A new study by UMAS and the UCL Energy Institute has found that developing countries risk being left out of the opportunities brought by shipping’s transition to new fuels, as poor access to finance and higher capital costs could almost double the price of e-fuels they produce.
The study modelled the cost of producing e-ammonia in different countries, and found that similarly sized large-scale projects in Brazil, India and Sub-Saharan African countries would all be uncompetitive relative to projects in Australia, ‘despite comparable or better quality renewable energy resources’.
‘Access to funding and its cost has a huge impact on the comparative competitiveness of e-fuel projects which require large upfront investment over multi-year lead times,’ said Deniz Aymer, Senior Consultant at UMAS.
‘As the cost of capital increases, the relative disadvantage compounds and so very quickly you get to point where projects with better-quality renewable resources cannot out-compete projects with low costs of capital,’ she added.
The report warns that without targeted financial support mechanisms, future e-fuel production could concentrate in already-advantaged economies, which risks leaving developing countries behind even when they have abundant resources such as wind and solar.
Tristan Smith, Professor of Energy and Transport at the UCL Energy Institute, described the findings as ‘critically important’ for discussions at the International Maritime Organization (IMO) about ‘mid-term’ measures, which will be discussed at MEPC 83 in April.
‘It shows that unless IMO agrees measures that can produce stable revenues at a level able to fund both energy transition, and just and equitable transition, the outcome will undermine either, or both of its strategy commitments.’
The authors call for a portion of an IMO funds to be used for grants and concessional finance to help offset the higher financing costs in low-income countries. The study estimates that around $50 billion would be needed for this, in addition to the funds for any reward mechanism and other needs for a just and equitable transition.
A 2020 study by UMAS, UCL and the Global Maritime Forum estimated that decarbonising shipping by 2050 will require approximately $1.6 trillion in land-side investment, with about $400 billion needed by 2030 alone.
The full study is available here.
