Fortescue Metals pushes for shipping decarbonization to eliminate Scope 3 emissions

Fortescue Metals Group founder and Chairman Andrew Forrest, one of Australia's richest people, has his eyes set on decarbonizing maritime transportation as his company begins to eradicate emissions across its value chain.

Earlier this month, Perth-based Fortescue said it plans to achieve net-zero Scope 3 emissions by 2040, becoming the first mining major to make a firm commitment to tackling the largest part of the industry's carbon footprint.

The iron ore miner in March announced a target of operational carbon neutrality by 2030, 10 years earlier than its previous goal, set in June 2020.

Speaking at the Global Maritime Forum held in London this week, Forrest said the shipping industry can lead the industrial world out of global warming as it is experiencing a "great industry revolution" in decarbonization.

"Unlike countries, the shipping industry can move so much faster," said Forrest in the runup to COP26, where government leaders are hoping to find ways to curb climate change. "Whether or not it has the will, that's the issue."

UN climate talks generally spend little time on maritime transportation. The 2015 Paris Agreement did not directly mention shipping.

But Forrest said companies like his "are entertaining [spending] tens and tens of millions of dollars" to accelerate shipping decarbonization. "We know that the technology is there…We're going to move heaven and earth to ensure the shipping industry cannot say it didn't have the molecules to go green," he added.

Fortescue, the world's fourth-largest iron ore producer, plans to develop hydrogen-based technologies to reduce emissions from shipping, iron- and steel-making in the coming decades.

As part of the decarbonization pathway, its green energy arm—Fortescue Future Industries (FFI)—is tasked with producing 15 million metric tons (mt) of hydrogen from renewable power annually by 2030. The company recently announced it will build a 2-GW-per-year electrolyzer factory in Gladstone, Queensland in 2022, with an initial investment of A$114 million ($85.9 million).

Separately, FFI is set to make the final investment decision on a 250-MW green hydrogen plant in Bell Bay, Tasmania by the end of this year.

When it comes to FFI's planned hydrogen production, Forrest said some will be converted to green ammonia to fuel marine engines currently under development. "We are not yet at 100%, but around 60%, 70%, or 80% [technically]," he added.

Fortescue announced in June a partnership with K-Line, JERA, Vale, Trafigura, and another 18 companies in a joint study on using ammonia as marine fuel.

Fortescue's Scope 1 GHG emissions from its assets reached 2.06 million mt of carbon dioxide equivalent (CO2e) in fiscal year 2021, which ended 30 June, and Scope 2 emissions from electricity purchases amounted to 160,000 mt, according to the company.

Its Scope 3 emissions reached 252 million mt of CO2e, including 246 million mt from crude steel manufacturing and 3.48 million mt from shipping. But decarbonizing steelmaking would require huge investments from Fortescue's clients in electric arc furnaces and renewable electricity.

The miner is targeting a 7.5% cut to the emissions intensity of its steelmaking clients by 2030 from fiscal year 2021 levels on the way to a 2040 target of 100%. Its near-term target for maritime transportation is more aggressive: Fortescue wants to halve the emissions intensity of transporting its ore by 2030.

The company will seek to build vessels capable of running on green ammonia, and Forrest said Fortescue's fleet of eight very large ore carriers (VLOCs) will be converted to be powered by the zero-emission fuel.

The vessels are on long-term financial leases from CDB Leasing, so their emissions are technically Scope 1. But they are only responsible for 12% of Fortescue's total shipping requirements—emissions from the remaining operations are Scope 3.

"We need to convert our 'heavy-pollution' ships. We have eight of some of the longest ships in the world," said Forrest.

The company estimates that 300,000 mt of hydrogen will needed to be converted to ammonia to power the vessels every year.

The magnate added that Fortescue will discuss decarbonization projects with the shipowners transporting its iron ore cargoes. With around 190 VLOCs worldwide, Forrest estimated 7 million mt of hydrogen will be required to make 40 million mt of ammonia annually for all of them.

"We're going to need to do a great deal more…The quicker we start to decarbonize, the quicker it's going to happen," he said. "The global shipping industry needs to start changing."

Tough pathway

Fortescue has set more ambitious climate targets than its peers. A group of 28 mining firms—including Glencore, BHP, and Rio Tinto—committed 5 October to net-zero Scope 1 and 2 GHG emissions by 2050. They have yet to establish a Scope 3 target as a group.

But shipowners are facing additional pressure from consumer-facing brands to decarbonize their operations. IKEA, Amazon, Unilever, Michelin, and another five companies recently pledged to only ship their goods on vessels powered by zero-carbon fuels by 2040.

The shipping industry has been mired in the debate over its decarbonization pathways after the International Maritime Organization (IMO) in 2018 established a target to halve GHG emissions from cross-border shipping by 2050, relative to 2008 levels.

In June, the UN agency finalized initial technical and operational rules for reducing vessel emissions. But many environmentalists and shipping professionals believe the regulations are not rigorous enough to trigger industry-wide decarbonization.

"If you want to do things now, you need crazy people," said Alexander Saverys, CEO of Belgian shipowner Compagnie Maritime Belge, referring to shipping decarbonization. "Waiting for subsidies, waiting for feasibility, [or] waiting for financial analysis doesn't work."

Saverys, whose company owns some small hydrogen-powered ships and is considering building ammonia-fueled ships, was speaking at the same forum as Forrest. "Sometimes you need to have someone who comes with his own money. And Andrew [Forrest], that's exactly what you're doing," he said.

"Seeing is believing. So, if you do things with the crazy person that does it, you can prove it to others this is really possible," he added.

Many shipowners have been willing to order LNG-fueled ships, which cost more to build but have lower CO2 emissions than conventional vessels and can meet the IMO's sulfur-reduction standards, which went into effect on 1 January 2020. But energy experts said the reliance on natural gas could lead to more methane leakage and delay the transition to zero-emission fuels.

Major trade bodies proposed a carbon levy of $2 per mt of bunker fuel to fund the research and development of low-emission shipping, but environmentalists said the scale was too small to result in meaningful emissions reduction.

Andreas Sohmen-Pao, chairman of Singapore-headquartered BW Group, which owns maritime and renewable assets, said he hopes shipowners can receive more encouragement rather than criticism.

"Everything starts with small steps… At the emerging space we should be encouraging these things, and then iterating and improving instead of bashing them," he said.

Regulatory progress

During the IMO's Intersessional Working Group on Reduction of GHG Emissions from Ships 18-22 October, member states proposed several decarbonization measures that would begin to price vessel emissions.

Those included a GHG levy, a cap-and-trade system, and a green fuel standard. IMO members are still discussing regulatory details and planning to finalize them in 2022 or 2023.

Many environmentalists and shipping professionals believe a price on emissions is required to trigger the shift to low- and zero-carbon fuels.

"It was exciting to see a growing number of countries last week speaking favorably for new, more ambitious climate measures," nonprofit Opportunity Green CEO Aoife O'Leary said. "Many countries recognized that the revenues from such a new measure can be used to boost economic development across the world through investments in decarbonizing the shipping sector."

Simon Bennett, deputy secretary general of the International Chamber of Shipping, a London-based trade body, said the progress to begin developing a market-based measure to expedite the transition to net-zero emissions is welcome.

"The next important step will be for proponents of different mechanisms to submit assessments of the likely impacts on the cost of maritime trade," Bennett added.

The IMO was designated the regulatory body for emissions from international shipping in the 1997 Kyoto Protocol, which expired at the end of last year. There are hopes that COP26 participants will formally ask the IMO to set a decarbonization target that can meet the Paris Agreement's ambition in limiting global warming to well below 2 degrees Celsius compared with pre-industrial levels.

During the IMO's 77th Marine Environment Protection Committee meeting 22-26 November, a joint proposal from the Marshall Islands and the Solomon Islands to achieve zero-emission shipping in absolute terms by 2050 will be discussed. The Japanese government said it will propose a net-zero target in the same timespan with Costa Rica, Norway, the US, and the UK. The EU's 27 members are expected to support one or the other.

Posted 29 October 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability