Green hydrogen – and fuels derived from it – will play a critical role in the shipping sector’s transition away from fossil fuels. This factsheet highlights this role, the policies in place to drive these fuels’ uptake and how promoting green hydrogen for shipping will support EU innovation and growth and help achieve the targets enshrined in the European Green Deal.

Background

• Shipping currently accounts for around 3% of global emissions or approximately one billion tonnes of carbon dioxide equivalent (CO2e) per annum. If the goals of the Paris Agreement are to be met, this figure needs to be reduced – and fast. In the EU, maritime transport accounted for 13.5% of transport emissions in 2018.

• Measured in value, in 2022, sea transportation accounted for 46% of goods traded between the EU and the rest of the world; measured in volume the share was 74%. In addition, European shipowners control 40% of the world's merchant fleet and operate shipping services all over the world.

• Some actions can be taken quickly to achieve a reduction in emissions and minimise other negative impacts of the shipping industry, such as air pollution – namely, improving fuel efficiency and utilising technologies such as wind propulsion.

• But, ultimately, a shift away from the fossil fuels used by the industry today will be needed to fully decarbonise this key sector for the European economy.

• Shipping has a number of alternative fuels available, but not all are made equal. Decisions must be made now to ensure investment is targeted towards the alternative fuels that will provide the biggest emissions reductions and where fuel development provides opportunities to drive growth.

The options available

• The shipping sector has several alternative fuels available, including so-called ‘transition fuels’ that might emit less than current fuels under certain conditions but are not compatible with the sector’s decarbonisation ambitions long term.

• Direct electrification will have a role to play in inland journeys and some short sea shipping, but its use in the shipping sector will remain limited. Other than electrification, green hydrogen will be needed for all pathways for producing alternative fuels for the shipping industry.

• It’s unlikely that one fuel alone will replace the fossil fuels used today. When considering the alternatives available, we must ensure that the full lifecycle emissions, and all other impacts (for example, air pollution), are considered to ensure investments aren’t directed towards false solutions.

• Crucially, all alternative fuels will be more expensive than the oil or gas the sector currently uses – this means that regulatory measures will be critical in driving their uptake.

LNG

• Liquified natural gas (LNG) is often presented as a transition fuel for the shipping industry, due to producing lower CO2 emissions than traditional marine fuels. However, LNG is primarily formed of methane, which is a greenhouse gas that has climate impacts over 80 times greater than CO2 over a 20-year period.

• Because methane is such a potent greenhouse gas, when LNG leaks into the atmosphere from production, across the supply chain and ship funnels, its climate impact increases.

• Therefore, if the shipping industry is to meet its climate ambitions, LNG must not be considered as an alternative fuel in the long term.

Methanol

• Methanol has emerged as a promising alternative fuel for the shipping industry. Existing trade in this chemical means there are already storage and handling facilities close to most major ports.

• Historically, methanol has been produced using fossil fuels as a feedstock – either coal or natural gas. If the fuel is to effectively reduce emissions, therefore, it is crucial that alternative feedstocks are used.

• Green methanol – produced using green hydrogen and CO2 from direct air capture (DAC) – offers the greatest emission reduction potential. Methanol can also be produced from biomass. However, limited supplies, the high quantities required and competition from existing uses mean that it is unlikely to be widely available for the shipping industry in the long term.

Ammonia

• Ammonia is already widely used today, most commonly in agriculture as fertiliser. As with methanol, hydrogen is a major feedstock in producing ammonia, and to date this hydrogen has largely been produced using fossil fuels such as natural gas and coal.

• Unlike methanol, a source of CO2 is not needed to produce ammonia, and no CO2 emissions are produced when ammonia is combusted. Therefore, the lowest emission form of ammonia on a lifecycle basis – green ammonia – is produced using green hydrogen, produced from renewable electricity.

• However, it is unclear what levels of N2O (nitrous oxide, a potent GHG) and NOx (nitrogen oxide, an air pollutant that damages health) will be emitted with the widespread use of ammonia as a shipping fuel.

• Beyond emissions from the production and combustion of ammonia, the high toxicity of ammonia needs to be carefully accounted for. As ammonia slip presents a risk to both those on board, in port areas and surrounding wildlife, it is important that robust training and safety regulations are put in place to manage this risk.

Hydrogen

• Green hydrogen has the potential to be used directly as a fuel for shipping, either via combustion or in fuel cells, for fixed routes covering shorter distances. However, its low volumetric density means that it is unlikely to be suitable for deep-sea shipping because of storage constraints (unless converted in ammonia or methanol as above).

• The main benefit of green hydrogen is that, when it is combusted, it doesn’t release CO2 emissions. That’s why – if emission reductions are to be maximised – green hydrogen, which is produced using renewable electricity, must be used as a shipping fuel over other, higher emission forms of hydrogen.

• As with ammonia, big changes will be needed at ports and on ships to facilitate the uptake of green hydrogen as a shipping fuel, with existing engine systems incompatible with green hydrogen and no existing infrastructure at ports for the bunkering of hydrogen.

• Both as a feedstock for methanol and ammonia, and as a fuel itself, the shipping sector will provide a ready market for supply of EU-produced green hydrogen – playing a role in both driving the growth of this sector, and reducing shipping’s exposure to fluctuating fossil fuel prices driven by global forces.

What is the current policy landscape?

• The FuelEU Maritime initiative – which was adopted in July 2023 – calls for an 80% reduction in the greenhouse gas intensity of fuels used by the shipping sector by 2050. This is not in line with the Paris Agreement, and lags behind the International Maritime Organization (IMO) targets of a 30% reduction in emissions by 2030, 80% by 2040 and zero in 2050. The EU will need to increase its targets accordingly if it is to remain a leader in the global emissions reduction field.

• The FuelEU Maritime regulation includes a 2% fuels usage target by 2034 of synthetic fuels, including hydrogen-derived fuels, if synthetic fuels amount to less than 1% in the fuel mix in 2031. This is too low and the regulation in general supports the use of LNG – a fossil fuel – creating a Green Hydrogen Gap for shipping and aviation with a lack of regulation supporting the roll out of green hydrogen to those sectors.

What we need from policymakers

• Supply of green hydrogen and green hydrogen-derived fuels for the shipping sector will not meet the projected demand if it is not significantly scaled at pace. Regulations will be key to driving supply by demonstrating there is a guaranteed demand from the sector for these fuels.

• Here are our policy recommendations:

• Transport policy must not be viewed in isolation from decision making on the future uses of green hydrogen – this is an issue that requires coherence across various EU policies.

• The responsible Directorate-Generals (DGs) within the European Commission – and their respective Member State counterparts – need to ensure the enabling policy environment to allow green hydrogen innovations to be implemented and brought to the scale necessary to put shipping on a sustainable decarbonisation trajectory.

• Hydrogen strategies must recognise the importance of green hydrogen in decarbonising shipping, along with other hard-to-electrify sectors.

• The EU has already introduced regulation that mandates minimum use targets for synthetic fuels, but only starting in 2034. These can and must go further – with all regulations ensuring that the lowest emission fuels are incentivised over other alternatives.

• Incentives for the lowest emission fuels must also extend to any mechanisms put in place to drive the supply of alternative fuels for the sector – for example support for fuel production or ship retrofits.

Want to know more? Read our Green Hydrogen Gap report here.*

* This factsheet draws on information and statistics included in the Green Hydrogen Gap report and supporting research conducted by Arup.