The shipping industry is on the cusp of a significant transformation, driven by the International Maritime Organization’s (IMO) upcoming regulation on greenhouse gas emissions. According to Finland-based Wartsila’s CEO Hakan Agnevall, the cost of operating on heavy fuel alone will double by 2035, making it a critical period for the industry. The IMO’s new rules, which will be adopted by member states in October, require shipping companies to pay $100/mtCO2e for missing the lower GHG intensity threshold and $380/mtCO2e for the higher threshold. Those who emit less than the lower threshold can generate carbon credits that can be sold to those who miss the higher threshold by using conventional, oil-based fuels.

• Shipping companies will pay $100/mtCO2e for missing the lower GHG intensity threshold and $380/mtCO2e for the higher threshold.
• Carbon credits can be generated by burning low-carbon fuels and sold to those who miss the higher threshold.
• The regulation is expected to create a level playing field between fossil fuels and green fuels.

The regulation is a major milestone for the shipping industry, as it could be the world’s first global carbon surcharge on a sector’s emissions. Agnevall, whose company is one of the world’s largest marine engineering firms, believes that the critical thing is to create a level playing field between the fossil fuel and the green fuels.

“The critical thing is to create a level playing field between the fossil fuel and the green fuels … At least short term, it could probably lead to a stronger demand for biofuels.”

The current bunker prices for very low sulfur fuel oil, the most common bunker type, are $504.35/mt in Singapore, compared to $713.84/mt for B24 bioblend with 24% used cooking oil methyl ester and 76% VLSFO.

The global fleet is currently 99% conventional ships that can only burn biodiesel like UCOME and oil-based bunkers. However, the proportion is forecast to fall in the coming years, with more ships designed to use alternative fuels hitting the waters.

• 99% of the global fleet are currently conventional ships.
• The proportion is forecast to fall in the coming years.

New Technologies Emerging

Wartsila, one of the world’s largest marine engineering firms, has raised its spending on research and development to Eur296 million ($349 million) in 2024, compared to a historical average of 3%. Agnevall said most of the expenses were related to decarbonization technologies. Emerging Fuel Options

Biodiesel, bio-LNG, biomethanol, and eMethanol could all become widely available from the early 2030s, before substantial renewable ammonia supplies come to existence in the second half of the next decade. This means shipowners need to invest in multi-fuel capacities from now to avoid stranded assets. Investment in Multi-Fuel Capacities

Agnevall emphasized the importance of investing in multi-fuel capacities, as a ship could be in operation for 25-30 years. “None of the green fuels is available in significant quantities. But shipowners still want to, kind of, derisk,” he said. New Technologies for Carbon Capture

Wartsila has developed marine propulsion systems for LNG, LPG, and methanol. The company is also working on a scrubber system with carbon capture and storage technology, which has a capture rate of 70% and a cost of Eur50-Eur70/mt. Carbon Capture Costs

Agnevall suggested that total CCS costs for shipowners would be higher due to handling and disposal expenses. Value Maritime, another developer of CCS-capable scrubbers backed by Shell, has an affiliate dealing with carbon management, but Agnevall said Wartsila had no plan to step into that area. Industry Outlook

The IMO is expected to tighten the GHG standards for marine fuels further from 2035 for an eventual goal of net-zero shipping by 2050. Agnevall believes that the regulation will create a level playing field between fossil fuels and green fuels. Wartsila’s Vision

Wartsila is seeing several new marine fuels emerging as plausible compliance options. Biodiesel, bio-LNG, biomethanol, and eMethanol could all become widely available from the early 2030s. The company is also working on a scrubber system with carbon capture and storage technology. Investment in R&D

Wartsila has raised its spending on research and development to Eur296 million ($349 million) in 2024, compared to a historical average of 3%. Agnevall said most of the expenses were related to decarbonization technologies. Decarbonization Technologies

Wartsila has developed marine propulsion systems for LNG, LPG, and methanol. The company is also working on a scrubber system with carbon capture and storage technology, which has a capture rate of 70% and a cost of Eur50-Eur70/mt. Industry Trends

The shipping industry is expected to undergo significant changes in the coming years, driven by the IMO’s regulations and the increasing demand for low-carbon fuels. Agnevall believes that the regulation will create a level playing field between fossil fuels and green fuels. Global Fleet Composition

The global fleet is currently 99% conventional ships that can only burn biodiesel like UCOME and oil-based bunkers. However, the proportion is forecast to fall in the coming years, with more ships designed to use alternative fuels hitting the waters. Carbon Surcharge

The regulation is a major milestone for the shipping industry, as it could be the world’s first global carbon surcharge on a sector’s emissions. Agnevall believes that the critical thing is to create a level playing field between the fossil fuel and the green fuels. Low-Carbon Fuel Transition

Wartsila is seeing several new marine fuels emerging as plausible compliance options. Biodiesel, bio-LNG, biomethanol, and eMethanol could all become widely available from the early 2030s. This means shipowners need to invest in multi-fuel capacities from now to avoid stranded assets. Carbon Emissions Reduction

The IMO’s regulations are expected to reduce carbon emissions from shipping by 50% by 2030. Agnevall believes that the regulation will create a level playing field between fossil fuels and green fuels. Industry Outlook

The shipping industry is expected to undergo significant changes in the coming years, driven by the IMO’s regulations and the increasing demand for low-carbon fuels. Agnevall believes that the regulation will create a level playing field between fossil fuels and green fuels.