Navigating to Net Zero: Decarbonizing the Shipping Industry

If the global shipping sector were a country, it would rank among the world’s top emitters. Ships carry about 80% of global trade by volume but contribute roughly 3% of total carbon dioxide emissions. The sector’s reliance on heavy fuel oil and diesel makes it one of the most difficult to decarbonise. The key question is whether global shipping can achieve net zero by 2050 without disrupting trade.

Recent years have brought new regulatory pressure, early fuel transitions, and collaboration across the maritime value chain. Yet costs, safety issues, and fuel readiness continue to slow progress. The path to net zero is visible but steep.

 

Regulation: The New Climate Compass

 

In 2023, the International Maritime Organization (IMO) adopted a strengthened greenhouse gas strategy targeting net-zero emissions “by or around 2050.” It also set interim checkpoints: at least 20% emission cuts by 2030 (striving for 30%) and 70% by 2040 (striving for 80%), compared with 2008 levels. The plan calls for at least 5% of energy used in international shipping to come from zero or near-zero emission fuels by 2030, with an aspirational 10% target.

To meet these goals, the IMO is developing measures such as a global fuel standard and possibly a carbon levy on ships’ greenhouse gas emissions. Levy proposals range from $20 to $150 per tonne of CO₂. Funds collected could help bridge the cost gap between conventional and green fuels while supporting developing economies in a “just transition.”

Regional regulators are moving faster. The European Union extended its Emissions Trading System (ETS) to shipping in 2024. Operators must now buy carbon allowances for emissions on voyages involving EU ports, covering 40% of emissions in 2024, 70% in 2025, and 100% from 2027. The EU’s FuelEU Maritime regulation, active since January 2025, requires ships to reduce the greenhouse gas intensity of their fuel by 2% in 2025, rising to 80% by 2050. Together, these policies aim to force cleaner fuels into the market.

Market mechanisms are adding further pressure. The Poseidon Principles that cover about 80% of global ship financing tie lending portfolios to climate-aligned trajectories. Banks now prefer to finance energy-efficient or fuel-flexible ships over traditional oil-burning vessels. Shipowners must prepare for a carbon price or risk obsolescence.

 

Transition Pathways: Technology and Fuel Options to Decarbonise Shipping

 

The industry is exploring two major routes: improving energy efficiency and switching to zero-carbon fuels.

Efficiency upgrades are the most immediate lever. Operators are cutting emissions through slower sailing speeds, hull design improvements, propeller upgrades, route optimization, and wind-assisted propulsion. These steps can trim fuel use by 5–20%, depending on vessel type.

The deeper transition will come from fuel switching. Current options include methanol, ammonia, hydrogen, biofuels, and electrification. Each offers potential but also major constraints.

Methanol has gained early traction. It is liquid at ambient temperature, easier to store than hydrogen, and can be produced from renewable sources. In 2023, Maersk launched the world’s first methanol-powered container ship, a 2,100-TEU vessel bunkered with green methanol at ports from Korea to Rotterdam. The company has ordered 24 large dual-fuel ships capable of running on methanol by 2027. Other carriers such as CMA CGM and COSCO are following suit. The main obstacle remains supply: global green methanol production is limited and still costly.

Ammonia is another zero-carbon candidate. It emits no CO₂ when burned and benefits from existing global trade infrastructure. But its toxicity and the lack of operational engines make it a long-term solution. In 2024, Japan conducted a successful trial with an ammonia-fuelled tugboat, achieving up to 95% CO₂ reduction using a 95% ammonia blend. Ammonia-fuelled engines for larger vessels are expected to enter service later this decade.

Hydrogen is emerging for short-range operations. The Norwegian ferry MF Hydra became the first to run on liquid hydrogen in 2023, proving the technology’s viability for short routes. Hydrogen’s low energy density and storage challenges limit its use in long-distance shipping, but it underpins other fuels such as ammonia and methanol.

Electrification is advancing in short-sea routes. Norway operates over 100 battery-powered ferries, replacing diesel across 67 routes. These ferries have cut emissions and reduced operating costs by up to 90%. Battery systems are not feasible for ocean-going vessels due to weight and range limits, but hybrid configurations are gaining popularity for coastal and port operations.

LNG and biofuels remain interim steps. LNG offers lower CO₂ emissions than fuel oil but still carries methane leakage risks. Biofuels can be blended into conventional fuel, but the sustainable supply remains limited. The likely future lies in e-fuels: renewable hydrogen-based fuels such as e-methanol and e-ammonia, once costs decline and supply chains expand.

Read More: Inside Maersk's 2040 Climate Strategy

Economics: Closing the Cost Gap

 

Decarbonising shipping is expensive. Green fuels currently cost two to five times more than heavy fuel oil. Green ammonia, for instance, costs around $800 per tonne, but ships require about 2.5 tonnes of ammonia to match the energy in one tonne of oil, pushing effective costs to roughly five times higher. Green methanol also remains two to three times more expensive.

This cost gap makes early adoption risky. Retrofitting existing ships for alternative fuels is technically feasible but costly. Many owners prefer new builds designed to be “fuel-ready” or dual-fuel capable. Yet new ships are long-term investments, and fuel uncertainty complicates decisions.

Carbon pricing could shift the economics. At €90 per tonne of CO₂, the EU ETS already raises operating costs for oil-fuelled ships. A global carbon levy of $150 per tonne of CO₂ would nearly close the cost gap with green fuels. Under such a levy, oil could cost around $1,100 per tonne versus $800 for green ammonia making the cleaner fuel competitive.

Finance is evolving too. Under the Poseidon Principles, banks now measure the carbon intensity of their shipping portfolios against IMO targets. Shipowners with efficient fleets can access better loan terms, while inefficient operators may face higher rates. Sustainability-linked loans and green bonds are also funding fleet upgrades, with incentives tied to emissions reductions.

Cargo owners are playing a new role. The Cargo Owners for Zero Emission Vessels (coZEV) coalition, backed by companies like Amazon, IKEA, and Unilever, has committed to 100% zero-emission shipping by 2040. Its spin-off, the Zero Emission Maritime Buyers Alliance, pools freight demand to secure early contracts for green shipping. These offtake commitments are giving shipowners and fuel producers confidence to invest.

The financial ecosystem is gradually shifting. Regulation, customer demand, and capital markets are aligning to make carbon-intensive operations less competitive and green ships more bankable.

Read More: DHL and Hapag-Lloyd Partner on Three-Year Sustainable Fuels Deal to Cut Ocean Shipping Emissions

Collaboration

 

No single actor can decarbonise shipping. The sector depends on coordinated action across shipowners, ports, fuel suppliers, and financiers. Green corridors have become a practical model for collaboration. The Singapore–Rotterdam Green and Digital Corridor is the most advanced example. It brings together over 20 partners, including both ports, shipping lines, energy companies, and research institutions. The goal is to enable zero or near-zero emission voyages on this major trade route by 2030, cutting emissions by 20–30%. In 2023, Maersk’s methanol-powered vessel completed bunkering in both ports, proving cross-continental coordination possible.

Similar initiatives are under way between Los Angeles and Shanghai, and between Australia and Japan for green ammonia trade. The Clydebank Declaration from COP26 has now inspired more than 20 announced corridor projects worldwide.

Ports are emerging as hubs of the transition. Singapore, Rotterdam, and Los Angeles are investing in bunkering infrastructure for new fuels, while Norway and Denmark are expanding shore-power facilities that let ships plug into clean electricity while docked. These early steps will define how quickly zero-carbon fuels scale globally.

Industry alliances are reinforcing collaboration. The Getting to Zero Coalition, the Global Maritime Forum, and the Maersk Mc-Kinney Møller Center for Zero Carbon Shipping are pooling research and pilot projects. Energy firms such as Equinor and TotalEnergies are entering partnerships to secure long-term green fuel supply.

Cargo owners are shifting demand too. Through the coZEV network, multinationals are moving beyond pledges to create early markets for clean shipping. This growing cooperation among ports, shipowners, financiers, and cargo buyers shows that progress at sea will depend on collaboration, not competition.

Read More: HyLion Network Pilots e-Methanol to Decarbonise Supply Chains

Barriers

 

Despite momentum, several challenges continue to slow progress.

Fuel supply is scarce. Meeting the IMO’s 2030 goal of 5% net-zero fuels would require tens of millions of tonnes annually, yet global production remains minimal. Most announced green hydrogen and ammonia projects are still awaiting investment decisions.

Infrastructure is lagging. Few ports can safely handle methanol or ammonia bunkering. Building global networks will take time and significant capital. Without refuelling assurance, shipowners hesitate to order alternative-fuel ships.

Costs remain prohibitive. Even with carbon pricing, the “green premium” for new fuels is steep. Until regulations or subsidies change the economics, most operators will not switch at scale.

Technology and safety concerns persist. Ammonia’s toxicity, hydrogen’s volatility, and battery fire risks require rigorous safety standards. Regulatory frameworks for these fuels are still evolving.

Global policy alignment is incomplete. The IMO’s targets lack enforceable mechanisms before 2025. Regional rules like the EU ETS create uneven competition. Developing countries fear higher shipping costs could hurt trade, raising equity concerns.

Fleet turnover is slow. Ships often operate for 20–30 years. Many vessels built today will still be running in 2040, locking in emissions. Unless early retirement or retrofit incentives emerge, the decarbonisation pace will remain gradual.

 

What's Next?

 

The coming decade will define whether the shipping industry can align with the Paris Agreement’s goals. The technological pathway exists, but scaling it will require action across several fronts.

Fuel production and infrastructure must scale rapidly. Governments and energy companies need to invest in renewable hydrogen and e-fuel facilities. Major ports should develop bunkering infrastructure for at least one zero-carbon fuel by 2030.

Policy must become predictable. The IMO’s 2025 measures should include a global fuel standard and a carbon levy high enough to shift market behaviour. Regional regulations should harmonize to avoid distortion and reward early movers.

Markets must commit. Offtake agreements and long-term contracts can create reliable demand for new fuels. Cargo owners and charterers can drive the shift by specifying low-carbon transport in procurement. Banks and investors must integrate emissions performance into lending and insurance.

Demonstration projects need to multiply. A handful of pilot ships will not be enough. The industry needs fleets of alternative-fuel vessels operating regularly on key routes, supported by data-sharing and safety monitoring.

Transition finance must fill the gap. Carbon revenues or green funds could subsidize the first wave of zero-emission voyages and help developing countries upgrade port infrastructure. Mandates could eventually phase out new fossil-fuelled ships.

Shipping’s decarbonisation will test global cooperation. Yet the pace of change since 2020 is striking: the first green methanol vessel has sailed, hydrogen ferries are in service, and ports are preparing for ammonia bunkering. What once seemed distant is now technically and economically plausible.

The question is no longer whether shipping can decarbonise, but how quickly it can overcome cost and coordination barriers. With stronger policies, growing investor pressure, and accelerating technological progress, the world’s heaviest industry may yet steer toward a cleaner horizon by mid-century.

 

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