The effort to lower the maritime industry’s carbon footprint has long been focused on encouraging shipowners, port operators, and investors to support the transition to low-carbon fuels. Two factors in particular continue to introduce a high level of uncertainty: regulation and fuel economics. Together, they are slowing investment decisions across the maritime fuel value chain.
On a production cost basis alone, new fuels (including biofuels and e-fuels) still cost two to three times more than conventional very low sulfur fuel oil (VLSFO). When logistics, handling, and opportunity costs are included, the gap widens further. Technologies are maturing and costs are declining, but the pace of convergence varies significantly by fuel type and region.
Meanwhile, although they are gaining traction, efforts to regulate the use of high-carbon fuels remain stymied by disagreements among nations and have led to a patchwork of rules and carbon pricing mechanisms that further complicates stakeholders’ efforts to plan for the future.
As a result, shipowners are hesitant to commit to new-fuel engines, and port operators are reluctant to invest in new-fuel bunkering infrastructure without assured demand. Facing a lack of clear long-term demand signals, fuel producers and investors alike have been slow to invest in and scale up production of alternatives.
To overcome this wariness on the part of the industry’s key stakeholders, BCG has teamed up with the Global Centre for Maritime Decarbonisation (GCMD) to research and publish an in-depth report outlining the range of possible scenarios for the development of maritime fuels through 2050.
In this article, we outline the key variables that will govern the development of the various kinds of fuels the industry will be using in the future and the conditions under which the industry can decarbonize. The goal: to provide stakeholders with the guidance they need to plan for the future of maritime fuels.
What Determines the Cost of Maritime Fuel?
In plotting scenarios for the future of maritime fuels, we devised a three-stage strategy that takes into account the many variables that will determine the different potential mixes of maritime fuels in 2050. These stages include understanding the key megatrends and regulatory mechanisms that would trigger a fuel switch; projecting future demand for different fuels, fleet turnover, and supply economics; and estimating the resulting fuel usage and bunkering needs. The key factor is the range of overarching trends, most notably the regulatory environment but also the geopolitical trends leading to shifting trade patterns, protectionism, and the fragmentation of global trade corridors. (See Exhibit 1.)
A global carbon-pricing mechanism is among the most critical levers for helping the industry make the change to cleaner fuels. Under the proposed International Maritime Organization Net Zero Framework (IMO NZF) agreed upon at the 83rd session of the Marine Environment Protection Committee (MEPC 83), for example, new fuels only become cost competitive when the NZF’s most restrictive pricing penalty, the Tier 2 Remedial Unit, approaches $700 per ton of carbon dioxide equivalent (CO2e). Other regulatory mechanisms that will affect the price of maritime fuels, at least on a regional basis, include the EU Emissions Trading System (EU ETS) and the FuelEU Maritime.
We then analyzed four other variables that will ultimately determine the mix of fuels in 2050: the industry’s overall demand for energy, the likely composition of the global shipping fleet, the anticipated cost of conventional fuel options, and the potential cost of new fuel options. Taken together, these factors will ultimately determine the degree of fleet-level adoption of various types of ship engines and their fuel consumption mix. They can also help us understand the implications for the bunkering landscape.
All else being equal, cost gaps and how quickly they close will determine which low-carbon fuels gain traction over the next 25 years. Methanol, ammonia, and ethanol will each become cost competitive depending on certain conditions. Methanol’s price, for example, will hinge on the cost trajectories of biomethanol, the levelized cost of hydrogen (LCOH), and biogenic CO2 costs. The price of ammonia will depend on the trajectory of LCOH and the considerable costs of handling it. And ethanol’s cost will vary as a function of the regulatory treatment of food-crop biofuels.
All else being equal, cost gaps and how quickly they close will determine which low-carbon fuels gain traction over the next 25 years.
A Range of Scenarios
All of these factors allow us to anticipate a number of scenarios for the mix of fuels that will be in play in 2050 and the availability of new fuels to supply the world’s shipping fleet. These include three policy scenarios and six fuel-sensitivity cases. The fuel-sensitivity cases retain the base-policy assumptions while varying LCOH and biogenic CO2 costs, the biomethanol cost trajectory, and the regulatory treatment of food crop biofuels.
Policy-Based Scenarios. The base-case scenario assumes that the IMO NZF regulations will penalize ships that emit greenhouse gases through the Tier 2 Remedial Unit mechanism at the rate of $380 per ton of CO2e. (See Exhibit 2.) This scenario leads to a fuel consumption mix in 2050 in which VLSFO still makes up 25% of the total mix, assuming the current low-carbon fuel trajectory.
Then we tested two more policy-driven scenarios (a high-penalty scenario and a regional regulation scenario), each dependent on a different regulatory future. The high-penalty scenario assumes that the NZF penalties will gradually rise to $700 per ton of CO2e by 2050, leading to the lowest use of fossil fuels, with a large proportion of those fuels mitigated by onboard carbon capture and storage (OCCS) technology. The regional regulation scenario assumes that only regional pricing mechanisms will come into effect, leading to the highest use of fossil fuels: a total of 85%, with just 4% of that amount mitigated by OCCS.
Each of these scenarios leads to a very different mix of potential engine types in 2050. In the high-penalty scenario, conventional engines without OCCS will account for just 19% of the fleet’s engine capacity, compared with 37% in the regional regulation scenario.
Key Fuel Sensitivities
In addition to the three policy-based scenarios, we analyzed the impact of four fuel sensitivities on the 2050 fuel mix landscape, showing the outcome of different fuel mixes. All four sensitivities assume the base-case regulatory landscape, with CO2 emission penalties at a constant $380 per ton to 2050. (See Exhibit 3.)
The first is the LCOH. Because hydrogen gas (H2) is a key input for both e-methanol and e-ammonia, lowering its cost will have a significant effect on the costs of those two fuels. In the base case, hydrogen gas is projected to cost about $3 per kilogram to produce by 2050. The first set of sensitivities (scenario B to E in the exhibit) is based on the possibility that the cost will fall to about $2 per kilogram by 2050 as a result of increased hydrogen production and falling renewable electricity and electrolyzer costs. That would effectively boost new fuels in the 2050 fuel consumption mix, compared with the base case.
The second fuel sensitivity involves variations in the cost of biogenic CO2, which like LCOH will have a profound effect on the cost of e-methanol and by extension on the proportion of its use in the 2050 fuel mix. The results of variations in the cost of biogenic CO2 from $50 to $200 per ton on the 2050 fuel mix are shown in the exhibit as scenarios B through E.
The third sensitivity depends on potential reductions in the cost of producing biomethanol early in the period to 2050, which will have an outsized impact on the use of e-methanol, since it will encourage shipping companies to build dual-fuel ships capable of using methanol (scenario F). That, in turn, creates installed methanol-compatible engine capacity, lowering the barrier to e-methanol uptake later in the transition.
The fourth sensitivity involves ethanol, which according to the base scenario will account for approximately 9% of energy consumption in 2050. Its use is highly sensitive to the regulatory treatment of food-crop biofuels. Unfavorable classification of biofuels as equal to fossil fuels in their environmental impact will significantly curtail their use as a maritime fuel (scenario G).
What the Scenarios Reveal
Clearly, the nature of global carbon pricing mechanisms will have a significant effect on the maritime industry’s transition to low-carbon fuels. New fuels will only become truly cost competitive when the NZF’s penalty approaches $700 per ton of CO2e.
At the same time, the cost gaps among the different fuels and the rate at which they close will also determine which fuels gain traction. Methanol, ammonia, and ethanol each become cost competitive under different conditions. The cost of methanol, for example, depends on the cost of biomethanol and biogenic CO2, the cost of ammonia on LCOH and handling, and the cost of ethanol on the regulatory treatment of food-crop biofuels. The levelized cost of e-methanol and e-ammonia per unit of energy are near parity, as ammonia’s production cost advantage will be largely offset by its higher logistics and bunkering costs.
Finally, these scenarios can also guide the landscape of port fuel bunkering. Compared with today’s fuel landscape, the need to bunker both methanol and ethanol will require limited structural changes given their logistical flexibility. Ammonia is the big exception. Complex handling requirements, on one hand, and the potential to aggregate demand for ammonia with local power sectors as they develop cofiring technologies that combine ammonia with coal, on the other, will reshape which ports are well positioned to serve as ammonia bunkering hubs.
How to Respond
The value of this analysis and of the scenarios that result lies in what the three primary stakeholders—ship owners, port operators, and investors—can learn and how they should respond.
Ship Owners. Given the many variables at play over the next 25 years, fleet owners should build their strategies around keeping their options open, rather than converging on one approach too early. None of the scenarios produces a single dominant fuel by 2050; instead, the mix of fuels will remain fragmented across both fuel types and in bunkering locations. Ship owners that focus on one or another of the possible fuel pathways risk being stranded by a regulatory or cost outcome that favors a different fuel pathway.
Given the many variables at play, fleet owners should build their strategies around keeping their options open, rather than converging on one approach too early.
Thus, scenario planning will become a critical capability as the transition unfolds. At the same time, carrying out a dual-fuel program for their fleets will help ship owners manage future regulatory risks, preserving their ability to switch between fuels as the economics shift.
Port Operators. Bunkering hubs will evolve into distinct archetypes. Compared with today’s conditions, methanol and ethanol bunkering will see limited structural change given their logistics flexibility. But ammonia’s complex handling requirements and potential cofiring demand from the power sector will reshape which ports are well positioned to serve as ammonia bunkering hubs.
Investors. Every case for investing in new fuel infrastructure is highly sensitive to the outcome of ongoing efforts to regulate maritime fuels and penalize carbon emissions. In the scenario A base case, OCCS retrofits on VLSFO vessels, and LNG newbuilds will remain the most capital-efficient decarbonization play. But the high-penalty scenario will significantly favor investment in new fuels, which would capture about 60% of fleet energy demand. Given that the penalty outcome remains unresolved, investment cases should be explicitly structured across multiple scenarios rather than on a single regulatory pathway.
With vessels carrying a lifespan of 25 to 30 years and approximately 4% of the global fleet open to change through newbuild decisions each year, the engine and fuel choices made today will shape the fleet and fuel mix landscape in 2050. Those choices will depend, in turn, on the complex interaction of regulatory decisions, technological advancement, and cost factors that are already in play. If the maritime industry is to achieve its decarbonization goals, every decision made now matters in the long run.
