Governmental Functions in Establishing Alternative Marine Fuel Supply Chains in Shipping Decarbonization Governance

Abstract

This study aims at exploring the importance of the governmental functions in establishing alternative marine fuel (AMF) supply chains at the early stage of shipping decarbonization and providing proposals of the main measures to be taken by governments. It first analyzes the significance of these supply chains based on the adaptability analysis of AMFs from the perspective of their respective potential in reducing greenhouse gas emissions, costs, safety, and availability, mainly by way of a literature review. Then, the importance of governmental functions in establishing these supply chains is probed based on the features of these supply chains and by applying the theory of economics concerning the relationship between the government and the market. Finally, four specific measures to be taken by governments in establishing these supply chains are explored and proposed. The findings of a questionnaire investigation conducted in China are cited in support of the theoretical analysis. The main conclusions of this study reflecting its main contribution thereof are: AMF supply chains are crucial in achieving shipping decarbonization goals; government intervention is needed to rectify the disadvantages of market mechanisms in establishing these supply chains; as the main measures, governments need to develop strategic plans and policies, take appropriate market-based measures of tax incentives, fiscal subsidies, and/or other economic incentives, provide administrative guidance, and enhance international cooperation.

1. Introduction

The evolving environmental apprehensions revolving around maritime operations has led to the emergence of initiatives and policies that advocate for the incorporation of green policies within the maritime industry [1]. Reducing greenhouse gas (GHG) emissions and achieving ultimate net-zero emission from ships has attracted worldwide attention. While a ship’s engines and boiler utilize conventional fossil oils, many kinds of GHGs are emitted, comprising carbon dioxide (CO₂), sulphur oxides (SO₂), nitrogen oxides (NO_X), carbon monoxide (CO), unburned coal (HC), and particulate matter (PM2.5, PM10), all of which may have a negative impact on the climate [2] and of which CO₂ is the most significant one. The local air quality is mainly affected by pollutants such as NOx and SOx, whilst CO₂ emissions have an adverse global impact on the climate in the long term. GHG emissions are often described as CO₂ emissions or carbon emissions, and shipping decarbonization refers to the reduction in GHG emissions from ships and ultimately achieving net-zero emissions [3]. Shipping decarbonization is universally recognized as an irreversible trend and faces challenges that involve the complicated issues of economy, technology, policy, law, and so on [3].

In July 2011, the International Maritime Organization (IMO) adopted Resolution MEPC.203(62) on amendments to Annex VI to MARPOL 73/78 to mandatorily implement the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Management Plan (SEEMP) as of 1 January 2013. The Annex was last amended in March 2024, and the amendment will come into force as of 1 August 2025. In June 2021, the IMO adopted Resolution MEPC.328(76) to mandatorily implement the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) as of 1 January 2023. Aiming to reducing CO₂ emissions from international ships, EEDI and EEXI are technical measures and incentivize using energy-efficient technologies, while CII and SEEMP are operational measures and optimize a ship’s operational performance [3].

In July 2023, the IMO adopted Resolution MEPC.377(80) on 2023 IMO Strategy on Reduction in GHG Emissions from Ships [4]. This strategy revised the 2018 Initial IMO Strategy on the reduction in GHG emissions from ships and indicates the goal of utilizing alternative fuels emitting zero and near-zero GHGs by 2030. Importantly, it contains periodic indicative checkpoints for international shipping to reduce GHG emissions by 2030, i.e., by at least 20% whilst striving for 30%, by 2040, i.e., by at least 70% whilst striving for 80%, and to achieve net-zero GHG emissions by or around 2050 [4]. It is predicted that the 2023 IMO Strategy will be amended by the IMO in 2028 [5].

This ambitious 2023 IMO Strategy calls for policymakers and stakeholders to make substantial efforts to find and implement technically feasible and cost-effective solutions aiming at shipping decarbonization, and such solutions will likely be the widespread uptake of lower and zero-carbon fuels, i.e., alternative marine fuels (AMFs), in addition to the above-mentioned energy efficiency measures [6].

To date, many studies have demonstrated that, besides the complex matters of economy, technology, policy, and law, utilizing AMFs also involves a wide-range of stakeholders, which include shipping enterprises, port and other transport terminal operators, shipbuilders, engine producers, cargo interests, investors, and producers and distributors of energy from either inside or outside the shipping industry, and their collaborations are crucial [7]. Considering that these various stakeholders might have different perspectives on the challenge of GHG emissions from ships, it has even been highlighted that collaboration among all stakeholders involved is the only means of achieving progress in shipping decarbonization [8]. These features of AMFs may well imply the challenges regarding the establishment of AMF supply chains. Noticeably, however, not many studies have focused on establishing AMF supply chains, and very few studies on the specific governmental policies of individual countries in this regard have been found in the literature.

The objective of this study is to explore the governmental functions in establishing AMF supply chains in the early stages of shipping decarbonization. Therefore, this study tries to answer three critical questions through analysis: (a) Why are the governmental functions important? (b) What should the governmental functions be based on? (c) What measures should governments take?

To structure a comprehensive literature review and information synthesis in Section 2.1, the available materials are divided into three aspects, i.e., the adaptability of AMFs, the AMF supply chains, and the market-based measures (MBMs) related to shipping decarbonization. The remainder of this manuscript is organized as follows: Section 2.2 presents the methods used in our analysis; Section 3 outlines the results of this study; Section 4 conducts a detailed analysis in combination with the results based on our analysis of the adaptability of AMFs, the importance and features of these supply chains, and the potential market disadvantages therein, referring to our analysis of China’s current situations, as summarized from our questionnaire investigation. The main conclusions are drawn on the role of the utilization of AMFs and the establishment of their supply chains, the governmental functions, and the appropriate measures to be taken by governments for the establishment of these supply chains in the early stage of shipping decarbonization.

2. Materials and Methods

2.1. Materials

Various strands of research may provide useful information pertaining to the adaptability analysis of AMFs, their supply chain, and the related MBMs.

2.1.1. Adaptability of AMFs

Currently, the AMFs discussed in the literature, either already being utilized or yet to be utilized in the shipping industry, essentially include liquefied natural gas (LNG), methanol, hydrogen, ammonia, liquefied biogas (LBG), ethanol, hydrotreated vegetable oil (HVO), and fuel cells [9,10,11,12].

As they are mainly dependent on the feedstocks used in their production processes, AMFs are basically categorized into grey, blue, and green types. The term grey refers to the utilization of carbon-based fuel such as natural gas or coal as a feedstock. The term blue refers to the utilization of carbon-based fuel together with CO₂ management technology such as carbon capture and storage (CCS) to capture and reduce GHG emissions. The term green refers to the utilization of renewable sources like hydropower, solar energy, or wind power. Noticeably, more factors might be adopted in the further categorization of AMFs. For instance, the categorization of hydrogen may use different color codes based on the energy source, carbon emissions in the process of production, the overall impacts on the environment, and the specific process of production [13].

In the literature, various pros and cons of different AMFs have been identified through research but there are many arguments about adaptability and priority in utilizing AMFs. Many discussions have focused on LNG, but recently, more discussions have focused on methanol, ammonia, and hydrogen [14]. Methanol, hydrogen, ammonia, and bio-methane are considered key contenders [15], but ammonia is showing increasing global demand as alternative marine fuel [16] because it carries high-density carbon-free hydrogen, can be used as a means of potential energy storage, and consequently, is utilized as a clean alternative fuel [17]. One prediction is that, as the most promising fuel for the future, the proportion of ammonia among marine fuels will significantly increase, i.e., from 7% in 2030 to 20% in 2050 [18]. Another prediction is that compared to the other AMFs, utilizing hydrogen fuel can attain sustainable energy globally in the future [8]. In practice so far, however, LNG or methanol has been selected as dual fuels for internal combustion engines in most newly built ships, and the percentage of utilizing LNG and methanol in new shipbuilding is roughly equal [5]. Utilizing an AMF as a mono-fuel is seldom reported to date. In China, the adopting of dual-fuel engines in new-built ships are currently is a common understanding as illustrated in Section 2.2.1.

The complete transition to AMFs replacing the conventional fossil fuels can only be achieved if the current technical, environmental, and cost challenges associated with their production, storage, and distribution are overcome. Thus, an environmental, economic, and technical evaluation of the multiple possible AMFs needs to be made. Each AMF has its own distinct advantages and drawbacks associated with its utilization in the maritime industry. The following is a summary of the studies on the adaptability of LNG, methanol, hydrogen, and ammonia from the perspectives of GHG reduction potential, costs, safety, and availability compared to conventional heavy fuel oil (HFO) and among AMFs.

(1)

GHG reduction potential

From the perspective of environmental performance as a whole, utilizing grey AMFs has limited CO₂ reduction potential across the entire life cycle compared to HFO, and consequently can only be used as a short-term transitional solution in shipping decarbonization [14,19,20] or as a medium-term solution together with the application ship energy efficiency measures. LNG currently remains the best immediately available AMF for deep-sea shipping. LNG performs best in its life cycle due to its smaller carbon content among all the grey AMFs with carbon content, although its utilization can only reduce CO₂ emission by 20–30%, or around 8–20% when methane slip is taken into account [10]. The test data from “Stena Germanica”, as the first ship to utilize methanol as fuel, indicated that utilizing methanol could reduce CO₂ by 25% [21]. Consequently, the CO₂ reduction potential of both LNG and methanol is limited.

Life cycle assessment is used as a methodology to evaluate the environmental impact of a particular product across its supply chain. Among all the grey AMFs with carbon content, LNG, methanol, hydrogen, and ammonia produced from natural gas have a similar life-cycle magnitude of global warming potential as HFO [10]. Currently, the majority of hydrogen is produced by steam methane reforming (SMR) using the feedstock of natural gas, leading to large quantities of GHG emissions in production [22]. As a result, grey hydrogen has even higher CO₂ emissions than HFO in its life cycle. Grey ammonia, which constitutes a large percent of the current supply, causes significant CO₂ emissions due to the SMR process of production [23]. For instance, ammonia based on coal has even higher CO₂ emissions than HFO, and the reduction in CO₂ emissions resulting from ammonia based on natural gas synthesis is only about 9%. Noticeably, however, LNG, methanol, hydrogen, and ammonia have a significant advantage in reducing other pollutants emitted from ships. For instance, LNG can reduce 99% of sulphur emissions, 99% of fine particle emissions, and 85% of nitrogen oxide emissions [8], while methanol can reduce 99% of SOx emissions, 95% of PM emissions, and 60% of NOx emissions [21].

Utilizing green AMFs has much higher CO₂ reduction potential across the entire life cycle compared to HFO and is consequently suitable as a long-term solution in shipping decarbonization. The China Classification Society (CCS) estimated that across their entire life cycles and compared to HFO, the extent of CO₂ emission reduction by green methanol, green hydrogen, and green hydrogen is 63–99%, 96%, and 93–100%, respectively [5]. A noticeable reduction in life-cycle GHG emissions can be identified from the production pathways of hydrogen and ammonia from renewable sources, as well as bio-diesel, bio-methanol, and bio-methane [10].

In conclusion, the GHG reduction potential of select blue AMFs across the entire life cycle is higher than grey AMFs but lower than green AMFs compared to HFO.

Noticeably, the current legal frameworks regulating shipping decarbonization are only applied to GHG emissions directly from ships, while the upstream or out-of-sector emissions are not typically taken into consideration [10].

(2)

Costs

Cost plays a central role in adopting any successful initiative such as new technologies or more sustainable fuel, as fuel cost accounts for about 40–50% of a ship’s operating costs. It can be concluded that the cost of green energy alternatives is a significant barrier to decarbonization [24], and this general conclusion may apply to AMFs.

From the perspective of economic performance, therefore, the cost factor of utilizing AMFs has to be underlined, and high costs may create obstacle to their utilization in shipping. In determining the extent of utilizing AMFs, the role of their commercial viability needs to be considered [10]. Therefore, cost analysis needs to consider not only the refueling prices of the selected AMF but also the total capital investment cost for the AMF-based ship propulsion system and the fuel storage system onboard.

The refueling prices of fossil-based LNG and methanol may vary significantly across different regions. For instance, China is the largest LNG-importing country in Asia but has to contend with high import prices, resulting in its high refueling price. Currently, the Port of Shanghai is one of the few Chinese ports refueling with fossil-based LNG and the refueling price is about USD860 per metric ton, while the refueling price of HFO (180CST) is about USD785 per metric ton. As a result, the refueling price of fossil-based LNG is about 10% higher than that of HFO. Until now, no reliable refueling price of methanol has been available in China due to its limited use in practice. However, the prices of LNG may drop below HFO prices in some regions of the world [25]. Under the current production volumes, hydrogen is one of the most expensive marine fuels when accounting for the cost of the fuel storage system onboard [10]. Green ammonia may be very expensive in the short term, but it is envisaged that its prices may be reduced with an increase in production volumes [26].

Conventional SMR based on natural gas or coal and renewable electrolysis based on renewable energy sources are two different processes of producing hydrogen, ammonia, and methanol. Their production costs depend heavily on the costs of energy inputs in general [10]. Some studies in the literature estimated that the refueling prices of hydrogen and ammonia are much higher than HFO, causing significant increases in a ship’s operating costs [19,27,28]. Green AMFs will be more expensive than grey fuels in the short term because of the higher current costs of renewable energy generation.

Currently, most commercial ships in the world are equipped with engines that utilize HFO and other fossil fuels, mainly marine diesel (MDO) and marine gas oil (MGO) [8]. Therefore, utilizing an AMF also requires the modification or conversion of the propulsion system and fuel storage system of a ship, leading to an increase in the cost of utilization. Currently, the AMFs being utilized or to be utilized in newly built ships equipped with dual-fuel engines, especially mega container ships, are limited to LNG or methanal, and large ships utilizing hydrogen or ammonia are not commercialized or widely commercialized yet [10]. It is estimated that the capital investment for the propulsion system and fuel storage system of a ship utilizing an AMF may increase by 10–20% compared to a ship utilizing HFO and other fossil fuels.

(3)

Safety

The AMF solutions in development pose new concerns from the perspective of safety [29]. Some studies have addressed the concerns about safety in the transport, storage, and utilization of AMFs, especially in the case of ammonia [27,28,30].

LNG poses the possibility of methane slip from engine combustion [31], and its storage at a temperature of −161.5 °C proves difficult. Liquid hydrogen is required to be stored at a temperature of −253 °C and, consequently, its wider application faces the main challenge of its storage onboard a ship [10], making it difficult to transport on land at a large scale. Hydrogen also poses the possibility of explosion due to its high explosive limit [19]. Its safety performance is currently limited by the lack of mature technology for its safe storage [29]. Therefore, the special storage and distribution requirements for hydrogen, together with its explosion risks, may hinder its wide utilization. Ammonia is required to be pressurized to 8.6 bar vapor pressure to maintain its liquid form [10], poses explosion risks due to improper utilization, and has high toxicity; consequently. its leakage on board may result in serious personal injury to crew members or other persons on board [32]. In the case of leakage into water, it is also highly toxic to organisms living in the water [26]. Moreover, ammonia has high corrosion characteristics [16,20,28]. Therefore, the utilization of ammonia as an AMF involves serious concerns about safety, which need to be addressed from the perspective of technical feasibility.

In conclusion, the utilization of LNG, hydrogen, and ammonia currently faces safety issues of different natures and degrees, and although the safety performance of LNG is better than that of hydrogen or ammonia, liquid methanol can be stored and transported at an ambient temperature, so comparatively its utilization may be much safer.

(4)

Availability

The stable availability of AMFs is vital to achieving global sustainability targets regarding shipping decarbonization.

It is suggested that LNG is the most favorable fuel for utilization because both its demand and production capacity are high [29]. Currently, grey LNG is available in many of the main ports in the world. Other AMFs are currently not commercially viable at a large scale [33]. The availability of green fuels of methanol, hydrogen, and ammonia is currently far from satisfactory. Taking methanol as an example, the majority of methanol is currently either LNG-to-methanol or coal-to-methanol, and there is a very small percent of bio-methanol available globally. Electrolysis utilizing renewable energy sources may generate clean hydrogen, but it currently only accounts for a small percentage of the total global hydrogen production. As a result, the OECD concluded that alternative zero-carbon fuels are still in scare supply [34].

Through the above adaptability review of the studies in the literature, the features of AMFs may be summarized as follows: (1) The costs of grey AMFs are low but their CO₂ emission reduction potential is low or even very low across their life cycle, while in contrast, the costs of green AMFs are higher or much higher but their CO₂ reduction potential is much higher. (2) Attaining the medium-term GHG emission reduction target and the long-term zero GHG emission target in the life cycle of AMFs requires a progressive conversion from grey AMFs to green ones; in particular, utilizing green methanol may attain the medium- and long-term targets, whilst utilizing green hydrogen or green ammonia may attain the long-term target; (3) LNG and methanol have low GHG reduction potentials but can bridge the gap between the existing HFO and the future use of hydrogen, ammonia, and possibly other fuels with high GHG reduction potential because LNG and methanol have low prices, better availability, and fewer technological barriers to their utilization. (4) The utilization of hydrogen or ammonia currently encounters technical difficulties in land transport and storage on land and on board ships, other safety issues to be solved by technology innovation, and high prices. Lastly, (5) the large-scale utilization of green AMFs also currently faces barriers regarding global availability.

2.1.2. AMF Supply Chains

A supply chain is a network chain structure integrating suppliers, producers, distributors, end users, etc., into a single entity in the process of producing and circulating a product or service. It covers the entire span of the system involved in producing and delivering a product or service [29]. It is dynamic, involving different kinds of flows between or among multiple stages, like physical goods, information, and cash flow [35].

Green fuel supply chain elements are deemed as one of the multidimensional success factors in shipping decarbonization [36]. Noticeably, the establishment of an AMF supply chain has three features: (a) a large investment [37,38]; (b) collaboration among upstream and downstream stakeholders of production, transport, storage, refueling, etc.; and (c) technology innovation entailing production, storage and transport on land, and the refueling of ships. With respect to collaboration among the stakeholders, the UNCTAD highlighted that utilizing AMFs is mainly in the hands of fuel producers and suppliers, shipbuilders, engine manufacturers, and other related stakeholders, and therefore collaboration among the stakeholders from either inside or outside the shipping industry is considered essential [7]. It has been stressed that the crucial obstacles that hinder AMFs from attaining shipping decarbonization lie mainly upstream of their supply chains, and the means of overcoming these challenges are beyond the scope of the shipping industry itself as the stakeholders may lack motivation to utilize low-carbon alternative fuels in the absence of legal requirements or other external incentives [10]. Besides underlining the importance of stakeholders’ support and collaboration in academia, fortunately, the industry has also expressed the importance of collaboration for shipping decarbonization [26].

Establishing AMF supply chains requires adopting decision-making methods to enhance sustainability at all stages of the value chain. For example, utilizing AMFs will have important value in controlling the negative impact of shipping on the environment [29]. Along with the transition toward utilizing AMFs globally, large investments have already been made by certain developed nations, as well as China, to promote the transition to AMF supply chains. However, the widespread utilization of AMFs may be hindered, or at least delayed, due to certain factors of their supply chains like the high cost of production, special cryogenic storage requirements, and high transport costs. Currently, the shipping world has not yet adapted to utilizing AMFs entirely, requiring significant advancements in technology to enhance the level of adaptability of these supply chains and produce satisfactory performances regarding ship engines capable of utilizing AMFs [8].

Currently, grey LNG supply chains are already in place [6] but need to be optimized to facilitate refueling to ships worldwide. The supply chains of other AMFs, especially green ones, still face great obstacles.

2.1.3. The MBMs Relating to Shipping Decarbonization

MBMs may be understood as the measures taken by governments within their powers according to law, regulations, or policies and based on the market mechanisms.

On 5 December 2003, the IMO adopted Resolution A.963(23) on Policies and Practices Related to the Reduction in Greenhouse Gas Emissions from Ships, which urges the Marine Environment Protection Committee (MEPC) to give priority to the evaluation of technical, operational, and market-based solutions in identifying and developing the mechanisms needed to reduce GHG emissions from international shipping [4]. The MEPC recognized the need for MBMs as part of a comprehensive package of measures to effectively regulate the GHG emissions from international shipping because of the insufficiency of the technical and operational measures to reduce the emissions satisfactorily in view of the growth projections of world trade. The IMO highlighted that MBMs can play a role in shipping decarbonization and serve two main purposes: (a) for the purpose of in-sector GHG emission reductions, providing economic incentives for the maritime industry to reduce fuel consumptions by investing in more ships and technologies with fuel efficiency and operating ships in a manner with more energy efficiency; and (b) for the purpose of out-of-sector GHG emission reductions, offsetting of the growth in GHG emissions from ships in other sectors. MBMs may also contribute to funds for other purposes like supporting technology adaptation and transfer. To date, ten MBM proposals have been submitted by the governments of the IMO member States and its observer organizations, ranging from contribution schemes for CO₂ emissions from international shipping to be collected and transferred to a fund through emission trading systems, to schemes on the basis of actual ship efficiency via the design and operation of ships. In-depth considerations have been made for potential MBMs since MEPC Session 56 in July 2006. However, the discussions on MBMs were suspended without a clear sign as to when they will resume because the impact of MBM proposals, particularly the possible impacts on consumers and industries in developing countries, needs to be assessed [39].

Currently, national or regional MBMs adopted for shipping decarbonization governance are mainly in the form of carbon taxes and cap-and-trade mechanisms such as carbon emissions trading schemes (ETS) [40]. Besides the EU, the countries now implementing carbon emission taxes (bunker levy) and/or carbon emissions trading schemes include Japan, South Korea, Sweden, and the UK [41,42].

Noticeably, however, researchers have put forward various arguments regarding these MBMs. Many studies in the literature have a positive attitude toward them. For examples, carbon taxes and/or ETS can assist the shipping industry in decarbonization operations [26], are framed to internalize the external costs of GHG emissions following the polluter-pays principle [10], and provide economic incentives in support of GHG emission reductions [43]. The introduction of MBMs like global levies on marine fuels on the basis of their GHG energy intensity or ETS may play an essential role in accelerating the transition to AMFs as they may provide additional incentives to shipping enterprises to reduce CO₂ emissions from ships [19]. Such mechanisms are essential in tackling CO₂ emissions from ships as they can partly control the total CO₂ emissions from ships and encourage the shipping industry to invest more in the research and application of energy efficiency technology [44]. A transaction policy can promote the potential for CO₂ emission reductions more efficiently than a command-and-control policy can [45]. More specifically, an increase in the price of utilizing conventional fossil fuels due to the imposition of a carbon tax or ETS will encourage more investment in cleaner fuel technologies fuels [36], positively influence the utilization of technologies of cleaner fuels and renewable energy [46], and consequently support shipping decarbonization [47]. The maritime infrastructure for the distribution of cleaner energy is expected to be improved by the revenue generated from the imposition of carbon taxes [48].

However, some studies in the literature show a negative or conservative attitude toward these MBMs, basically claiming that the price increase in conventional fossil fuels might cause further increase in freight rates and, consequently, put more financial burden on cargo traders and even customers [49]. Moreover, both global and regional trading policies may bring high transaction costs [50]. These mechanisms have disadvantages as they may only contribute to reducing GHG emissions from ships while being unable to achieve net-zero emissions. It is also claimed that these mechanisms need to be applied globally rather than locally to avoid competitive distortion [51], thus requiring independent external bodies to intervene [6].

In China, many people are in favor of implementing ETS in China, but some of them is of the view that it should be implemented pragmatically, as illustrated in Section 2.2.1.

In addition, there have been negative comments on regional schemes, especially the European Union Emissions Trading Scheme (EU ETS), through which the EU is currently moving full speed on the front of MBMs. For instance, the EU ETS seeks the discourse power of a green shipping industry in terms of environmental protection and extends its share of exports in the technology of energy savings and emission reductions [52]. There are concerns that a regional scheme regulating all GHG emissions from voyages to and from the EU is not compatible with international law [53]. When enforced in international sectors, such regional policies face obstacles such as emissions allocation, carbon leakage, the allocation of permits, etc. [50].

In conclusion, the significance of MBMs in shipping decarbonization is well recognized but the IMO has not yet adopted unanimous measures to date, and the functions and even justification of regional or national MBMs are debated. In addition, only a few studies focused specifically on MBMs relating to AMF supply chains can be found in the literature.

2.2. Methods

2.2.1. Questionnaire Investigation

In November 2024, a questionnaire investigation was conducted in the shipping industry and related sectors in China, led by the second author of this manuscript (Questionnaire Investigation), for the purpose of obtaining information on China’s attitude toward shipping decarbonization, consequently providing a basis of research on the policies and law in China. The findings of this investigation may also contribute helpful information to the literature relating to shipping decarbonization. Replies were collected from 252 respondents, among whom 111 respondents (46.03%) were from shipping companies engaged in international shipping or in both international and domestic shipping, 29 respondents (11.51%) were from shipping companies engaged in domestic shipping, 21 respondents (8.33%) were from governmental authorities, 39 respondents (15.48%) were from universities or scientific research institutions, and the remaining 57 respondents (22.62%) were from CCS, shipbuilders, insurers, and other shipping-related organizations. This study entails the questions in the questionnaire and corresponding responses. The results of the responses collected from the respondents are cited to support the analysis in Section 4. Multiple choice was allowed, as indicated in the preamble of the questionnaire, and as a result, the summary of response to some questions is over 100%.

Q1. What is your overall view on the 2023 IMO strategic goal in shipping decarbonization?

Figure 1 shows that more than half of the respondents have concerns about the certainty of this goal, and a small portion of them think this goal is either appropriate or overly idealistic.

Q2. What should China’s basic attitude toward the 2023 IMO Strategy be?

Figure 2 shows that the majority view of the respondents is that China should respond based on China’s actual situation to protect China’s shipping interests and overall economic interests, whilst a considerable number of respondents have the view that China should take a proactive response to fulfill the responsibilities of a power country and protect the global climate environment or that China needs to follow the practices of the other IMO member States, especially those of other major shipping states. Basically, therefore, China should take an active and pragmatic attitude toward the 2023 IMO Strategy.

Q3: What are the driving forces of shipping decarbonization?

Figure 3 shows that government intervention (policy and law), economic interests, and corporate social responsibility are considered the main driving forces of shipping decarbonization.

Q4: Is there any conflict between the economic interests of shipping companies and the environmental protection interests in shipping decarbonization?

Figure 4 shows that almost all the respondents opine that there exists either major or certain conflict between the economic interests of shipping companies and the environmental protection interests in shipping decarbonization due to the significant or certain increase in ship operating costs arising from shipping decarbonization.

Q5. What are the main causes leading to the increase in operating costs of shipping companies in shipping decarbonization?

Figure 5 shows that the main causes believed to be leading to the increase in operating costs of shipping companies are the higher or far higher prices of AMFs than traditional fossil fuels (HFO, etc.) utilized by ships and the increase in shipbuilding costs caused by utilizing AMFs or clean energy (batteries, etc.).

Q6. Can the increased shipbuilding and/or ship operating costs caused by shipping decarbonization be passed on to freights?

Figure 6 shows that most of the respondents are in favor of “Yes”, and a small portion of the respondents are in favor of either “Partially” or “No”; therefore, the increased shipping costs in shipping decarbonization will be passed on to cargo traders to some extent.

Q7. What are the main challenges facing AMF supply chains?

Figure 7 shows that the costs, availability (stability of supply), safety of utilization, innovation, and application of AMF production, storage, transport, and refueling technologies and the adoption of new ship propulsion systems or modification of existing propulsion systems are considered the main potential challenges facing AMF supply chains and that these five factors are of the same significance. Therefore, AMF supply chains face multiple challenges.

Q8: What are the main factors in establishing AMF supply chains in China?

Figure 8 shows that in establishing AMF supply chains in China, combining governmental intervention with market mechanisms and the government’s implementation of fiscal incentive policies for technology innovation and industrial development are the most vital factors, while governmental planning and coordination is also important, but the role of market mechanisms is limited.

Q9: What type of AMFs should efforts to establish AMF supply chains in China focus on at this stage?

Figure 9 shows that the efforts to establish AMF supply chains in China at this stage should focus first on grey fuels, and then on blue fuels and green fuels.

Q10. What specific AMFs should be the focus in establishing AMF supply chains in China at this stage?

Figure 10 shows that establishing AMF supply chains in China at this stage should focus on those of grey LNG and grey methanol.

Q11. Should newly built ships adopt dual-fuel engines or mono-AMF engines at this stage?

Figure 11 shows that adoption of dual-fuel engines utilizing HFO and a specified AMF in newly built ships is preferred.

Q12. What role does the implementation of energy efficiency measures for ship operations play in shipping decarbonization?

Figure 12 shows that most of the respondents believe that the implementation of energy efficiency measures for ship operations can partially reduce carbon emissions and be implemented as a short-term measure for shipping decarbonization.

Q13. Does China need to implement ETS in the shipping sector at this stage?

Figure 13 shows that most of the respondents are in favor of the implementation of ETS in China, but half of them hold the view that it should be implemented pragmatically.

2.2.2. Application of the Theory of Economics to the Relationship Between Government and Market and the Theory in Public Administration on Administrative Guidance

The theory of economics is applied to the relationship between the government and the market to highlight the need for collaboration between governmental intervention and market mechanisms in Section 4.2 based on the analysis of market disadvantages and governmental functions in establishing AMF supply chains. It is underlined that market mechanisms alone have limitations or are unable to solve the difficulties in establishing AMF supply chains due to the features analyzed in Section 2.1.2, i.e., large investments, collaboration between stakeholders inside and outside the shipping sector, and technology innovations. Moreover, the uncertainty in future regulatory steps that the stakeholders may have, such as concerns with making investments, needs to be eliminated or reduced. All of these factors represent potential market failures within the theory of economics and call for governmental intervention to rectify these failures, mainly by means of developing strategic plans and policies, as analyzed in Section 4.3.1, or using MBMs to provide fiscal incentives for technology innovations and industrial development, as analyzed Section 4.3.2.

The theory of public administration on administrative guidance requires governments to provide administrative guidance to market stakeholders in order to effectively achieve specific administrative objectives by means of non-mandatory measures. This theory is applied in Section 4.3.3, highlighting the administrative guidance to be provided by governments to market stakeholders involved in AMF supply chains for the purpose of effectively establishing these supply chains based on the analysis of their features in Section 2.1.2.

3. Results

Based on the adaptability analysis of AMFs from the perspective of their GHG reduction potential, costs, safety, and availability, the consideration of the features of these supply chains, the application of the theory of economics to the relationship between the government and the market and the theory of public administration on administrative guidance, and in reference to the findings of the questionnaire investigation, this study posits that it is necessary for governments to play an important role in establishing AMF supply chains at the early stage of shipping decarbonization because AMF supply chains are crucial to achieving the goals of shipping decarbonization. Moreover, governmental intervention is needed to rectify the potential disadvantages of market mechanisms. Regarding recommendations for policymakers at the early stage of shipping decarbonization, governments need to develop strategic plan and policies, take appropriate economic measures to incentivize stakeholder investment, provide administrative guidance to stakeholders, and enhance international technical and operational cooperation.

4. Discussion

4.1. Vital Role of AMF Supply Chains in Shipping Decarbonization

Shipping decarbonization is mainly dependent on utilizing AMFs, especially green AMFs, and their utilization on a large scale requires establishing their supply chains [3]. This is because implementing energy efficiency measures for ships, i.e., EEDI and EEXI as technical measures and CII and SEEMP as operational measures, can only contribute to reducing GHG emissions from ships but cannot attain net-zero emission.

While it is well recognized that adopting these measures may contribute to reducing GHG emissions from ships, Det Norske Veritas Germanischer Lloyd (DNV-GL) highlighted in its Maritime Forecast to 2050 Energy Transition Outlook 2019 that these measures are insufficient to reduce GHG emissions because the level of total CO₂ emissions can only be reduced by 27% by the middle of the century compared to 2008, even if the energy efficiency and operations of ships are dramatically improved [54]. However, Det Norske Veritas (DNV) emphasized in its 2024 edition of the Maritime Forecast to 2050 that prioritizing technological development and application in order to reduce energy consumption remains crucial for reducing the GHG emissions of ships before carbon-neutral fuels become a viable option [55].

There are also pessimistic estimations with regard to the role of energy efficiency measures in shipping decarbonization. For instance, the GHG emissions of international shipping are expected to increase due to the expected global growth of trade in the future, even if EEDI and SEEMP are mandatorily implemented [56]. The reduction in GHGs of an EEDI versus a non-EEDI scenario by 2050 is estimated to be no more than 3% [57]. In implementing SEEMP, the easiest operational measure for decreasing fuel consumption is a reduction in ship speed [58]. Nevertheless, speed reductions have already been widely implemented owing to the depressed market situation and the overcapacity of the global fleet since the financial crisis in 2008 [53]. In addition, excessive speed reductions may cause harm to ships’ operational efficiency, especially when the price of fuel is not very high and in the interest of cargo traders who have concerns about early arrival of theit goods at the destination.

Therefore, while the role of implementing these measures in reducing GHG emissions should be affirmed, they may be taken only as short-term measures in the case of utilizing HFO, i.e., to meet the goal of a reduction of at least 20% while striving for a 30% reduction in the GHG emissions of ships set forth in the 2023 IMO Strategy. In China, this conclusion is supported by the responses to Q12 in the questionnaire investigation, as shown in Figure 12. Noticeably, implementing these measures together with the utilization of grey AMFs may further reduce the GHG emissions of ships and be adopted as a medium-term measure, i.e., to meet the goal of a reduction of at least 70% while striving for an 80% reduction in the GHG emissions of ships set forth in the Strategy.

Consequently, shipping decarbonization has pluralistic solutions, but ultimately, the target of achieving net-zero GHG emissions from ships by or around 2050 set forth in the 2023 IMO Strategy is dependent on utilizing green AMFs as foreseeable long-term measures.

Remarkably, the large-scale sustainable availability of cost-effective AMFs in their supply chains has become more crucial than the innovation of ship propulsion systems and storage systems on board required to utilize AMFs. This is because technological innovation has achieved significant progress, especially the utilization of LNG or methanol in dual-fuel engines, which has become a reality in recent years, as analyzed in Section 2.1.1. In addition, it seems that shipping companies, especially large international ones, are more prepared to invest in ships utilizing AMFs under the great pressure from the 2023 IMO Strategy and the implementation of regional or national command-and-control measures (CCMs) like carbon emission taxes and ETS. However, crucial obstacles still exist upstream of AMF supply chains because stakeholders outside the shipping sector lack sufficient motivation to adopt AMFs, especially the green AMFs, without legal requirements or other external incentives [10].

It is highlighted that substantial shipping decarbonization requires rapid action toward zero-carbon technologies and green AMFs [53]. This means that, whilst efforts at this stage need to focus on establishing grey AMF supply chains from a pragmatic perspective, long-term work needs to focus more on green technology and the policies required to attain the goals of sustainability.

4.2. Governmental Functions in Establishing AMF Supply Chains

4.2.1. Two Main Categories of Governmental Measures

Exploring governmental functions in establishing AMF supply chains need the support of theoretical knowledge of governmental measures, especially that of MBMs.

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Categories of measures and their respective meaning.

Traditionally, there are two main categories of measures from the perspective of governmental functions, i.e., CCMs and MBMs. In the area of ship decarbonization, a CCM denotes that a designated authority develops direct and more stringent environmental regulations by setting standards to restrict the factors leading to GHG emissions from ships, whereas an MBM is a flexible mechanism that uses market pricing and other economic variables to incentivize GHG emission reductions [53].

Policy or regulation makers have favored regulatory, interventionist, and top-down CCMs to tackle environmental matters [59]. Such measures normally prescribe GHG emission limits and technical requirements but do not prescribe the target or the means for attaining the target, leaving these means to the discretion of the stakeholders concerned. The enforcement of these measures requires a lot of resources and specific knowledge of ships to set up, operate, and review for the purpose of avoiding the distortion of competition among different sectors [53]. EEDI and EEXI as technical measures and CII and SEEMP as operational measures, currently being implemented as mandated by Annex VI to MARPOL 73/78, are within this category. If the 2023 IMO strategy becomes mandatory in terms of regulations contained in the revised Annex VI to MARPOL 73/78 in the near future, such regulations will also fall under this category.

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Differences in functions and legal consequences between CCMs and MBMs.

MBMs are also governmental measures in nature, as compared to market measures in a normal sense, but are based on market measures. Market mechanisms achieve resource allocation through free competition and free market exchange. In essence, the functions of MBMs aim to utilize the advantages of market measures (i.e., high efficiency of resource allocation) and motivate innovation, competition, and timely information feedback on one hand, while rectifying the disadvantages thereof, i.e., negative externality, market failures, and insufficient public products supply, on the other hand.

Although CCMs may also have the above functions, MBMs are more flexible as they normally utilize economic incentives to urge polluters to reduce emissions by applying the polluter-pays principle, i.e., internalizing the negative external environmental costs of emissions by means of forcing polluters to compensate for such costs [53]. MBMs may also apply the principle of rewarding green operators. In the area of GHG emissions of ships, carbon emission taxes, ETS, and the provision of tax incentives or fiscal subsidies for the utilization of AMFs or technological innovation are examples of this category.

Like CCMs, MBMs are also implemented by the government according to the applicable regulations, but these regulations are indirectly market-based, depending on the related stakeholders to determine whether and how to respond. By comparison, CCMs are enforced mandatorily by governments, and violations thereof may give rise to penalties or other punishable legal consequences, whereas governments normally only encourage stakeholders to take measures in response to MBMs, and consequently, non-compliance with these measures does not give rise to punishable legal consequences.

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Combination of CCMs and MBMs.

CCMs and the MBMs are now increasingly combined to achieve climate targets comprehensively, as their combination may effectively speed up the realization of climate policy goals [59]. In shipping decarbonization, the main aim of MBMs is to attain GHG emission reductions by increasing the marginal cost of GHG emissions, as the cost increase may incentivize the adoption of operational and technical efficiency measures, shifts in consumer demand to reduce GHG emissions, and the utilization of low- and zero-carbon SMFs and related technologies [60].

4.2.2. Necessity of Combining Governmental Intervention with Market Mechanisms in Establishing AMF Supply Chains

Combining governmental intervention with market mechanisms has been deemed an important feature of AMF supply chains, as analyzed in Section 2.1.2, as collaboration is crucial [7,8]. The responses to Q8 in the questionnaire investigation also reveal that such collaboration is a main factor in establishing AMF supply chains in the early stage of shipping decarbonization in China, as shown in Figure 8. Exploring the measures to be taken by governments to establish AMF supply chains needs a clear understanding of the following two reasons for such collaboration:

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Vital governmental functions to rectify the market disadvantages.

Shipping and its related activities are market behaviors in nature. Shipowners and other stakeholders in shipping-related markets naturally pursue economic interests without sufficient regard of public environmental interests. The climate change arising from the GHG emissions of ships is a kind of negative externality of such emissions, and the consequential inability to attain the optimal allocation of atmospheric environmental resources is a market failure in economics in nature [3]. According to economic theory, market failures require governmental regulation of market mechanisms in order to compensate for such failures.

As analyzed in Section 2.1.1, the utilization of AMFs and the innovation of the propulsion systems and AMF shortage systems of a ship will significantly increase the costs of shipbuilding and the ship’s operation, resulting in conflict between economic interests and public environmental interests. The conclusion of this increase in such costs and conflicts of interest is also supported by the responses to Q4–Q6 in the questionnaire investigation, as shown in Figure 4, Figure 5 and Figure 6. This reveals the impossibility of solving the external negative effect of GHG emissions of ships on the damage to the atmospheric environment solely by using market mechanisms, and consequently, the importance of governmental functions in shipping decarbonization. Government policy and law, moral and social responsibility, and the economic interests of shipping enterprises are understood to be the main driving mechanisms of shipping decarbonization. The driving force generated by the first mechanism is the most important one, while the other two mechanisms are also important, as shown by the responses to Q3 in the questionnaire investigation in Figure 3.

In particular, the features of AMFs analyzed in Section 2.1.1 and those of establishing AMF supply chains analyzed in Section 2.1.2 may demonstrate that their establishment cannot be achieved in the early stages of shipping decarbonization solely through market mechanisms but rather require effective collaboration between the government and related industries.

Remarkably, the stakeholders involved in AMF supply chains are far beyond the scope of traditional shipping supply chains. Therefore, collaboration between the stakeholders is needed in order to achieve progress because the various stakeholders may have different perspectives. However, the process of an AMF supply chain is too complicated for market mechanisms to tackle all the challenges. This means the need for governmental direction, guidance, and encouragement to realize this goal in an orderly and fair way. In particular, the government needs to help the various stakeholders to respond to the main challenges in the integration of sustainable AMF supply chains, as shown in Figure 7 by the responses to Q7 in the questionnaire investigation.

The above may suffice in demonstrating the importance of governmental functions as a reflection of governmental responsibility in shipping decarbonization.

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Utilization of respective advantages of CCMs and MBMs

From the analysis in Section 4.2.1, CCMs have the advantage of setting specific targets and mandatory effects of implementation by virtue of legal regulations, while MBMs have the advantage of encouraging various stakeholders to enact behaviors toward realizing the set targets. On one hand, shipping decarbonization will have no specific target and lacks the protection of mandatory rules without CCMs, while on the other hand, the targets will be difficult to realize without MBMs. In particular, it is essential to utilize market mechanisms to effectively enhance the enthusiasm of various stakeholders, encouraging them to allocate resources as the market demands, mitigating environmental harm via the innovation of environmental technology and other measures of environmental protection [3]. Therefore, the respective advantages of the two categories of measures need be utilized.

Within a sustainability framework, both lean ideology and green ideology need to be followed and taken into consideration together in establishing AMF supply chains. Lean management covers continuous process, quality, and productivity improvements by means of decreasing cost, time, and waste in all operations, whilst the green management paradigm is focused on improving ecological efficiency in collaboration with limiting environmental risks and excluding environmental waste [61]. In establishing AMF supply chains, MBMs need to be properly designed and easily implementable in the direction of shipping decarbonization. For this purpose, the features of AMFs and AMF supply chains, the challenges faced in the early stages, and the disadvantages of market mechanisms need to be taken into consideration when formulating MBMs. In this regard, the effect of introducing the local policy of a country or region on the domestic and global energy markets needs to be assessed adequately because it may have significant effects on energy security [62].

4.3. Main Governmental Measures to Be Taken When Establishing AMF Supply Chains

Based upon the above analysis, the following four governmental measures in the nature of MBMs are proposed to be adopted when establishing AMF supply chains in the early stages of shipping decarbonization.

4.3.1. Timely Developing Strategic Plans and Policies for Establishing AMF Supply Chains

A governmental strategic plan is a comprehensive, long-term development plan, the contents of which normally provide guidance without mandatory force. A governmental policy usually provides the goals, principles of action, tasks, and specific measures in an authoritative and standard form and serves as the basis for implementing a governmental strategic plan. Both such strategic plans or policies and their implementation may form the basis of formulating laws or regulations by the legislative organs at a later stage.

Developing a strategic plan and policy is a governmental measure generally applicable in shipping decarbonization and is important for establishing AMF supply chains in the early stages for three reasons: (a) utilizing AMFs needs to be considered as an important strategy for the long process of shipping decarbonization [63]; (b) AMF supply chains play a vital role in shipping decarbonization, as analyzed in Section 4.1; and (c) market mechanisms alone are unable to play such a role due to the features of AMFs analyzed in Section 2.1.1 and those of establishing AMF supply chains analyzed in Section 2.1.2. The responses to Q8 in the questionnaire investigation shown in Figure 8 also reveal that this is a vital factor for establishing AMF supply chains in China, and market mechanisms alone are unable to play this important role.

A strategic plan or policy on AMF supply chains serves as the basis of taking other MBMs and even CCMs in this regard. It may also provide guidance for shipping enterprises and other related stakeholders to make investment and technology innovations and/or to take other appropriate actions in the early stages of shipping decarbonization. In addition, it may contribute to creating a steady policy environment and thus help shipping companies and other related stakeholders eliminate or reduce uncertainty concerns with future regulatory steps, predict the potential risks entailing costs and technology, and eliminate or minimize these investment risks.

For the above purposes, such a plan or policy needs to meet the following three basic requirements:

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The plan or policy needs to be systematic, objective, transparent, and enforceable regarding the features of AMF supply chains.

In order to be systematic, a plan or policy should be adopted by considering the various factors and coordination among all the links and specify the overall goal, phased targets, guiding principles, and initiatives of the main governmental measures. In order to be objective, a plan or policy should respect the features of AMFs and their supply chains and the goals of shipping decarbonization and follow the development regularity of shipping and other related industries. In order to be transparent, a plan or policy should be made public and be understood by the various stakeholders. An enforceable plan or policy means it can be implemented.

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The plan or policy needs to take a progressive development approach.

By virtue of the progressive decision theory in management, a hasty approach may make coordinating and balancing the conflicting interests difficult during a revolutionary transition, and therefore a progressive approach needs to be taken. The transition of marine fuels from conventional fossil oils to AMFs can be deemed a revolutionary transition. It is envisaged that, owing to the multiple influencing factors, a shift from HFO to LNG and methanol or another grey AMF with a lower GHG energy intensity may occur in the first instance since large investment is not required, the availability of such fuels is more secure, and the adaptability of port infrastructure to such fuels is higher, with the wide adoption of green AMFs likely to take place at a later time [19]. Noticeably, the 2023 IMO Strategy also adopted progressive targets of shipping decarbonization [4]. It can also be envisaged that when the IMO adopts mandatory standards through amendment to or revisions of Annex VI to MAROPOL 73/78 in the near future, the progressive approach will be maintained. The responses to Q9 and Q10 in the questionnaire investigation, as shown in Figure 9 and Figure 10, reveal that the types of AMFs that China should focus on when establishing AMF supply chains are grey fuels of LNG and methanol at the current stage, followed by blue AMFs, and finally, green AMFs. This result implies the idea of a progressive approach. Particularly, as analyzed in Section 2.1.1, grey fuels, especially LNG and methanol, are more readily available at lower pricing and are safer regarding utilization on ships than blue and green fuels. Therefore, their utilization combined with the adoption of energy efficiency measures may enable the achievement of the short-term or medium-term targets of reducing GHG emissions. From the perspective of small- and medium-sized shipping enterprises, a progressive approach may help them maintain long-term survival and development interest, whilst the international public environment interest can be protected in shipping decarbonization [3]. This function is particularly important in China because the Chinese shipping industry consists of many such shipping companies. Outlining a progressive roadmap to AMFs and their supply chains in a plan or policy may be a promising option, and the roadmap should be based on the situations and development trends of the country concerned.

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The plan or policy needs to actively respond to the IMO strategy goals.

Due to the international nature of global warming, adopting effective green strategies and policies across supply chains essentially rests with global organizations. Consequently, shipping decarbonization governance is the responsibility of the IMO at the UN level. However, the government of an individual country is not only responsible for implementing the specific IMO regulations but may also need to develop strategies and policies for the issues before the IMO adopts a regulation or the regulation comes into force or for the issues not covered by the IMO’s regulations. Currently, the plan and/or policy, in this regard, needs to be developed largely based on the 2023 IMO Strategy and the circumstances of an individual country. However, the progressive development approach requires governments to make timely and necessary adjustments to the plan or policy according to changes inf circumstances, especially any modifications of the IMO strategy or regulations.

In China, developing strategic plans and policies for establishing AMF supply chains is of significance for two particular reasons. First, China has become the largest shipping country, and its shipping industry has realized the irreversibility of shipping decarbonization and is essentially in favor of the 2023 IMO Strategy. However, many people in the shipping or shipping-related industries have concerns about the certainty of implementing the 2023 IMO strategic goal, as Figure 1 and Figure 2 show regarding the responses to Q1 and Q2 in the questionnaire investigation. Secondly, in China, as a highly centralized country, governmental intervention can play an evident and feasible role in shipping decarbonization governance. In this regard, DNV revealed in its Energy Transition Outlook China 2024 that in China, the policy direction and goals are developed by the central government, and their implementation can be ensured by its authority [64]. Developing strategic plans and policies and implementing them is also a normal pathway of the Chinese government when facing strategic development issues.

4.3.2. Appropriately Implementing Necessary Economic Incentive Measures to Establish AMF Supply Chains

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The rationale of implementing economic incentive measures.

Implementing economic incentive measures through the nature of MBMs may play a role in MBMs, as analyzed in Section 4.2.1, in establishing AMF supply chains.

The shift to green AMFs needs to eliminate the most critical barrier of the cost gap, together with the large capital investment required in new shipbuilding or the conversion of existing marine engines from their utilization of conventional fossil fuels [19]. Obviously, the large fuel cost differences need to be somehow alleviated, and the subsidization of green AMFs, at least in the initial phase of their uptake, is deemed one means of alleviation [65,66]. Shipping decarbonization depends on the wide and scaled utilization of AMFs, and such utilization depends on their production at a commercial volume after solving the technological challenges in transport, storage, and propulsion on board ships. All these will require governmental development policy and stable incentives for support at the early stage. It is critically envisaged that green AMFs cannot become competitive with conventional fossil fuels in terms of costs in the long term without strong policy support [10]. Understandably, consistent economic incentives may attract more shipowners and other stakeholders to participate in decarbonization schemes.

The necessity for economic incentives may be better illustrated from the perspective of balancing conflicting interests. As Figure 4 and Figure 5 show regarding the responses to Q4 and Q5 in the questionnaire investigation, certain conflict exists between the economic interests of shipping companies and the environmental protection interests in shipping decarbonization due to significant increases in ship-building and ship-operating costs. DNV estimated in its 2024 Edition of Maritime Forecast to 2050 that the level of shipping cost increase of the three main kinds of ships of bulk carriers, container ships and tankers due to utilizing AMFs in the short, medium and long term, i.e., by 2030, 2040 and 2050 would be nearly from 20% to 100% [55].

The potentially significant increase in shipping costs is an obvious negative impact of shipping decarbonization. Consequently, it seems inevitable that the interests of shipowners will be harmed. In addition, the interests of cargo traders may also be harmed because the increased shipping costs may be partly passed on to freights, as shown in Figure 6 by the responses to Q6 in the questionnaire investigation. Predictably, a bigger share of the costs will be borne by cargo traders when the shipping market is favorable for ship operators, i.e., the demand for shipping services is high and, correspondingly, the freight rates are high.

Potential harm to the interests of individual industries may be recognized as the natural result of efforts in the process of shipping decarbonization to protect public environmental interests. Accordingly, the negative impacts on various interests need to be considered as a key equity-related issue. Thus, disproportionately negative impacts need to be assessed and addressed as appropriate [67]. By virtue of the theory of environmental protection law, where protecting the public interest causes harm to individual interests, the government has the duty to provide compensation in order to balance public interests and individual interests. Therefore, for an equitable energy transition in international shipping, the government is required to implement appropriate economic incentive measures.

Large investments in the early stage of establishing AMF supply chains may also justify economic incentive measures in order to ensure reasonable pricing of AMFs, the establishment or improvement of infrastructure, and the innovation and application of new AMF safety technologies. In addition, technological innovation of ship propulsion systems and AMF storage systems onboard may also need economic incentives, especially in the early stage. Notably, market mechanisms cannot provide an ideal solution to balancing the conflicting interests among the various stakeholders and eliminating their potential investment risks.

The necessity of economic incentives is also supported by the responses to Q8 in the questionnaire investigation, as shown in Figure 8, indicating that the government’s current implementation of fiscal incentive policies for technology innovation and industrial development is the most vital factor for establishing AMF supply chains in China.

Furthermore, with respect to economic incentives for new technology, a study by the UNCTAD in February 2020 highlighted that the shipping sector was urged to develop, implement, and test the appropriate technology for the purpose of meeting decarbonization targets during fleet renewal trends [68]. In the following month, another study by the UNCTAD advocated that, in order to promote decarbonization, each Flag State could provide individual incentives for the ships under its jurisdiction [69].

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The specific means of economic incentive measures

Tax incentives and fiscal subsidies are the main forms of economic incentive measures in shipping decarbonization governance.

Tax incentives are deemed important means of governmental intervention in the economy through reducing or exempting the tax burden on a specific group of enterprises and taxable objects to align with the predetermined economic and social development goals of a country during a certain period of time. For the purpose of AMF supply chains, the government may appropriately enforce tax reductions, tax exemptions, tax credits, and accelerated depreciation of taxable properties by virtue of applying tax law to benefit the enterprises directly involved in these supply chains.

Fiscal subsidies are provided to enterprises or individuals by governments through special funds allocated for specific purposes to achieve specific economic goals. The adoption of fiscal subsidies can effectively regulate the balance of social supply and demand, maintain macroeconomic stability, and promote the optimal allocation of social resources and industrial restructuring to accelerate economic development. Fiscal subsidies are based on the reproduction process and can be divided into production subsidies, circulation subsidies, and consumption subsidies. Thus, fiscal subsidies for the purpose of AMF supply chains may be provided to the producers, transport or storage operators, shipping companies deploying AMFs, and even R&D institutes in the forms of price subsidies, operational loss subsidies, loan interest subsidies, and tax refunds, as appropriate.

Evidently, economic incentives need to be adopted appropriately. The fundamental purpose of tax incentives is to promote economic development and social progress, especially to support the development of a specific industry or a particular region. Thus, a tax incentive should be adopted in the case of a real need to reduce the tax burden of a group of enterprises to enable or help their survival or development when they encounter financial difficulty due to their involvement in an AMF supply chain. A fiscal subsidy may be adopted when it is really needed to reduce the high operating costs of the enterprises involved in AMF supply chains or to ensure their reasonable profit. In other words, the adoption of specific economic incentives should be limited to cases in which, as a result of the application of market mechanisms, the stakeholders involved will not have sufficient enthusiasm to engage or will be unable to be further engaged in AMF supply chains without these incentive measures. Furthermore, the type of economic incentives and/or the amount thereof need to be appropriately adjusted in the case of significant changes in circumstances.

4.3.3. Proactively Providing Administrative Guidance for Establishing AMF Supply Chains

According to the theory of public administration, administrative guidance refers to the non-mandatory administrative activities taken by governmental agencies that guide citizens, legal entities, or other organizations to take or refrain from taking certain actions [70]. Being highly dependent on the discretion of governmental agencies and complying with the spirit, principles, rules of law, or policies, administrative guidance takes the form of guides, suggestions, advice, negotiations, coordination, conciliation, opinions, reminders, exhortation, persuasion, expectations, interviews, etc., all without national coercive power. Governmental agencies perform such activities to effectively achieve certain administrative purposes by seeking the consent or cooperation of the related market stakeholders. Accordingly, administrative guidance exists in the nature of an MBM.

The features of AMF supply chains, as analyzed in Section 2.1.2, imply that conflicts of interest among stakeholders, games of interests, and concerns of the stakeholders may easily arise. Taking appropriate administrative guidance, as mentioned above, according to the prevailing circumstances may help solve the existing or potential conflicts of interest generated by the application of market mechanisms. It also helps to eliminate or reduce uncertainty concerns that the stakeholders may have about future regulatory steps. For instance, explaining the governmental development strategy or policy may well enhance the understanding of stakeholders and therefore solidify their determination of investment in AMF supply chains. The expression of resolutions on these supply chains by the government may help stakeholders to eliminate or reduce the uncertainties that they have concerns about. Administrative guidance may also coordinate the relationships between stakeholders for the purpose of mutual benefit, help solve inconsistencies or even disputes between stakeholders, and balance their interests during collaboration.

Evidently, the central government in China requires and encourages the competent authorities to provide administrative guidance to the related stakeholders as a governmental function. It is believed that administrative guidance may play an important role in establishing AMF supply chains in China.

4.3.4. Actively Enhancing International Cooperation for Establishing AMF Supply Chains

Evidently, shipping decarbonization is a global environmental issue and consequently needs international environmental cooperation beyond nations and regions. From the perspective of the response to global climate change, it is important to promote international cooperation as an important means and promote pragmatic global cooperation following international mechanisms [71]. Therefore, concerted practices from the international community become essential in shipping decarbonization, while individual countries are required to cooperate actively with each other, especially following the IMO’s regulations and guidance. In this regard, the sharing of new technology innovation is an important implication of international cooperation in shipping decarbonization.

As mentioned, the IMO advocated for international cooperation relating to the implementation of energy efficiency measures. On 17 May 2013, MEPC 65 adopted the Resolution MEPC.229(65) on the Promotion of technical co-operation and transfer of technology relating to the improvement of the energy efficiency of ships, which requests the IMO to provide technical assistance to member states through its various programs. This will enable cooperation in the transfer of energy-efficient technologies to developing states in particular and further assist in funding for capacity building and support to states, especially developing states, which have requested technology transfer. Subject to their national laws, regulations, and policies, it also requires the governments of the states to directly and actively cooperate to promote the development and transfer of technology and the exchange of information to states seeking technical assistance, particularly developing states. To facilitate the governments of member states in achieving such cooperation, the MEPC adopted the Model Agreement between Governments on Technological Cooperation for the Implementation of the Regulations in Chapter 4 of MARPOL Annex VI on 4 May 2016. Section 2 of this instrument sets forth the principles of equality, reciprocity, and mutual benefit in cooperation. Section 4 specifies the cooperative activities. We advise that the principles and contents of such cooperation need to be followed in order to establish AMF supply chains.

As analyzed in Section 2.1.1 and Section 2.1.2, a ship’s utilization of AMFs requires technological innovation entailing the ship’s propulsion system and fuel storage system onboard, while establishing AMF supply chains require technological innovation entailing production, storage, and transport on land and the refueling of AMFs to ships. However, there will undoubtedly be major differences in the maturity of the required technology among countries, and technical barriers may easily occur due to competitive considerations [3]. It is indicated that, currently, new technology in shipping decarbonization is dominated by a few EU members and other developed countries [72]. Therefore, such technology needs to be considered international public products, enabling the technology attained in one country to be applied in other ones following market mechanisms in order to avoid hindering the international shipping decarbonization process as a result of the shipping industry of countries lacking such technology. In this regard, compliance with international trade rules is rather important. Essentially, this requires the governments of individual countries, on one hand, to refrain from establishing technical barriers, and on the other hand, to intervene appropriately when the application of market mechanisms results in undue distortions of technology transfer.

4.3.5. Other Alternative MBMs in Establishing AMF Supply Chains

Besides the four above-mentioned measures, governmental measures to be considered for establishing AMF supply chains at the early stage of shipping decarbonization may also include, inter alia, implementing ETS in the shipping industry, establishing national GHG funds financed by marine bunker levies or the transfer of part of the ETS income for refunding to ships meeting or exceeding the agreed-upon efficiency standards, expanding the AMF supply chain market openness, optimizing the market environment, and formulating and implementing preliminary non-mandatory laws or regulations to regulate the related market operations. In China, shipping has not been placed into a national ETS yet, but the responses to Q13 in the questionnaire investigation shown in Figure 13 reveal that the majority view is in favor of the pragmatic implementation of ETS in the shipping industry in China. In addition, monitoring and collecting information on the performance of the market and conducting statistical analyses of the development situation is needed to serve as evidence to scientifically implement and necessarily adjust the existing plans and policies or formulate new ones, as well as to provide better administrative guidance.

5. Conclusions and Limitations

The following conclusions may be drawn from this study:

First, AMF supply chains are crucial in achieving the goals of shipping decarbonization. In this regard, EEDI and EEXI as technical measures and SEEMP and CII as operational measures mandated by Annex VI to MARPOL 73/78 and utilizing grey AMFs can only serve as short-term or medium-term measures in shipping decarbonization. Instead, ultimately, zero-GHG emissions from ships will be dependent on utilizing green AMFs. The global and practicable utilization of AMF needs guarantees to be provided by their supply chains. Currently, the sustainable availability of cost-effective AMFs in these supply chains has become more crucial than the innovation of ship propulsion systems and fuel storage systems on board.

Secondly, governmental intervention is needed to rectify the potential disadvantages of market mechanisms in establishing AMF supply chains at the early stage of shipping decarbonization. This is mainly because it is difficult, or even impossible, to effectively establish these supply chains solely through market mechanisms due to the features of AMFs and establishing their supply chains. Consequently, governmental intervention and market mechanisms need to play a joint role.

Thirdly, in attempting to provide significant recommendations to policymakers for establishing AMF supply chains at the early stage of shipping decarbonization, this study puts forward the main measures of MBMs for governments in order to ensure the utilization of AMFs and the establishment of their supply chains in an effective, sustainable, and socially equitable way, i.e., to develop strategic plans and policies for the purpose of providing guidelines to shipping and related industries; enact tax incentives, fiscal subsidies, and/or other appropriate economic incentive measures for the purpose of incentivizing the stakeholders of industries to invest in AMFs and establishing their supply chains; provide administrative guidance to help the stakeholders eliminate or reduce the potential uncertainties they may have about utilizing AMFs and establishing these supply chains; and enhance international technical cooperation because of the international nature of shipping decarbonization, the imbalance of technological innovation among countries, and the potential technical barriers in utilizing AMFs and establishing their supply chains.

The analysis in this manuscript has the following limitations, which may serve as a foundation for future study:

The development of strategic plans and policies by governments may not be universally applicable as it may depend on the situations of an individual country. The national situations, including the governmental roles of some individual countries, might make this measure less important or even impracticable.

The implementation of economic incentive measures by governments is not only a matter of the shipping decarbonization of a country but is also subject to the financial capability of its government and may consequently become an obstacle in some weak countries.

The administrative guidance provided by governments is dependent on the situations of an individual country because the governmental functions are not the same in different countries.

An in-depth analysis of the MBMs to be adopted by governments in establishing AMF supply chains needs the support of sufficient empirical data resources, but the availability of these resources in this study is limited, mainly because we are currently in the initial stages of establishing AMF supply chains. We advise that future studies be based on more resources in this regard.