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September 27, 2023

Maritime industry faces extra complexity in achieving green fuel transition, says Fincantieri

Fincantieri’s Ancona shipyard. The Italian shipbuilder is prepared to trial and validate new, low-carbon technologies to help diminish shipping’s hard-to-abate emissions, says its CEO
(Credit: Fincantieri)
Fincantieri’s Ancona shipyard. The Italian shipbuilder is prepared to trial and validate new, low-carbon technologies to help diminish shipping’s hard-to-abate emissions, says its CEO (Credit: Fincantieri)

Shipbuilding is going through an ‘evolutionary phase’ as it is forced to innovate, following more intense scrutiny of the maritime industry’s decarbonisation plans, Fincantieri’s CEO tells Sustainable Views

Policymakers should “create stimulus that is not a punishment” when imposing emissions reduction targets on the maritime industry, according to Pierroberto Folgiero, chief executive of Italian shipbuilding giant Fincantieri.

The push for the industry to take up green fuels has received a boost from the regulators in recent months. Through its FuelEU Maritime initiative, from 2025 the EU will begin imposing emission-intensity reduction targets on vessels above 5,000 tonnes, to stimulate the use of low-carbon fuels. From 2024, the industry will also be included in the bloc’s emissions trading system.

Meanwhile, the International Maritime Organization – the UN body tasked with regulating shipping – has adopted a revised greenhouse gas strategy that commits to reaching a target of at least 5 per cent (striving for 10 per cent) of zero or “near-zero” emissions, by 2030.

Tackling emissions

State-owned conglomerate Fincantieri – Europe’s largest shipbuilder, which is involved in the construction of cruise ships, military vessels and offshore floating platforms – is prepared to trial and validate new, low-carbon technologies to help diminish the industry’s hard-to-abate emissions, Folgiero tells Sustainable Views.

Fincantieri’s role is to propose solutions and validate them for shipowners, who are key to its decision-making, he says.

While Folgiero says that as yet there are no “plug and play” solutions on the market, his company is considering alternatives such as hydrogen and nuclear to run vessel operations that rely almost exclusively on oil and liquefied natural gas.

Unlike some other industries, shipping does not have a single designated replacement for fossil fuels. Options under consideration include green methanol, ammonia and hydrogen, as well as wind and nuclear power.

“When you start to deal with new green fuels, our role is very important because we need to integrate it in the new engines,” says Folgiero. Shipbuilders would need to create engines that can run both on fossil fuels and on hydrogen, for instance.

He adds that the main hurdles in the transition to green fuels involve its availability in large enough quantities, lower costs and enough viable distribution points.

Move to green fuels

Currently, the only way to manage the uncertainty is to provide multiple engine systems, which only increases complexity for shipbuilders, says Folgiero. The use of hydrogen, for example, brings its own difficulties. 

“To store hydrogen in a ship, you need five times more space, and when you are at sea it’s all about space and weight. If you occupy more space for energy storage, you have less space for revenues, which are your return on investment,” he says. 

Deciding on an alternative green fuel is crucial, because while the world is still figuring out which one to prioritise, shipowners are making decisions over a 30-year timeframe – the usual lifespan of a vessel. “You have to take a view under uncertainty … and when you [undertake] a long-term investment, you would like to have a higher level of certainty before making investment decisions,” says Folgiero.

Furthermore, he stresses the importance of the whole maritime “ecosystem” being involved in decarbonising the industry. “There cannot be an energy transition at sea, if there is none at port,” he says, adding that infrastructure onshore needs to be equipped as well. “You have to believe it is a ‘no way back’ journey.”

Shipping levy

Meanwhile, discussions are also being held at the EU and UN level surrounding a potential tax on shipping emissions. The most contentious elements of such a policy are the level of a levy and how the revenues raised would be fairly distributed.

“No one can deny that this [shipping levy] is the way you can create the alternative cost [for shipping emissions],” says Folgiero. However, he urges policymakers to ensure such a levy is reasonable, and not to “kill an industry with algorithms”.

While he expects negotiations with the IMO on the subject to continue, he believes that much will also depend on the new EU leadership, following next year’s elections.

Folgiero says Italy’s recovery and resilience plan post pandemic (the so-called PNRR) could see EU funds being employed to speed up green infrastructure in Italian ports and harbours. However, he also admits that to switch from one economy to another will require a hybrid period where collaboration among different stakeholders will be necessary.

Listed companies tend to be very active on sustainability issues, as environmental, social and governance-reporting requirements are becoming ever more important, and Fincantieri is involved in sustainability partnerships with clients, he adds. It will soon launch a carbon tracker project to help suppliers reduce the carbon footprint of their operations. 

Still, when it comes to collaboration with others in the field (ie, competitors) the prospects look more difficult. Folgiero says that being ahead of the competition on sustainability issues, such as the development of engines that run on certain green fuels, would give a company like Fincantieri an advantage against other shipbuilders that are not yet investing in this space.

A service from the Financial Times