Hydrogen: The Key to Decarbonizing the Global Shipping Industry?

Maritime shipping accounts for approximately one-quarter of all emissions from the global transportation sector. Emitting nearly one billion tons of CO2 per year, the shipping industry faces intense pressure to decarbonize in the coming decades. The International Maritime Organization (IMO), the United Nations’ regulatory body for shipping, called for a 50 percent reduction in greenhouse gas (GHG) emissions by 2050, compared to 2008 levels, in order to align the industry with the objectives of the Paris Climate Agreement. 

Q1: What commitments have been made so far to decarbonize the shipping industry?

A1: Both industry leaders and governments have shown interest in decarbonization projects. In 2018, Maersk, the largest shipping company in the world, announced that it intends to make its operations carbon-free by 2050 (and reduce emissions by 60 percent by 2030). Other European shipping giants like Mediterranean Shipping Company and France’s CMA CGM are also investing in carbon-neutral shipping technology.

These private sector commitments may be influenced by government commitments to decarbonization: in December 2019, the European Union committed to extend the EU emissions trading system to shipping. This will likely come into force in 2022. Joe Biden’s climate plan promises an enforceable, U.S.-led international agreement to reduce global shipping emissions within his first 100 days in office.

However, despite private and public interest in decarbonization, the immediate prospects for the global shipping industry are not clear. International shipping currently uses virtually no low-carbon fuels, instead relying on carbon-dense bunker fuel. To reach the IMO’s goals, industry leaders say that the first net-zero ships must enter the global fleet by 2030. Therefore, it is imperative to explore low-carbon fueling alternatives now to prepare for the impending energy transition in the coming decades.

Q2: What fuel alternatives are available?

A2: Out of the several various clean fuel alternatives being currently piloted, hydrogen is the clear leader. A Global Maritime Forum study from March 2021 examined 106 projects looking at zero emissions in maritime shipping worldwide and found that nearly half of these initiatives focused on hydrogen as a low-carbon fuel source. A key advantage of hydrogen over other fuel alternatives is the relative ease of retrofitting existing ships with hydrogen fuel cells. (See Q3 for a more complete discussion of its advantages.) Hydrogen fuel could replace 43 percent of voyages between the United States and China without any changes, and 99 percent of voyages with minor changes to fuel capacity or operations.

While no giant shipping vessels have been tested with hydrogen yet, hydrogen-powered ferries and smaller shipping vessels have been piloted in the United States, Belgium, France, and Norway. Oil major Royal Dutch Shell has invested in several hydrogen production projects in Europe and China, arguing that hydrogen is “advantaged over other potential zero-emissions fuels for shipping.”  

There has also been some industry interest in non-hydrogen liquid fuels, such as biofuel, but they are less mature than hydrogen. For example, in 2019, Maersk piloted a carbon-neutral ship which traveled from Rotterdam to Shanghai and back on a 20 percent biofuel blend.

Q3: How does hydrogen work?

A3: Hydrogen is the most abundant element in the universe. However, on Earth, pure hydrogen (H2) is relatively uncommon. It is commonly found in water (H2O) and organic compounds, like methane (CH4). Pure hydrogen gas—widely used for synthesizing chemicals and refining crude oil—is produced artificially, usually from fossil fuels like methane in relatively carbon-intensive processes. The production of hydrogen emits 830 million metric tons of CO2 globally each year, more than the total CO2 emissions of Germany in 2017. Low-carbon hydrogen of the future will likely be produced instead from water through electrolysis, which releases virtually no carbon emissions.

Hydrogen is generally divided into three different types, depending on the carbon intensity of the production process:

Gray hydrogen is produced from fossil fuels through steam reforming. 95 percent of the 70 million metric tons of hydrogen produced annually is gray hydrogen, and over 70 percent of gray hydrogen is produced from natural gas (mostly methane). Gray hydrogen yields approximately 10kg CO2 per kg H2 produced, placing its carbon footprint between that of natural gas and coal. 

Blue hydrogen is produced through steam reforming, but production plants are retrofitted with carbon capture, utilization and storage (CCUS) technology. Depending on the technology and the fossil fuel used, blue hydrogen plants can capture 50–90 percent of CO2 emissions, yielding approximately 2–5 kg CO2 per kg H2 produced. For example, the blue hydrogen plant in Port Arthur, Texas captures around 60 percent of CO2 created in production.

Green hydrogen is produced by electrolysis, which splits water into hydrogen and oxygen using electricity. Since electrolysis does not give off CO2 as a byproduct, green hydrogen is the only form of hydrogen with a virtually carbon-free production process. Electrolysis using electricity generated by renewable energy (solar or wind power) produces less than 5 percent of the CO2 emissions of gray hydrogen (non-zero due to emissions generated during transportation and electricity generation). This production technique is not new—alkaline electrolysis has been in commercial use for a century—but the costs of green hydrogen production are significantly higher than for blue or gray hydrogen. Hydrogen from electrolysis using renewable energy offers the only sustainable and mass-produced fuel source for the shipping industry

Once hydrogen gas is produced, it can be stored and transported in fuel tanks. However, since hydrogen has a very low energy density, it must be significantly compressed and cooled, similar to the compression of methane to produce liquefied natural gas (LNG).

Q4: What are the upsides of hydrogen as a shipping fuel?

A4: There is an existing global hydrogen market. 70 million metric tons of hydrogen are produced for industrial use worldwide every year, with approximately 10 million metric tons produced in the United States. In addition, the hydrogen market is expected to grow as private firms and countries pursue projects to expand production capacity in expectation of rising demand for clean energy. Germany, for example, aims to create 10 gigawatts of domestic electrolysis capacity for green hydrogen by 2040.

Hydrogen can be stored in large amounts for long periods of time. This is advantageous for the shipping industry, as well as transportation in general, industrial, and energy sectors.

Fuel cell technology exists and can be retrofitted into most ships. In order to power ships, hydrogen needs to be loaded into fuel cells, in which hydrogen’s energy is converted into electricity and heat energy, which powers the ship’s propulsion mechanism. This process—the opposite of electrolysis—can provide a continuous supply of energy as long as the cell is fed with fuel, which is an advantage over batteries, which need to be recharged. Fuel cell efficiency of over 60 percent has been demonstrated, and over 80 percent efficiency is possible under certain conditions. Fuel cells are quiet, have no moving parts, and are easily scalable for larger ships, since individual cells can be stacked. Most ships today could be retrofitted with fuel cells.

Blue and green hydrogen provide a pathway for the shipping industry to reduce its GHG emissions significantly. In addition, hydrogen fuel cells are relatively quiet, limiting noise pollution, and only release water vapor and oxygen as byproducts, virtually eliminating air pollutants during fuel consumption.

Q5: What are the challenges of hydrogen as a shipping fuel?

A5: Hydrogen is extremely flammable and has a larger ignition range than other traditional fuels, meaning that hydrogen will burn at both low and high concentrations when combined with oxygen. However, there are safety measures that can mitigate this risk during storage, transportation, and ignition.

Hydrogen, even in liquid form, is less energy-dense than bunker fuel, meaning that hydrogen fuel cells will take up more volume on cargo ships, which engenders an efficiency and opportunity cost of lost cargo. However, this displacement should be minor: 99 percent of U.S.-China voyages in 2015 could have been powered by hydrogen with minor changes to fuel capacity, such as replacing 5 percent of cargo space with hydrogen fuel.

While gray hydrogen is currently reasonably price competitive with traditional fuel sources, costing around $1–2/kg H2, it fails to offer a sustainable solution to reduce GHG emissions at scale. Blue hydrogen is 30–80 percent more expensive than gray hydrogen, and green hydrogen is about 4 times costlier than gray hydrogen. While the retail prices of blue and green hydrogen are expected to decline as the cost of renewable electricity and electrolysis fall, government intervention is necessary to promote private investment in green hydrogen technology and to develop infrastructure for refueling and hydrogen transportation necessary for blue and green hydrogen to be price competitive with gray hydrogen.

Q6: What is the short-term outlook for hydrogen? How could development be accelerated?

Q6: Despite the cost challenges, hydrogen is the most promising clean fuel option for the global shipping industry. Many leaders in the transportation and energy sectors have realized this and have begun to invest in research and development (R&D) to reduce production costs and explore scalability. However, it is unlikely that the drastic cost reductions necessary to make green hydrogen cost-competitive with traditional fuel will be attainable in the medium-term without government support.

A 2020 study commissioned by the International Council on Clean Transportation determined that the cost of producing green hydrogen from renewable electricity in the United States and Europe could be halved by 2050 with financial incentives to promote R&D. More direct measures to price carbon could similarly accelerate the scalability of hydrogen: a 2020 report from U.S. nonprofit Resources for the Future found that a carbon tax or tax credit of $50 per ton of CO2 would make blue hydrogen (capturing 50–60 percent of emissions) price competitive with gray hydrogen. A tax credit would offset the large fixed capital expenditures of retrofitting existing gray hydrogen plants with CCUS technology.

New emissions regulations from the IMO restricted the sulfur content in fuel used by ships from 3.5 percent to 0.5 percent starting in 2020, which has likely pushed more shipping companies to explore alternative fuel sources like hydrogen. The Global Maritime Forum study from March 2021 noted that pilot projects using hydrogen as a fuel source for large ships tripled from 2019 to 2021. Some countries have implemented their own emissions regulations—all cruise ships and ferries sailing through Norway’s fjords must be emissions-free by 2026—but these will likely not be enough to accelerate cost reduction of green hydrogen by 2030.

President Biden’s climate plan includes a promise to make carbon-free hydrogen price-competitive with shale gas. In order to achieve this goal in the next decade, the Biden administration should consider the following policies.

Strengthen the domestic hydrogen industry to build a manufacturing base for and lower the cost of low-carbon hydrogen. This could take the form of tax credits for retrofitting gray hydrogen plants with CCUS technology or government support for R&D projects in hydrogen manufacturing and infrastructure, including the mass manufacturing of hydrolyzers. Output-based rebates for U.S. hydrogen producers that produce low-carbon hydrogen could also push blue and green hydrogen toward cost-competitiveness with traditional fuels.

Collaborate among industries to encourage hydrogen production throughout the U.S. economy. In addition to shipping, hydrogen is a viable fuel for most industrial processes. The government should encourage R&D and sharing of best practices between the transportation and industry sectors to accelerate cost reduction and scaling of low-carbon hydrogen. The Department of Energy’s 2020 Hydrogen Program Plan recognizes the intersectoral applications of hydrogen and also envisions boosting hydrogen production for non-maritime transportation and industry purposes.

Stimulate commercial demand for low-carbon hydrogen by strengthening regulations on shipping emissions and providing tax incentives for shipping firms to retrofit their ships with hydrogen fuel cells. This will help compensate the financial loss of cargo potentially displaced by additional fuel volume and encourage U.S. shipping companies to pilot hydrogen-powered shipping projects. A tax on carbon emissions will make gray hydrogen more expensive, closing the cost gap between gray and low-carbon alternatives. Additionally, increased demand should reduce the first-mover risk for investing in green and blue hydrogen by hydrogen producers. Encouraging investment into hydrogen fueling stations and hydrogen-powered trucking at key U.S. ports is pivotal to building up critical infrastructure.

Partner with like-minded parties like the European Union in order to harmonize international standards for shipping emissions and hydrogen fuel. A unified set of standards between the United States, European Union, and other major shipping countries would reduce risk for investments into low-carbon hydrogen production and infrastructure as well as eliminate incentives to escape more stringent regulations in particular areas.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Will O’Neil is an intern with the CSIS Scholl Chair.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Will O’Neil

Intern, Scholl Chair in International Business