Global shipping accounts for nearly 3% of global greenhouse gas emissions, primarily driven by the combustion of heavy fuel oil (HFO) in massive container vessels. To meet international climate targets, the maritime sector is exploring a transition to zero-emission fuels, such as green ammonia produced via electrolysis using renewable energy.
Currently, heavy fuel oil remains highly cost-effective and dominates the global fleet. However, the international community aims to achieve net-zero emissions from international shipping by or around 2050. Green ammonia represents a promising alternative but requires major retrofits of propulsion systems and brand-new bunkering infrastructure.
To accelerate this transition, several maritime authorities and governments are offering financial grants and subsidies to shipbuilders and port operators. This financial support lowers the high initial capital expenditure of constructing ammonia-ready vessels, making them more competitive against conventional diesel-run ships.
Conversely, fossil-fuelled shipping is likely to face carbon pricing or indirect taxes, such as inclusion in emissions trading schemes. An indirect tax of this nature increases the marginal private cost of using heavy fuel oil, encouraging operators to shift toward cleaner energy sources.
Explain what is meant by the term 'subsidy'.
