In our last bulletin, we talked about the cruise industry’s push toward decarbonization, and the exploration of various alternative fuel options such as LNG, methanol, and biofuels. The key takeaway was that decarbonization will be a collaborative effort across the entire maritime industry. It will take everyone to develop a sustainable and scalable supply chain that can support the widespread implementation of green fuels. Port’s will play a significant part of this transition. However, a port’s ability to support the introduction and scaling of alternative fuels is challenging for many reasons:
- Segmented Fuel Market: Likely, there will not be one fuel solution in the future, but rather a more segmented market with fuels driven by region and type of vessel.
- Limited Space: Ports have limited space to provide/adapt infrastructure for new fuels and provide safety around bunkering.
- Limited Capital: Ports have limited resources to invest.
- Limited Revenue Generation: Ports have little or no income associated directly with this segment of the industry.
- Decarbonization of Operations: Fuels are not the only focus for a port to decarbonize, ports must also look to decarbonize their own operations.
Each of these challenges are discussed below and suggestions on how ports can approach these problems are also evaluated.
The Challenges
1. Segmented Market
Today, fuels like heavy fuel oil (HFO) or marine gas oil (MGO) used by cruise vessels, or other vessels calling a port, is readily and widely available globally. Likely, there will not be one fuel solution in the future, but rather a more segmented market with fuels driven by region and type of vessel. This means that there will be multiple fuels in the future, that will not all be globally available and commoditized. As such, ports will need to decide what solutions are best based on the mix of vessels coming to their port and the regional dynamics of fuel production, availability and pricing.
First, our previous bulletin focused on the cruise industry and the fuels they are exploring, however, cruise is just a small fraction of the overall shipping industry and traffic to ports. Fuels outside of methane, methanol and liquid biofuels will be solutions for other vessel types, such as ammonia. Depending on the port’s business, it will be critical to follow the development of fuel solutions for the mix of vessels visiting the port to see what may offer the best solution for their business.
Second, the availability of fuels will be influenced by factors such as local production capacity, government incentives, and industry collaborations. Biofuels, for example, will be more broadly available where agriculture/waste products are in abundance.
Additionally, comprehensive policies are coming online with many individual countries/regions working to promote and/or subsidize the introduction of different fuels. Last summer, the US passed the Inflation Reduction Act (IRA). A key component of the IRA is a lucrative set of tax credits intended to accelerate the production and deployment of green hydrogen, which is made from renewable electricity and can be used to produce ammonia, methanol, and methane. These credits are leading to the introduction of new alternative fuel production facilities and favors the US as one of the most cost-efficient place to purchase these fuels. This presents another opportunity for ports to connect to the altenrtive fuel supply chain.
The IRA is just one example of how future solutions can be regional-specific. As such, ports need to engage in their region’s focus on fuel production development from a supply side and understand those fuels that match the vessels calling their port, to best match fuel demand with supply into the future.
In addition to alternative fuels, new industries and supply chains are being created to support in overall decarbonization efforts including carbon capture, utilization and storage (CCUS). This is creating a new opportunity for ports and shipping to be involved in the growth of carbon storage and transportation. Related technologies like onboard vessel carbon capture also presents opportunities for ports to offer the needed interface to safety and effectively discharge and transport stored carbon dioxide from vessels.
2. Limited Space
Due to their strategic coastal locations, ports are typically situated in areas where land is scarce and already have various structures in place, including docks, warehouses, and container yards, leaving little room for expansion. The limited space available in ports poses a challenge to the development of infrastructure to support the introduction of alternative fuels.
Furthermore, bunkering facilities for alternative fuels often require significant safety considerations due to the nature of these fuels. Ensuring safe operations necessitates adequate separation from other port activities and infrastructure, which can be challenging in limited spaces. Safety regulations, environmental concerns, and the need to comply with international standards further complicate the process of developing new infrastructure for alternative fuels.
Overcoming space constraints and expanding infrastructure to support alternative fuels and bunkering will require careful planning, a collaboration between ports, government agencies, and private stakeholders, and innovative design approaches. It may involve strategic land acquisition, optimizing existing facilities, considering alternative locations for certain port activities, or further technological advancements that allow for more compact fuel storage and transfer systems.
3. Limited Capital
These initiatives will take a lot of resources and capital to implement. However, there are more and more programs to fund green initiatives through (i) public and private funding, (ii) partnerships and collaboration, or (iii) grant programs and incentives.
Take for example the grant programs – many governments and environmental organizations provide financial support to ports for sustainable initiatives. These grants can help cover a portion of the costs associated with transitioning to clean energy sources, electrifying equipment, or implementing other sustainable practices.
For example, US$3 billion has been dedicated for Clean Port Investments as part of the United States’ IRA. These funds help port authorities purchase zero emission equipment or technology, assist in planning for these purchases, and aid in developing climate action plans in order to reduce air pollution.
For FY 2023, the Port Infrastructure Development Program (PIDP), offered US$660 million for ports to plan and execute projects that improve the safety, efficiency, reliability, and environmental performance of the movement of goods through and around ports – up from $450 million in FY 2022. If the trend continues, we can expect a similar amount, if not more, for FY 2024.
These are examples for US ports, but funds are available in countries around the world. Ports should actively research and engage with relevant government agencies, environmental organizations, and industry associations to stay updated on available funding opportunities and incentive programs tailored to their location.
It is worth noting that the cost of inaction, such as potential regulatory penalties or reputational risks, that are either in place today or may come online in the years to come, may outweigh the initial investments required for decarbonization.
4. Limited Revenue Generation
Ports are not in the energy business, and typically rely on local power companies and private fuel suppliers for their energy needs. This means they may not have direct control over the energy supply chain and may not generate income from this segment of their operations. As a result, implementing large decarbonization projects may present economic challenges since these projects may not generate immediate revenue for the port.
Finding economic incentives and developing strategies for revenue generation in the context of decarbonization becomes crucial to overcome this obstacle. However, if a port can successfully develop its role with alternative fuel supply early on, there is an opportunity to use this as a catalyst to capture additional traffic to the port.
5. Decarbonization of Operations
Fuels are not the only focus for a port to support decarbonization efforts; ports must also look to decarbonize their own operations to support the health of the local community and meet upcoming rules and regulations. Ports can contribute to decarbonization by implementing various measures within their own operations. This can include the installation of renewable energy technologies like solar panels and wind turbines to power port operations, or the replacement of diesel-powered equipment with electric alternatives, such as cranes, forklifts, and straddle carriers. Additionally, shore power integration allows ships to reduce emissions while docked, further contributing to the port’s efforts to minimize its carbon footprint.
Sustainable port infrastructure design, including energy-efficient lighting systems and low-carbon building materials, can further contribute to decarbonization. Integrating smart grid technologies and advanced energy management systems allows ports to optimize energy consumption and distribution, while incentivizing low-carbon practices can encourage stakeholders to adopt environmentally friendly approaches.
While the shift to sustainable and decarbonized operations may require initial capital investments, the potential cost savings and revenue generation over time can make these efforts financially beneficial for ports, in addition to supporting the local community and contributing to global decarbonization goals.
The Conclusions
While challenges for ports to decarbonize do exist, there are solutions in place to overcome some of these hurdles. Master planning a port can help outline a long-term development and management strategy for its facility and serve as a blueprint for the growth and sustainability adaptation over a 20+ period of time. It can help identify new uses for limited space and identify potential capital programs for funding opportunities.
Additionally, ports should join industry initiatives, collaborate with other stakeholders, and share best practices to accelerate decarbonization efforts. This can involve participating in global programs like the World Ports Sustainability Program (WPSP) or engaging in knowledge-sharing platforms to exchange ideas, experiences, and innovative solutions. Involvement in such activity would ensure ports remain at the forefront of solution development.
