Charting U.S. Competitiveness in Low-Carbon Maritime Fuels: Domestic Foundations

Commentary by Mathias Zacarias

Published September 12, 2025

This commentary is the first in a two-part series examining U.S. competitiveness in low-carbon maritime fuels. Part two will focus on emerging global markets and the intensifying race to capture them.

Maritime shipping, the cornerstone of global trade, is estimated to be responsible for around 3 percent of global greenhouse gas (GHG) emissions. In support of international climate efforts, the IMO recently approved a legally binding net-zero framework for implementing its 2023 strategy on GHG emissions reductions from ships. Supported by a carbon pricing mechanism and a target for low-emissions fuels to supply at least 5 percent of the sector's energy mix by 2030, the IMO's strategy marks the start of a global transition towards low-carbon fuels in the shipping sector. The United States, however, has publicly withdrawn support for the plan while threatening economic retaliation against IMO members that adopt the framework-despite having the resources to emerge as one of the strategy's biggest beneficiaries.

As a leading maritime trading nation, the United States is faced with a strategic opportunity to shape the narrative of shipping decarbonization-a sector which sits at the intersection of climate policy, trade, energy security, and industrial competitiveness. With other countries moving to make headway amidst global competition to supply low-carbon maritime fuels, the United States must act now to advance its own capabilities and secure its position as the sector's premier supplier.

Gauging U.S. Readiness Across Low-Carbon Fuel Options

The United States' readiness to supply low-carbon maritime fuels can be evaluated across two broad categories: bio-derived fuels (biofuels) and synthetic electro-fuels (e-fuels). Each pathway presents opportunities for U.S. competitiveness alongside challenges to deployment and adoption at scale. The U.S. market shows isolated pockets of progress across the portfolio of low-carbon maritime fuels, but a coherent picture of readiness has yet to emerge. Biofuels are a promising near-term solution but will be supply-constrained in the long term. Conversely, low-carbon hydrogen-based e-fuels like e-methanol and ammonia are promising nascent options but still a long way off from being produced at scale-with U.S. support for deployment programs and first-mover projects wavering. This landscape showcases the need for consistent supportive policies to transition towards the scaled deployment of low-carbon maritime fuels.

Biofuels

The primary biofuels for the shipping sector include biodiesel and renewable diesel, which could act as drop-in replacements for commonly employed marine fuels. Emerging options include bio-methanol and renewable natural gas (RNG), but these low-carbon biofuels would require purpose-built or retrofitted vessels. The United States has a sizable industrial base for biofuels and a growing production base specifically geared towards biodiesel and renewable diesel. The sector has been propped up by long-standing road transport policies and well-developed feedstock supply chains, such as soybean oil and waste-based oils. Likewise, the bio-methanol and RNG sectors are set for continued growth towards broader commercialization in the coming years. The country's mature biofuel industry provides multiple avenues-both from a feedstock and production capacity standpoint-to pivot towards supplying low-carbon marine-compatible fuels.

This overlap with existing biofuel production, while a strength, also presents a drawback. Producers remain largely focused on incumbent road transport and budding aviation demand, resulting in the current underdevelopment of maritime markets. Forecasted feedstock scarcity is bound to heighten sectoral competition for limited supplies. Moreover, the lack of focus on low-carbon maritime fuel markets has resulted in a dearth of dedicated bunkering infrastructure to service such fuels at scale. Sustainability concerns are also an issue, given uncertainties surrounding lifecycle emissions estimates derived from opaque feedstock sourcing and indirect land-use changes.

While the existing U.S. biofuels sector grants the country a head start to meet near-term demand in nascent global markets, scaling these fuels into a long-term shipping decarbonization solution will require overcoming feedstock constraints, building out supportive port infrastructure, and establishing clear sustainability guidelines for assessing production pathways.

E-Fuels

The synthetic e-fuels category includes hydrogen derivatives, such as low-carbon ammonia and e-methanol, and other power-to-liquid fuels-most of which are produced by combining hydrogen and captured carbon through various chemical processes. Ammonia and methanol have emerged as leading contenders for shipping decarbonization due to their scaling potential in the long term, although near-term availability will be constrained while this pathway reaches maturity. Other synthetic alternatives like e-diesel or e-methane are technically feasible and attractive as drop-in options for existing engines but remain far less developed and a more costly option today.

The United States' position in this domain balances notable strengths alongside weaknesses related to market coordination. On one hand, the e-fuels sector benefits from a large pipeline of projects, spurred by supportive polices for hydrogen, carbon capture, and clean fuels. These prospective projects are underpinned by abundant natural resources that support low-cost feedstock production, extensive carbon dioxide (CO₂) storage potential, and world-class research and development in key production technologies and chemical processing. On the other hand, the U.S. lags in demand creation and bunkering infrastructure development. Very few pilots of methanol and ammonia bunkering are underway, and most U.S. shipowners have yet to commit to dual-fuel vessels that support low-carbon fuels. This leaves producers struggling to secure offtake agreements. This "chicken-and-egg" problem, alongside current policy uncertainty, risks slowing deployment and stranding projects.

A Shifting Landscape of Domestic Policy Drivers

U.S. clean fuel policy has undergone transformational changes in recent years. Although there is no dedicated federal program targeting low-carbon marine fuels specifically, several policies have indirectly supported the sector's development. The landscape has evolved from previous biofuel-focused mandates for road transport to a broader supply-push approach under both the Inflation Reduction Act (IRA) and the "One Big Beautiful Bill" Act (OBBBA). Examining the evolution of these historical policy drivers explains the current market landscape while presenting a shifting picture of U.S. competitiveness in maritime fuels.

The Renewable Fuel Standard (RFS), established in 2005, has been one of the primary U.S. policies driving production of biofuels at the federal level. The RFS, which requires set volumes of renewable fuel in the national transportation fuel supply, has successfully expanded the output of biofuels such as ethanol and biodiesel. The policy is foundational to the aforementioned industrial and rural economic base that currently underpins U.S. competitiveness. But the policy has exclusively focused on road transport fuels and has had little direct impact on maritime fuels, which don't qualify for RFS credits. Over time, attention and impact have shifted to broader climate policies. In 2022, the IRA introduced an array of clean energy incentives, including technology-neutral tax credits for clean fuels and hydrogen. Now, in 2025, the focus is on implementing these credits while adapting to new realities. The passage of the OBBBA, which generally reduced funding for clean energy, yielded mixed but generally positive outcomes for low-carbon fuels across bio-derived and synthetic pathways.

Biofuels

For biofuels, the key policy driving sectoral growth has been the IRA's new 45Z Clean Fuel Production Credit. Extended from 2027 to 2029 by the OBBBA, the 45Z credit is a performance-based tax credit designed to incentivize low-carbon transportation fuels-including marine biofuels. It replaces prior biofuel-specific credits and is feedstock-agnostic, offering up to $1.00 per gallon for zero-carbon fuels based on lifecycle emissions reductions. The threshold for eligibility has become relatively lenient due to the exclusion of emissions attributed to indirect land-use changes, easing compliance but reducing decarbonization effectiveness by overlooking the climate impacts of land conversion.

The 45Z credit's broad eligibility and extended timeline allow many legacy producers to qualify, thereby expanding supply options for marine fuel, despite lacking a marine-specific multiplier or mandate. However, the OBBBA restricted tax credit eligibility to fuels using feedstocks sourced from North America. This limitation is bound to impact producers relying on foreign-sourced feedstocks, such as used cooking oil imports from China and cattle tallow imports from Brazil.

While this "supply push" approach makes production cheaper, demand-pull will have to rely on external forces like global requirements or voluntary green shipping commitments. Thus, while 45Z helps widen access to low-carbon biofuels and nudges legacy producers toward cleaner processes, the maritime sector's decarbonization will require additional measures focused on stimulating demand.

E-Fuels

Similarly, for synthetic fuels, the IRA provided major incentives for clean hydrogen and carbon capture that will be essential to long-term maritime decarbonization. The 45V tax credit offers up to $3/kg for clean hydrogen produced with very low emissions. This policy benefits clean ammonia and e-methanol producers since their costs are largely driven by clean hydrogen feedstock. Complementing the tax credit, the Department of Energy's H2Hubs program is developing regional hydrogen hubs, some with explicit maritime applications like port drayage and harbor craft. However, the OBBBA curtailed 45V access for projects starting construction after 2027, which would leave late-decade projects with no support. Political reviews and funding concerns for the H2Hubs and carbon management initiatives add further uncertainty.

On the other hand, the OBBBA enhances the 45Q tax credit to now provide $85 per ton of captured CO₂ that ends up in utilization pathways, such as in e-fuels-an increase from the $60 previously offered under the IRA. This policy update will yield lower CO₂ feedstock costs, but competition against other carbon management pathways remains. Some projects may prefer cashing in on sequestration credits or enhanced oil recovery over e-fuel production, largely due to better-established markets or simpler implementation. Assessed together, these policies will help reduce costs and increase the availability of e-fuels. But without longer-term policy certainty or targeted maritime demand measures, the United States risks underdeveloping its e-fuel potential.

Domestic Readiness as a Launchpad to Global Markets

The United States has clear advantages to leverage in low-carbon maritime fuels, with strong supply-side incentives currently in place, a mature biofuel sector, and an emerging pipeline of e-fuel projects. Outstanding constraints such as feedstock competition, limited port infrastructure, policy swings engendering uncertainty, and weak demand from domestic shipowners mean supply-side readiness alone will not secure global leadership. While demand must start at home to anchor early markets, long-term growth prospects will have to come from abroad.

The inherently international nature of shipping underscores the imperative to pair domestic progress with strategies to capture global market share and influence. Regions like Europe, the Asia-Pacific, and the Persian Gulf are moving quickly to scale up low-carbon fuels production and set the standards that govern the future of global trade. Will the United States seize the narrowing window of opportunity to chart the course of maritime decarbonization, or risk being left behind in the wake of competitors?

Mathias Zacarias is an associate fellow and energy transitions fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

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