The 'sailing ship' effect and the energy transition
The ‘sailing ship’ effect – also known as the ‘last gasp effect of obsolescent technologies’ - occurs where competition from new technologies stimulates improvements in incumbent technologies and the firms that produce them.
For example, the advent of steam power inspired the makers of sailing ships to innovate, transforming the structure from one made of wood, to metal and other materials. These new manufacturing techniques improved the carrying capacity of the vessel while also aiding its speed.
Meanwhile, the dawn of electric lighting prompted improvements from gas lamp manufacturers, making them safer and more efficient in their consumption of gas. Steam locomotives were replaced by diesel/electric powered trains enhancing the fuel efficiency, increasing the rate at which train travel was adopted.
The impact of this competition is to lengthen the S-curve of the old, existing technology allowing it to compete, for a while at least with the innovative newcomer. Indeed, it’s often at this moment that incumbent technologies perform at their best. However, the S-curve of the old can only be extended for so long. Sooner or later, new competition hits the exponential growth section of its S-curve, and it’s clear to all to see that it is pushing out the incumbent.
If the incumbent technology is influenced by network effects it can have a powerful impact in determining how the S-curve unfolds. The greater the value proposition of the incumbent network to its participants, and the higher the switching costs involved in moving to an alternative network, the higher the value of the incumbent network. Any new energy network must present a sufficiently high value proposition to users to justify the switching costs.
The preferences of the end user are also important in influencing the S-curve. If the incentives underpinning the behaviour of the end user change in some way, then this could alter the course of the incumbent technology - reenergising technologies that had been seen as obsolete and resulting in an even more prolonged or mis-shaped S-curve.
On ICE
One example of incumbent technologies heavily influenced by network effects is the internal combustion engine. For many, the internal combustion engine (ICE) epitomises the incumbent technology of the fossil fuel age. Faced with the existential threat posed by electric vehicles (EVs), ICE powered vehicles have begun to compete through incremental improvements in new powertrain technologies, the development of alternative fuels, etc.. Together these innovations have improved fuel consumption, cut emissions, and enhanced reliability.
A number of jurisdictions have passed laws banning the sale of new ICE vehicles, including California and the UK. The EU had been expected to rubber stamp its own law, phasing out new sales of ICE vehicles by 2035. Germany, Italy and the Czech Republic are against the law and believe that there should be place for carbon neutral synthetic fuels, otherwise known as e-fuels.
E-fuels are made by synthesising captured CO2 emissions and green hydrogen (produced using renewable electricity), or blue hydrogen (produced using natural gas, but with the carbon emissions being captured and stored). The fuels release CO2 into the atmosphere when combusted in an engine, but given that those emissions are equal to the amount taken out of the atmosphere to produce the fuel, the e-fuel is carbon neutral.
Synthetic fuels have the advantage that they can use the existing ICE infrastructure, including pipelines, fuel stations, etc., and can even be pumped into current vehicles, without requiring any change in design or subsequent alterations. While some vehicle manufacturers such as VW have gone all-in on electric vehicles, others such as Porsche are pushing a role for both electric and e-fuel powered vehicles.
In a series of articles on Carbon Risk I have highlighted the potential role for synthetic fuels in decarbonising the aviation and shipping industries. There is an argument (one based on scarcity) that e-fuels manufactured using renewable energy should be reserved for hard-to-abate sectors of the economy where batteries are unlikely to scale (see Blending in: Decarbonising air travel with 'sustainable' fuel).
An alternative argument (one based on abundance) is that strong demand for green hydrogen from a variety of end markets should energise investment in renewable and electrolyser capacity. In turn this will lead to further economies of scale, thus driving down prices and increasing adoption.
At present, powering an ICE car using e-fuels is likely to be close to 4 times as expensive as running an EV, according to a 2022 study by EU-based environmental advocacy group Transport & Environment. However, as the cost of producing green hydrogen in Europe comes down (or importing it from elsewhere in the world), the cost of e-fuel could begin to converge with electric.1
Top level motorsport is often the focal point for vehicle innovations that only a few years later become standard on road cars. For example, traction control, anti-lock brakes (BS) were all conceived in Formula 1. Now, motorsport is targeting the introduction of synthetic fuels. Formula 2 and Formula 3, the feeder series’ to Formula 1, are working towards 100% e-fuel by 2027 with the CO2 used to produce the e-fuel being sourced from Direct Air Capture (DAC). Formula 1 plans on introducing 100% e-fuel shortly afterwards (see Climate engineering: The case for technology-based carbon removal).2
A second wind
Five thousand years ago Egyptians mariners used to travel up and down the Nile using vessels powered by suspended woven reeds. The technology evolved gradually over time until the advent of steam and diesel engines meant sailing was relegated to a leisure activity.
Sailing ships may still have their comeuppance as the preferences of the end users change; away from speed and convenience, and towards efficiency and zero emissions.
The shipping industry accounts for about 3% of global greenhouse-gas emissions and is trying to move away from heavy fuel oil, which is highly polluting. A series of regulations are set to change the calculus among shipowners, as they now factor in the rising cost of emissions into their investment decisions.
The International Marine Organization (IMO) sets regulations for the international shipping industry. The most recent regulations (IMO 2020) were introduced to shift vessels from high-sulphur to low-sulphur fuel; this either required ship owners to introduce sulphur scrubbers or undergo an engine retrofit that would allow them to use low-sulphur fuel, both of which are expensive. The next set of regulations (IMO 2030) goes even further and are designed to sharply reduce the shipping industry’s carbon intensity. These regulations are aimed at forcing older less-efficient tankers off the market (see What price decarbonised shipping? A carbon price will have powerful knock-on effects on global ship supply).
Beginning in 2024, the shipping sector will be subject to carbon pricing for the first time. Vessel operators will need to purchase EUAs amounting to 40% of their emissions in 2024 (payable by April the following year), 70% in 2025, and reaching 100% of 2026 emissions, according to the announcement by the European Parliament. Meanwhile, to stimulate the uptake of sustainable maritime fuels and zero-emission technologies the Fuel EU Maritime proposal sets a maximum limit on the greenhouse gas intensity of energy used on-board by a ship (see Putting a cap on European shipping emissions: The maritime sector is beginning to price in EU carbon prices).
Now a number of ship owners are looking at reverting to wind propulsion to reduce fuel consumption and cut emissions.
While traditional sails generate lift by creating a difference in pressure between the area in front and behind the sail, more recent technologies use fans to draw air inside a cylindrical shaped tower as the wind flows around it. According to the wind propulsion company, bound4blue, this results in 6-7 times the lift of a conventional rigid sail and could reduce fuel consumption by up to 40%, especially if it is combined with better vessel design and adjustment to routes to take advantage of prevailing winds.3
According to the International Windship Association (IWSA), 21 large commercial ships were sailing with the ability to harness the power of the wind as of September 2022. IWSA estimates that by the end of 2023, up to 50 large ships will be making use of wind propulsion technologies based on public announcements and known shipyard orders.4
To say that employing sails to power modern day ships is a niche endeavour is overplaying the current situation somewhat. That being said the potential for emissions savings is huge. According to bound4blue there are more than 60,000 ships sailing worldwide that could benefit from wind propulsion, including cargo carriers, tankers, ferries and cruise ships.
One obstacle to uptake of the technology is that it is typically the charterer, not the shipowner, who pays for fuel. This has meant there has been little incentive to invest, especially if the charterer fails to lease the ship long enough to generate a return on the investment. The advantage of the EU carbon price is that it forces the ship owner to pay for the vessels pollution, providing a strong incentive to invest.
What it means for the energy transition
For better or worse, green industrial policy is likely to become more interventionist in approach. Governments are likely to adopt more direct support for those industries seen as vital to securing their zero carbon energy transition while also securing their green industrial sovereignty.
But should it be left to policymakers to pick the winners, or should the market dictate which technology will eventually win out? Carbon Risk is all about putting a price on carbon, being completely agnostic as to how net zero should be achieved, and letting the market decide which approach is best.
The future isn’t set. The internal combustion engine and wind propulsion could yet play a much larger role in the energy transition, leveraging existing technologies to accelerate the energy transition while catalysing improvements elsewhere.
https://www.transportenvironment.org/wp-content/uploads/2021/04/Efuels-in-cars-briefing-correction.pdf
https://the-race.com/formula-1/why-f2-f3s-new-sustainable-fuel-is-more-extreme-than-f1s/
https://horizon.scienceblog.com/2319/ships-harness-wind-for-voyage-to-a-cleaner-future/
https://www.rina.org.uk/res/Wind%20Propulsion%202023_Press%20Release