Authored by Han Deng, Julia Norsetter and Kristen Carolan

Over a third of respondents who participated in the Reed Smith sustainable fuels survey stated that the cost of sustainable energy and inadequate infrastructure in the supply chain would be the two biggest barriers to transitioning to sustainable fuel sources in the next five to 10 years (see image below). Research in sustainable fuels supports this concern, particularly with the integration of hydrogen and ammonia as alternative fuel for ships and on maritime ports. For example, harvesting hydrogen fuels requires expensive electrolysis machines as well as equipment that can chill hydrogen to minus 250 degrees Celsius. Once the hydrogen is in its proper form, transporting it from the electrolysis plant to the ports also increases costs over traditional fuels. 

The same factors driving high costs for sustainable fuels also contributes to supply chain issues. Sticking with the example of hydrogen, a complete hydrogen supply chain will encompass solutions relating to its production, storage, transport and use.  Setting aside social and policy challenges to a hydrogen supply chain, technical obstacles often relate to physical properties of hydrogen fuel. In addition to the production cost noted above, safety risks surround its transportation and storage, which render local renewable energy sources particularly useful in the development of hydrogen fuel.  Necessarily, government and private actors vary in terms of their access to (and desire to use) nearby renewable energy sources.  In addition to renewable energy sources, availability of and access to metals used to produce hydrogen fuels is a similar constraint. 

Nevertheless, the commitment to hydrogen use is apparent across transportation industries, including maritime.  For example, 30 leaders in the shipping sector and hydrogen producers signed a Joint Commitment in late 2023 relating to reducing maritime emissions.  The agreement includes ambitious targets for fuel use, fleet development and infrastructure needed to get the hydrogen fuel industry to expand. 

In addition to these cost and supply chain issues, there are concerns about the lack of commitment from global governments to support the new infrastructure which is critical to sustainable fuel coming to market. For example, in 2023 several European energy companies abandoned the Aurora Project, which was aimed to develop a liquid hydrogen shipping infrastructure in Norway. Global commitment will require very considerable investment in ports and other land-based facilities at a time of economic uncertainty in many regions (see image below).

Fortunately, private shipping companies and public interest groups have proposed solutions to the challenges behind using sustainable fuels (see Senate Committee Hearing, supra note 4). Government policy prioritization and financial incentives are essential to encouraging infrastructure development and mitigating costs.” Tax credits for using sustainable fuels can partially compensate financial losses and encourage U.S. shipping companies to fund hydrogen-powered shipping projects. Finally, international collaboration is necessary to “harmonize international standards” and “eliminate incentives to escape more stringent regulations in particular areas.” (William Alan Reinsch & Will O’Neil, Hydrogen: The Key to Decarbonizing the Global Shipping Industry?, CSIS (Apr. 13, 2021)).

Survey results

The bar chart below shows that 41% of respondents selected cost of sustainable energy to be the biggest barrier to transitioning to sustainable fuel sources in the next five to ten years, followed by supply chain – lack of / inadequate infrastructure (33%), technology not working / not advanced enough currently and will require a long investment horizon that few investors find attractive (23%), availability of third-party financing (21%), supply chain – availability of fuel or feedstock (21%), lack of demand signals to drive production and investment into new technology (19%), regulatory uncertainty, lack of political stability to ensure continued governmental support (16%) and first mover penalty since any new technology costs more (15%). Please note that respondents were able to select more than one option.