Decarbonising maritime transportation with green methanol

At COP28, the EU-Catalyst Partnership, which consists of the European Commission, Breakthrough Energy Catalyst, and the European Investment Bank, announced its support toØrsted’s FlagshipONE project. FlagshipONE is Europe’s largest e-methanol plant which will enable shipping companies to achieve a >95 % reduction in carbon emissions compared to the utilization of traditional fossil fuels. Apart from this market signal, Europe has also put forward important policy initiatives to support the decarbonization of maritime transportation. These include:

• The inclusion of shipping into the EU Emissions Trading System (EU ETS). From January 1, 2024, all shipping companies, operating vessels of over 5000 gross tonnages, regardless of their flag or ownership, sailing to or from EU ports will be required to obtain carbon allowances covering their emissions. The emissions covered from 2024 will be CO2 from maritime transport, while methane and nitrous oxides will be covered from 2026.
• The FuelEU Maritime initiative. From August 31 2024, all shipping companies, regardless of their flag state, operating vessels of over 5000 gross tonnes will have to submit aplan, for its ships, indicating among other things: the amount and type of energy used on board, the well-to-wake emission factors for each type of fuel used, the use of on-shore power supply and the amount of each type of substitute source of energy consumed.

Ahead of the introduction of these new requirements, we sat down with Allegra Kowalewski-Ferreira, Partner at Breakthrough Energy Ventures Europe, to talk about how to capture the opportunity green methanol offers for the decarbonization of maritime transportation.

Can you tell us what is green methanol and how it can be used to fuel the cleantech transition?

In the eyes of the European Commission , methanol must satisfy 2 criteria to qualify as green:

(1) origin of the molecule (can’t be fossil derived)
(2) its life cycle assessment (LCA).

Bottom line that implies that green methanol falls into 2 categories: either biomass derived methanol (but this suffers from obvious volume limitations), or e-methanol (synthetized like SAF from captured CO2 and green hydrogen). The current FuelEU maritime initiative unfortunately excludes methanol produced from otherwise flared natural gas, whose LCA is carbon negative and comparable to biomass derived methanol.

Green methanol constitutes a major decarbonization pathways for maritime transportation. Maritime transportation is responsible for 3% of GHG emissions and that % is expected to continue growing as most goods we consume are transported by sea. While large vessels (e.g.: container ships, tanker, bulk carriers) only represent 40% of the total # of vessels, they are responsible for 70% of the emissions. These large vessels can’t be electrified nor powered with green hydrogen directly. Green methanol constitutes one of the few viable pathways to decarbonize large maritime vessels.

Aside from that use case, there is a short-term avenue in heavy duty trucks. Yet the latter benefit from a larger range of decarbonization pathways including electrification.

Can you give us an overview of BEV Europe investments in green methanol?

We have invested in three companies to cover the above-mentioned use cases.

Blue World Technologies designs and manufactures high temperature polymer electrolyte membrane (PEM) fuel cells working on reformed methanol and combined with on-board carbon capture. This would allow maritime vessels operators to achieve carbon negativity, meaning that the more their ships would travel, the more carbon would be captured.

M2X converts methane that would otherwise been flared or vented into high purity, stabilized methanol, using a plug and play unit that is both adaptable to different gas compositions and economically competitive. M2X mitigates methane emissions from flaring and venting and converts waste gas into a valuable fuel in the framework of decarbonization.

ClearFlame retrofits heavy duty trucks currently powered with diesel internal combustion engines to transition seamlessly to alcohol fuels such as methanol, thereby drastically reducing their footprint now rather than waiting for the truck end of life replacement, particularly in applications where duty cycles are not suitable for electrification.

Green methanol vs green ammonia. Which of these fuels is the most interesting from an investor perspective?

Each fuel has its pros and cons.

Ammonia is currently used for synthetic fertilizer production, so it is already manufactured in high volumes, which is not necessarily the case of methanol.

However, ammonia is highly toxic, therefore its transportation, storage and handling are difficult and require significant investment in additional safety equipment. Ammonia can be either burned into an internal combustion engine or cracked to recover hydrogen which is then introduced into a fuel cell. When ammonia is burned, it leads to Nitrogen Oxide (N2O) emissions which are highly potent GHG. If ammonia is cracked, then comes the question of the overall system efficiency and cost competitiveness with ICE.

In comparison to ammonia, methanol is much safer to handle but suffers from low availability currently. Methanol can also be either burned into ICE or reformed into hydrogen and introduced in a fuel cell. When burned, there is an exhaust that is hard to deal with. When reformed, there is an opportunity to perform on-board carbon capture with a low energy budget, which implies that the well-to-propeller equation is carbon negative.

Is there a market in Europe for green methanol? Are willing buyers open to paying the green premium?

Yes, Europe is home to 4 of the maritime majors (Maersk, MSC, CMA CGM, Hapag Lloyd), representing 52% of such market globally. Several are turning towards methanol as the decarbonization fuel. More than 200 vessels powered by methanol have been contracted recently, which will require millions of tons of methanol to be operated.

As regulation becomes stringier (EU ETS will be covering shipping soon) and carbon tax is enforced, maritime vessel operators have an economic incentive to decarbonize and are therefore willing to bear a green premium, up to a certain point.

What should be at the top of policymakers’ agenda to create value in the cleantech transition?

Methanol will only succeed as a decarbonization fuel of the maritime industry if it benefits from a clear regulatory framework and working value chain (supply, transportation, bunkering, etc..). These investments are long lived (30+ years for ships) or infrastructure related, so they will only happen if there is clarity and long-term certainty.

On the regulatory framework, we must ensure that methanol’s potential for carbon negativity is correctly valued and incentivized compared to other options, to allow the whole industry’s interest to align and commit to making the shift: from methanol producers commissioning plants, to maritime vessels operators ordering methanol-powered ships and ports infrastructure being revamped.

That starts with a very clear definition of what constitutes green methanol, and what is the incentive associated with going after carbon negativity. Currently, methanol associated with a negative LCA, such as the one produced by M2X, is considered grey, which constitutes a considerable missed opportunity for the sector. On top of that, both EU ETS and FuelEU maritime dismiss any on board carbon capture solution, which impedes investments into carbon offloading infrastructure in ports and pipeline infrastructure to bring back such carbon where it can be either permanently stored or turned again into a fuel (closed loop).

On top of that subsidizing e-methanol production to ensure its short and mid-term availability at an acceptable green premium would allow the maritime industry to make commitment now with the certainty of being able to operate.