An evaluation of the cost-competitiveness of maritime fuels – a comparison of heavy fuel oil and methanol (renewable and natural gas) in Iceland

• Published in: Sustainable production and consumption 2020-07, Vol.23, p.236-248
• Main Authors: Helgason, Rafn, Cook, David, Davíðsdóttir, Brynhildur
• Format: Article
• Language: English
• Subjects: Cost-competitiveness; Externalities; Heavy fuel oil; Iceland; Maritime fuel; Methanol
• ISSN: 2352-5509; 2352-5509
• DOI: 10.1016/j.spc.2020.06.007

•Renewably produced methanol in Iceland is cost uncompetitive with Heavy Fuel Oil.•Including externalities, methanol from natural gas can be more cost-competitive than HFO.•Subsidies or renewable energy quotas necessary to make renewable methanol cost-competitive. Alternative fuels have been proposed to ensure compliance with the increasingly more stringent emission standards proposed by the International Maritime Organization. In addition, the Icelandic government aims to introduce 10% renewable energy into the maritime sector before 2030, as well as eventually phasing out the use of heavy fuel oil (HFO). This paper conducts an extended cost-competitiveness comparison concerning three fuels: conventional methanol (NG), renewable methanol (RN) and HFO in the context of the Icelandic maritime sector. NG, RN and HFO are compared and evaluated under three scenarios (low, medium and high) for fuel prices between 2018 and 2050, and three scenarios (low, medium and high) for the external costs of fuel consumption. The methodology for estimating external costs involved Impact Pathway Analysis for emissions of sulphur dioxide, nitrous oxide, particulate matter and non-methane volatile organic compounds, and increasing shadow prices for the costs of greenhouse gas emissions. The application of this methodology provides new information about the economic and environmental trade-offs between the three fuel types. In our findings, excluding external costs, HFO emerges as the most cost-competitive option. However, when the externalities of fuel consumption are monetised and added to the fuel price, NG is the most cost-competitive option when high values are assumed for external costs. RN is the most expensive option according to all trajectories for fuel prices and external costs, not becoming more cost-competitive than HFO under any scenario until the 2040s. Therefore, on cost criteria alone, it is improbable that the fuel will contribute to Iceland's 10% renewable energy goal in the maritime sector before 2030 without subsidies or renewable marine fuel quotas.