electric ferry produced only 25% of carbon dioxide emissions compared to the diesel engine. The authors also calculated the difference in various EU Member-States during the same month (Figure 1). The greenhouse gas emissions calculation is based on the 27 EU Member-States average emission factors. In the EU Member-States, the carbon intensity of electricity varies. Countries with higher renewable energy sources and lower energy consumption have lower greenhouse gas emissions. Figure 1 shows that if these vessels were operating in Estonia (which has a relatively high emission factor), the emission difference rate between the two vessels would be only 2.7 times. For vessels in Belgium (which has a relatively low emission factor), the difference would be 5.2 times, whereas for Sweden, it would be 15.7 times. This comparison shows that using electricity for operating energy can have significantly less greenhouse gas emissions than a diesel-fuelled ferry in all EU Member-States.
Figure 1: International Comparison of the Differences in Emissions Between the Two Ferries
Source: Otsason and Tapaninen (2023)
The Flemish government owns the vessels under study. The company had had a green fleet focus since 2009, when specific guidelines came into force. The diesel ferry analysed in the study was delivered in 2021 to replace the old, less efficient river ferry. According to the calculations conducted by the shipowner, the company has already saved 2.7 times in consumption costs with the new diesel catamaran compared to the previous old diesel ferry. The diesel and electric commuter ferries are newly built ships (delivered in autumn 2021 and 2022). The purchase price of the electric ferry was EUR 5,500,000, while the diesel ferry was EUR 4,300,000. The purchase price of the electric ferry was 27.9% higher than the construction costs of the diesel ferry. It is worth noting that the higher price of electric ferries was caused by higher equipment costs, technical innovations, inflation, and the unstable market situation initiated by the COVID-19 pandemic during construction time. The authors also calculated the different costs of the electric ferry compared to the diesel. The calculation assumed that both ferries operated equally 10 hours a day. With this assumption, the diesel ferry’s annual fuel and electricity costs in Belgium would have been EUR 22,100. For the electric ferry, this operational cost would be EUR 15,200.
The analysis was carried out with average electricity and marine fuel oil prices from Q4 2022 in Belgium. The operational cost is calculated by the average consumption of energy (marine diesel oil and electricity only). It does not include any technical crew costs, port fees, maintenance, other consumers, or other relevant and significant expenses of actual normal operation. According to the fleet’s financial reports, navigating a fully electrical catamaran is 21% cheaper in energy unit cost than diesel. The consumption cost comparison shows that Belgium has long been one of the most expensive countries in Europe for electricity. However, even in Belgium, electricity in this inland waterway environment is financially more viable. With the assumed operation time, the payback time compared to Belgium’s purchase price and operational energy costs is 17 years and 6 months. Since electrical energy and diesel prices are volatile and vary between countries, these results depend on the country of operation. Finally, the authors analysed the payback time in various EU Member-States, and concluded that the European average would be 12 years and 1 month.
Figure 2: Payback Time by Member-State (in years)
Obs.: Ireland, Greece, and Italy are not included in the calculations due to lack of data.
Source: Otsason and Tapaninen (2023)
This study showed that the greenhouse gas emissions of the electric vessel were only 25% of those of its diesel-powered sister vessel. However, this figure highly depends on the source of electricity in the operating country. In this case, the energy cost of the fully electric vessel was 31% cheaper than the cost of diesel energy, and the payback time without possible subsidy for replacing a diesel ferry with an electric one would be 17 years and 6 months. The results of this study show that using fully electric vessels has significant benefits not only concerning carbon emissions but also financially.
12. Final Words
Finally, the only green that the maritime sector follows is indeed the dollar. However, the best way to save costs and get financing for the new vessels is to decrease the vessels’ greenhouse gas emissions to a minimum.
Anderson, M., Salo, K. and Fridell, E. (2015). Particle- and Gaseous Emissions from an LNG Powered Ship. Environmental Science & Technology, 49(20), pp. 12568–12575. [accessed 01 December 2023].
Barreiro, J., Zaragoza, S. and Diaz-Casas, V. (2022). Review of Ship Energy Efficiency. Ocean Engineering, 257, Article 111594. [accessed 01 December 2023].
Fricaudet, M., Parker,S., and Rehmatulla, N. (2023). Exploring financiers’ beliefs and behaviours at the outset of low-carbon transitions: A shipping case study. Environmental Innovation and Societal Transitions, 49, Article 100788. [accessed 01 December 2023].
Otsason, R. and Tapaninen, U. (2023). Decarbonizing City Water Traffic: Case of Comparing Electric and Diesel-Powered Ferries. Sustainability, 15, Article 16170. [accessed 01 December 2023].
Poseidon Principles (2023a). About. Retrieved from [accessed 01 December 2023].
Poseidon Principles (2023b). Principles overview. Retrieved from [accessed 01 December 2023].
About the Author
Ulla Tapaninen, PhD is Associate Professor (maritime transport) at Tallinn University of Technology, Estonia. She is also Adjunct Professor (maritime economics and logistics) at University of Turku, Finland. Tapaninen has over 30 years’ experience in logistics and maritime transport in academia, public and private sector. She has worked in key positions in two Finnish shipping companies (bulk and RoRo sector) and worked as a senior expert at City of Helsinki in charge of maritime cluster development. She has published dozens of peer-reviewed journal articles, conference papers, and reports as well as other publications in scientific and non-scientific journals. She is a frequent speaker in seminars and has worked as a board member in several companies and other organisations. She has published a textbook Maritime Transport by Kogan Page presenting the fundamentals of maritime business and she is a keen writer of a maritime blog
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