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The Transformative Potential of Green Ammonia for the Shipping Industry

Posted on April 19, 2024

Tatiana Vediakova
Tatiana Vediakova
ESG Research Senior Analyst, Transportation and Infrastructure

Key Insights

  • The introduction of green ammonia could significantly help shipping companies improve their environmental performance. Overall, the shipping industry demonstrates only average management over the three material environmental indicators for shipping: green logistics programs, GHG emissions reduction programs and non-GHG air emission programs.
  • The wide introduction of green ammonia will increase companies’ exposure to health and safety risks. Though more than half of shipping companies (64%) in our research universe have a negligible or low risk rating score for occupational health and safety, carriers must be prepared to deal with the potential hazards for handling and storing green ammonia.
  • The transition to green ammonia requires global collaboration between governments, industry players and research institutions. International co-operation is essential to developing standardized regulations and ensuring the safe handling and transportation of green ammonia across borders.

 

In an effort to reduce its carbon footprint and meet more stringent regulatory standards, the maritime transportation industry has placed a growing emphasis on finding sustainable solutions and alternative fuels. The aim is to reduce the high greenhouse gas (GHG) emissions that have characterized the global shipping industry in the last decade.

In 2023, the International Maritime Organization (IMO) tightened decarbonization targets for shipping. The aim is to reach net zero GHG emissions “by or around 2050” and reduce total GHG emissions by 20-30% by 2030 and 70-80% by 2040.1 The IMO also confirmed that it will develop new fuel standards and a pricing mechanism for maritime emissions, both of which are due to be finalized by 2025 and come into force by 2027. Thus, companies with a large fleet may need to speed up investments in initiatives related to costly retrofits, introduce cleaner ships and consider decreasing sailing speeds.2

The shipping industry currently relies heavily on fossil fuels, primarily heavy fuel oil and diesel, due to their affordability and availability. However, these fuels pose significant problems. Burning these fuels releases greenhouse gases, contributing to climate change. They are also major contributors to air pollution, emitting sulfur dioxide, nitrogen oxides, and particulate matter, leading to respiratory issues and environmental harm. Furthermore, their use also raises concerns about oil spills, impacting marine ecosystems.

In recent years demand for liquefied natural gas (LNG) for shipping has continued to grow. However, there remains uncertainty surrounding its environmental advantages. A World Bank report3 specifically urged regulators to refrain from providing policy support for LNG in the maritime sector, even as a so-called transitional fuel, due to the risk of stranded assets it creates.4

For shipping, one promising solution that has gained significant attention in recent times is green ammonia. Produced from renewable energy sources, it may hold the potential to revolutionize the shipping industry by offering a cleaner and more sustainable fuel option. This article explores the potentially transformative role of green ammonia in the shipping sector, its environmental benefits, the challenges to its adoption, and broader implications for the market and other industries.

Environmental Benefits of Green Ammonia as a Ship Fuel

Ammonia has long been used as a fertilizer and an industrial chemical, but the traditional production process involves the use of fossil fuels, contributing to greenhouse gas emissions. Green ammonia, on the other hand, is produced using renewable energy sources: primarily wind, solar or hydropower. The process involves electrolyzing water to produce hydrogen and then combining that hydrogen with nitrogen extracted from the air to form ammonia.5 This method, known as green or sustainable ammonia production, eliminates the reliance on fossil fuels, making the entire process environmentally friendly.

One of the key advantages of green ammonia is its potential to be a zero-carbon fuel throughout its entire life cycle when compared to methanol, the other available alternative more sustainable than fossil fuels. Indeed, methanol combustion emits fewer GHG emissions than traditional marine fuels, but the extent of emissions reduction depends on the source and how the methanol is produced.6 In contrast, by solely using renewable energy in the production process, the carbon footprint associated with ammonia production is significantly reduced, contributing to an overall net decarbonization of the shipping industry.

Green ammonia combustion also produces only nitrogen and water as byproducts, eliminating the release of harmful pollutants such as sulfur oxides and nitrogen oxides. This improves air quality and addresses the industry’s need to comply with stringent environmental regulations. Moreover, ammonia has a high energy density, making it suitable for providing the necessary power for large vessels.7

From an ESG risk management perspective, the introduction of this type of fuel can significantly help shipping companies improve their environmental performance. Figure 1 below shows that overall, the shipping industry demonstrates average management of the three material environmental indicators for shipping: green logistics programs, GHG emissions reduction programs and non-GHG air emission programs. A score of 100 indicates the strongest management of the issue and 0 shows a lack of issue management by the company.

Effective management of these indicators is crucial for the shipping industry to combat climate change. The indicators assess companies’ targets and strategies to reduce emissions and initiatives to decarbonize their own fleets, inline with global environmental goals. By adopting cleaner fuels, improving fleet efficiency, and investing in sustainable practices, companies in the industry can mitigate their impact on the environment to ensure long-term sustainability.

Figure 1. Average Management Scores of Select ESG Indicators for the Shipping Industry

Figure 1. Average Management Scores of Select ESG Indicators for the Shipping Industry

Source: Morningstar Sustainalytics. For informational purposes only.
Note: Data retrieved as of April 2023 and comprises 60 shipping companies.

Challenges to the Adoption of Green Ammonia

While green ammonia presents a promising solution for a more sustainable shipping industry, it is not without its challenges. The infrastructure for green ammonia production, storage and distribution is currently underdeveloped. To fully harness the potential of green ammonia, substantial investments are needed to build the necessary facilities and retrofit existing infrastructure. A recent study conducted by the Environmental Change Institute at the University of Oxford suggests that to transition 90% of the global shipping fleet to exclusive use of green ammonia by 2050 requires approximately USD 2.25 trillion in infrastructure investment worldwide.8

Technological advancements are also required to make green ammonia a viable and cost-effective option for the shipping industry. At present, the production costs of green ammonia are higher compared to conventional ammonia production methods. But as technology advances and economies of scale come into play, the costs are expected to decrease, making green ammonia more economically competitive.

A final challenge is in how the wide introduction of green ammonia will increase companies’ exposure to health and safety risks. Shipping companies currently manage their occupational health and safety risks relatively well (Figure 2). More than half of shipping companies (64%) in our research universe have a negligible or low risk rating score for the issue of occupational health and safety out of five risk categories (negligible, low, medium, high, severe). This means that they acknowledge and address health and safety issues at sea due to the inherent dangers of maritime work and prioritize their management for legal compliance, crew well-being and operational efficiency. Carriers must prepare to deal with potential hazards associated with the toxicity and flammability of green ammonia during its handling and storage.

Figure 2. Occupational Health and Safety Scores by Risk Category for the Shipping Industry

Figure 2. Occupational Health and Safety Scores by Risk Category for the Shipping Industry | Morningstar Sustainalytics

Source: Morningstar Sustainalytics. For informational purposes only.
Note: Data retrieved as of April 2023 and comprises 60 shipping companies.

The Transformative Possibilities of Green Ammonia for the Shipping Industry

The wide adoption of green ammonia in the shipping industry could have far-reaching effects, transforming the sector in several ways. With increasingly stringent environmental regulations, the shipping industry is under pressure to reduce its carbon footprint.9 Green ammonia could provide a pathway for compliance with these regulations, emerging as the most viable sustainable and zero-emission fuel alternative. The transition to green ammonia requires global collaboration between governments, industry players, and research institutions. International co-operation is essential to developing standardized regulations, ensuring the safe handling and transportation of green ammonia across borders.10 Finally, the adoption of green ammonia may shift market dynamics, creating opportunities for green investments and new players in the renewable energy and clean technology sectors.11,12


References

  1. Faber, J., Van Seters, J., & Scholten, P. “Shipping GHG emissions 2030: Analysis of the maximum technical abatement potential.” CE Delft. June 2023. https://www.transportenvironment.org/wp-content/uploads/2023/06/CE_Delft_230208_Shipping_GHG_emissions_2030_Def.pdf.
  2. “Revised GHG reduction strategy for global shipping adopted.” International Maritime Organization. July 7, 2023. https://www.imo.org/en/MediaCentre/PressBriefings/pages/Revised-GHG-reduction-strategy-for-global-shipping-adopted-.aspx.
  3. “The Role of LNG in the Transition Toward Low- and Zero-Carbon Shipping” The World Bank. April 15, 2021. https://openknowledge.worldbank.org/entities/publication/b5697ebf-30cd-5491-8e34-2edb199ae5b7.
  4. Stranded assets are those that, “have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities.” Caldecott, B., Tilbury, J., &Carey. “Stranded Assets and Scenarios. January 2014. https://www.smithschool.ox.ac.uk/sites/default/files/2022-04/Stranded-Assets-and-Scenarios-Discussion-Paper.pdf.
  5. “Innovation Outlook Renewable Ammonia” IRENA & AEA. May 2022. https://www.irena.org/publications/2022/May/Innovation-Outlook-Renewable-Ammonia.
  6. “The Role of E-fuels in Decarbonising Transport.” International Energy Agency. Last modified January 2024. https://www.iea.org/reports/the-role-of-e-fuels-in-decarbonising-transport.
  7. Valencia, J.G., & Swift, A. “The Shipping Industry Won’t Meet its Decarbonization Goals without Investing More in Low-carbon Fuels.” World Resources Institute. October 2023.https://www.wri.org/insights/how-to-decarbonize-international-shipping.
  8. Vershuur, J., & Hall, J. “Optimal fuel supply of green ammonia to decarbonise global shipping.” Environmental Research. January 9, 2024. https://iopscience.iop.org/article/10.1088/2634-4505/ad097a/pdf.
  9. Springer, A. “The impact of FuelEU Maritime on European shipping.” Transport & Environment. July 2023. https://www.transportenvironment.org/discover/the-impact-of-fueleu-maritime/.
  10. “An equitable and just transition to low-carbon shipping.” UNCTAD. November 2023. https://unctad.org/publication/equitable-and-just-transition-low-carbon-shipping.
  11. Prisco, J. “$4.6 billion plant in South Africa will make ‘the fuel of the future’.” CNN. Last modified  July 25, 2023. https://edition.cnn.com/2022/10/18/africa/green-ammonia-hive-energy-scn-climate-spc-intl/index.html.
  12. Landini, F., Semeraro, G., & Armellini, A. “Italy’s Eni and Saudi Acwa Power sign accord to develop green hydrogen project.” Reuters. September 4, 2023. https://www.reuters.com/sustainability/climate-energy/italys-eni-saudi-acwa-power-sign-accord-develop-green-hydrogen-project-2023-09-04/.

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