Financing a More Resilient and Sustainable Energy System for Shipping

The maritime sector’s energy system is among the most fossil fuel-dependent and a significant contributor to emissions. This exposes the industry to supply chokepoints, volatile fuel prices, regulatory uncertainty, stranded assets and more. Diversifying the energy base is, therefore, an investment in resilience. It is also an opportunity; unlike the old energy system, whose geography is fixed by geology, the new one will be shaped by renewable power potential and industrial ambition – a space many countries, like India, are well placed to contest.

Shipping has committed to becoming more resilient and sustainable. This commitment remains largely intact despite a longer-than-expected Net Zero Framework (NZF) process and a more difficult climate transition environment. However, implementation has been slow and is slowing down, especially in Zero and Near Zero emission solutions (ZNZ). Critical fuel projects are stuck at pre-Final Investment Decision (FID), and enabling infrastructure such as bunkering, pipelines and storage is not yet built. The transition raises hard questions – for instance, what ships to buy and when, where to produce new fuels, and how energy trade and the bunkering network could change. Many are difficult to solve while there is a cost gap between incumbent and ZNZ fuels.

Pricing the Carbon Externality

The binding constraint is inadequate willingness to pay. This materialises as a lack of demand commitment, making many ZNZ projects near impossible to finance – the well-discussed offtake bottleneck. ZNZ fuels cannot compete on price; at historical price levels, green methanol has cost two to five times conventional bunker fuel on an energy-equivalent basis, and green ammonia at least two to six times. This is chiefly because the externality of consuming carbon is not accounted for – fossil fuels are too cheap, underpriced by at least US$6.7tn per year based on 2024 IMF estimates. The world already pays for historical carbon consumption through loss of life and economic costs from heatwaves, floods and other climate events – these will only grow. The task is to ensure these costs are reflected in the price we pay for fossil fuels, not deferred.

ZNZ fuels cannot compete on price; at historical price levels, green methanol has cost two to five times conventional bunker fuel on an energy-equivalent basis, and green ammonia at least two to six times. 

Shipping recognised this and created the NZF, which currently proposes a global price on emissions. However, the NZF has not yet been adopted; it is unlikely to take effect before 2029, and the carbon price it would ultimately set is not yet settled.

Measures for the Medium and Short Run

While efforts to implement optimal global policy continue, other measures can drive change. Sub-global policy could price the externality sooner and hedge against further delay or a global carbon price lower than needed to close the gap. Research and innovation are the main route to fundamentally cut the cost of production for ZNZ fuels. Both are essential, but neither delivers quickly.

Building new strategic infrastructure can progress in parallel and will lay the foundations for a scale-up. The lead times for fuel plants, storage and bunkering, and other infrastructure can be 2–5 years. First-of-a-kind risks raise financing, construction and other costs until they are dispelled. Other sectors offer cautionary tales on the pitfalls of not doing so – evidenced by the 5–15-year connection queues delaying the renewable power rollout in many countries, creating huge costs and missed opportunity.

Routes2FID

Despite the challenging environment, there is still sufficient push – for instance, from India’s National Green Hydrogen Mission, EU ETS, and FuelEU Maritime – to build viable business cases in select projects. India offers some of the best examples, for instance, SECI’s recent contracts for green ammonia at US$572–744 per tonne – among the lowest observed. This is unsurprising. India pairs an advantageous renewable energy endowment with supportive industrial policy – the IEA counts India as one of the few places where tenders have converted into final investment decisions (FIDs). Future energy corridors may also look different, giving India an opportunity to establish export lanes. These lighthouse cases demonstrate sustainable paths to scale, kickstart learning-by-doing efficiencies, and create the market; identifying and supporting them is vital.

India pairs an advantageous renewable energy endowment with supportive industrial policy – the IEA counts India as one of the few places where tenders have converted into final investment decisions (FIDs). Future energy corridors may also look different, giving India an opportunity to establish export lanes.

A lot of support has already been committed to the sector (over US$40 billion additional into hydrogen in the last year alone), but conversion remains limited (hydrogen FIDs fell again in 2025). There may be scope to deploy support more efficiently and crowd in private capital. Enhanced coordination between concessional capital, commercial capital and policy, deployed in a targeted way, could help strategic projects on the edge of FID. The renewable power scale-up offers examples. In European offshore wind, public levers such as contracts for difference, concessional lending targeted at market failures and deliberate policy, for instance, socialising site assessment and grid connection costs, were able to reduce and share risks. This helped to make the sector financeable for private investors such as pension funds, infrastructure investors, and project lenders. The UK’s Green Investment Bank, for instance, attracted around US$2.50 for every US$1 of public funds invested.

Coordination of this kind is difficult. Each party arrives with different priorities, understandings and capabilities. Resolving it requires: (i) establishing a common quantitative language of project returns, such as a broader levelised cost of production metric, (ii) considering a range of finance and policy instruments including innovative mechanisms and best practice from elsewhere, (iii) analysing different scenarios for capital efficiency and burden sharing, and (iv) quantifying the impact of support levers and packages on the competitiveness and holistic returns of ZNZ projects.

Shipping’s transition finance environment has entered a period of great uncertainty. Bankability of decarbonisation projects will not materialise at scale without significant carbon pricing, and effort toward this end remains essential.

These can facilitate action-oriented discussions in small but complete groups of stakeholders who want to support a given strategic project. Such a group is most effective when curated to remain nimble: able to discuss commercially sensitive information, yet complete so all types of levers can be explored and stacked. In this setup, stakeholders could quantify the impact of existing levers and analyse the remaining gap to FID, surface overlooked levers and what it might take for members to commit to them, identify missing stakeholders to crowd in, and more. This is the approach of our Routes2FID project. As a non-profit in maritime decarbonisation, we are committed to supporting the industry in the energy transition and open to connecting with any organisation that may benefit from a discussion.

Shipping’s transition finance environment has entered a period of great uncertainty. Bankability of decarbonisation projects will not materialise at scale without significant carbon pricing, and effort toward this end remains essential. In parallel, continued support for the pipeline of critical infrastructure and the groundwork for scale would prepare the sector to respond when demand signals firm up. AM Green’s AMGA-K1 green ammonia plant in Kakinada reached FID in 2024 and is one of the largest under construction worldwide. Four ammonia dual-fuel vessels ordered in H1 2026 will be built in an Indian shipyard. India has built a strong environment for ZNZ fuels and could be a key enabler of a more resilient energy system for shipping and beyond. Closing the gap on projects like these is where this effort begins.

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Lee Joh Hann leads transition finance and systems modelling work at the Lloyd’s Register Maritime Decarbonisation Hub.

source : orfonline