IMO’s Net Zero Framework sends a clear signal to shipowners to order ammonia dual fuel ships, but remaining uncertainties undermine early investment in e-fuels
LONDON : A new study released on Thursday, May 29 by UMAS and UCL Energy Institute Shipping and Oceans Research Group, and undertaken for Global Maritime Forum, shows that under the parameters principally agreed last month within the IMO Net Zero Framework, ammonia dual-fuelled ships have a clear competitive advantage from the mid-term (mid-2030’s), while the near-term landscape remains less certain, with different fuel and technology choices offering similar competitiveness depending on various factors and unresolved policy details.
The report titled, “IMO’s new Net Zero Framework: implications for the competitiveness of different fuel/energy options“ uses a Total Cost of Operation (TCO) modelling approach to assess the relative competitiveness of various fuel and ship technology options under the International Maritime Organization’s (IMO) new Net Zero Framework (NZF). The NZF is a major step forwards in clarifying the risks and opportunities faced across shipping’s value chain during this transition but also leaves a number of key elements uncertain. The analysis highlights both the clarity provided by the NZF’s fuel standard and remedial unit pricing, and the uncertainties surrounding key aspects like Zero and Near Zero (ZNZ) fuel rewards and the dynamics of the Surplus Unit (SU) trading market.
Dr Tristan Smith, Professor of Energy and Transport at the UCL Energy Institute, said: “Many stakeholders were waiting for ‘clarity’ from IMO in order to take decisions. Although there are significant complexities and uncertainties in what was agreed in April, even conservative projections of how remaining policy details will be finalised results in a ‘no brainer’ choice for shipowners in dual fuel ammonia. However equivalent clarity is not available for producers of fuels, particularly e-fuels. This analysis indicates its likely that key investment decisions for e-fuels will await a strong outcome from the IMO policy debate on the ZNZ reward mechanism, unless they are supported by other opportunities or governments.”
Ammonia offers the greatest flexibility and competitiveness: The analysis shows that even with the initial specification parameters (e.g. for fixed and agreed RU prices), and ignoring the reward mechanism for ZNZ fuels, ammonia duel-fuelled ships have a clear competitive advantage from at least the mid-term (mid-2030’s) onwards and create the broadest optionality for least cost compliance in the short-term. When considering the likely specifics of the reward mechanism, the potential for e-ammonia to be a competitive compliance pathway is even earlier, from 2028 onwards.
Conventionally fuelled vessels are uncompetitive: The TCO analysis indicates that the strategy to only own conventionally fuelled tonnage is now uncompetitive in both the short-term and certainly the mid-term – as well as constraining opportunities to benefit from uncertain potential upsides in SU and reward revenues.
Challenges with LNG remain: The study reveals multiple competitive fuel options and strategies remain viable in the short-term. The TCO modelling indicates that LNG will initially hold a competitive advantage over alternative fuel choices during the early transition period. Despite any early dominance LNG may achieve in the late 2020s, its prospects become more challenging by the early 2030s. LNG’s relatively high emissions intensity presents a fundamental constraint—it cannot generate sustainability units (SUs) without onboard carbon capture and storage technology. Consequently, LNG dual-fuel (DF) ships must rely on either lower-emission drop-in fuels (such as bio-LNG, bio-marine gas oil, or e-LNG) or accept penalty costs. This dependency, combined with uncertainty surrounding future gas prices and abatement cost differentials compared to other alternatives, can significantly weaken the incentive signals for LNG adoption.
Remedial Unit, Surplus Unit and reward mechanism are key drivers of competitiveness: This study highlights that current (and, in some case, continuing) uncertainties about RU/SU prices and the reward specification, as well as on the interactions that can occur between them, necessitates that analysis be conducted over a range of potential values to ensure the robust assessment of any risks and opportunities for different fuel/energy options.
Implications for ports and fuel producers: Infrastructure investment should focus on ammonia capacity development while preparing for potential rapid scaling, particularly as LNG demand may contract quickly after an initial surge. The analysis reveals mixed signals for different fuel producers, with conventional and LNG producers facing significant demand uncertainty, while biogenic fuel producers receive clearer positive signals if they can achieve competitive pricing.
