Shipping Needs Targeted Incentives to Scale Low-Carbon Fuels: MMMCZCS
Key Takeaways
- •MMMCZCS released a report concluding that targeted financial incentives are critical to closing the significant cost gap between low-emissions marine fuels and conventional fossil fuels.
- •The report recommends harmonised reward rates for lower near-term abatement costs, while differentiated rewards are better suited for scaling advanced fuels such as e-ammonia and e-methanol.
- •Multipliers should be used only as a secondary lever when insufficient funding exists for direct monetary rewards, according to the report's findings.
- •Among the three distribution mechanisms examined, fixed reward rates offer predictability but may require volume limits, while flexible rates protect funding pools but introduce payout uncertainty.
- •The report's publication coincides with the IMO's pursuit of net-zero shipping emissions by approximately 2050 and the implementation of EU regional measures including the ETS and FuelEU Maritime regulation.
Shipping will need carefully designed incentives to accelerate the adoption of low-emissions marine fuels, according to a report published by the Maersk Mc-Kinney Møller Center for Zero Carbon Shipping (MMMCZCS).
Low- and zero-emissions fuels remain substantially more expensive than the fossil fuels they are intended to replace, the organization noted in the report. Targeted financial support could help close this cost gap, but the design of incentive mechanisms will ultimately determine whether they deliver cheaper emissions reductions in the near term or help scale higher-cost fuels for the future.
MMMCZCS said policymakers seeking lower abatement costs should generally favour harmonised reward rates. Those seeking to scale next-generation fuels, on the other hand, should consider differentiated rewards, which could offer greater support to more expensive but scalable pathways such as e-ammonia and e-methanol.
The report also addressed the role of multipliers, recommending they be treated as a "second-best lever" applicable only where sufficient funding for direct monetary rewards is unavailable.
For the distribution of financial support, the report examined three mechanisms: fixed reward rates, flexible rates, and auctions. Fixed rates offer greater predictability but may require imposing limits on eligible fuel volumes. Flexible rates, by contrast, protect available funding pools but create uncertainty over the level of payouts recipients can expect.
The findings come as the International Maritime Organization pursues its revised GHG strategy, which targets net-zero emissions from international shipping by or around 2050, and as regional measures such as the EU's inclusion of shipping in its Emissions Trading System and the FuelEU Maritime regulation begin to take effect.
The full report is available for download from the MMMCZCS website here.
Source: Ship & Bunker
