Cruise Lines Pursue Greener Journeys Ahead of New Climate Rules

AMSTERDAM—The global cruise industry is trying to go green ahead of a wave of new climate rules. Getting it done involves managing high costs, a dearth of renewable fuel and pressure from regulators and environmental groups.

Cruise operators are buying new ships that can run on alternative fuels, redesigning hulls to move more efficiently through the water and adding electricity hookups for when their ships are at port, where they otherwise might pump out toxic exhaust.

Carnival, the world’s biggest cruise company, has equipped more than half of its fleet to plug into local power grids when docked. Royal Caribbean and Norwegian Cruise Line Holdings have ships on order that the companies say will be able to run on methanol. MSC Cruises uses a digital platform to analyse weather, fuel consumption and other data to optimise its ships’ efficiency.

The companies are preparing for new rules that will require them to pay for some of their emissions and meet new targets in transitioning to cleaner fuels. They also expect that global regulations could tighten further. Cruise lines, like other parts of the shipping industry, are pushed to act quickly and thoroughly because ships that are ordered today are likely to be in operation for decades.

“We build ships now that last 40 years,” said Torstein Hagen, chairman of cruise company Viking, which has ships on order that will be equipped to use renewable hydrogen. “We’d better get it right.”

Complicating the industry’s investments is the high cost of building and fuelling eco-friendly ships after some cruise operators racked up billions of dollars in debt during the pandemic. Cleaner renewable fuels are expensive and aren’t yet available or used in large quantities. Just 34 of the world’s ocean-cruise ports—roughly 2%—have electrical hookups, according to industry figures.

The number of passengers taking oceangoing cruises is expected to jump this year to more than 31 million, according to industry group Cruise Lines International Association, up from about 20 million last year and about 6% above 2019 levels, before the pandemic largely shut down the industry.

That revival has put renewed pressure on port cities, as some seek limits on visits by cruise ships, and added to concerns from environmentalists about the industry’s contribution to global greenhouse gas emissions.

Although cruise ships are responsible for a tiny portion of overall human-caused greenhouse-gas emissions, their onboard services contribute to higher emissions on average compared with cargo ships, according to industry estimates.

Cruises are also discretionary—nobody must go on a cruise—a point that environmentalists raise in their calls for fast action from the industry.

Faig Abbasov, director for shipping at environmental group Transport & Environment, said some cruise companies are investing in technology that can sharply reduce their emissions once it is in use—such as hydrogen fuel cells or engines that can run on green methanol—but the overall industry isn’t moving quickly enough.

New environmental rules are set to take effect over the coming years.

Shipping companies whose vessels start or end voyages in Europe, including those that run large cruise ships, will have to start paying for a portion of their emissions beginning next year through the EU’s emissions-trading system. A separate EU law will compel shipping companies to progressively increase their use of lower-emission fuels beginning in 2025, and ports in the bloc that are used frequently by cruise and containerships will need to provide onshore electricity connections by 2030.

California already has state-level rules that require cruise ships to plug into shore power or otherwise sharply curb their emissions while at high-traffic ports including Los Angeles and Long Beach.

And the International Maritime Organization, a United Nations organisation, in July committed to new greenhouse-gas emission reduction targets. The IMO also has rules for energy efficiency and carbon intensity in the shipping industry.

Regulations are “the only way that you can seriously drive this kind of massive step change in what we’re doing as an industry,” said Linden Coppell, MSC Cruises’ vice president for sustainability. Incoming rules will affect the kinds of ships the company orders in the future, how it transitions to alternative fuels and efforts to improve the vessels’ efficiency, she said.

Cruise companies are moving ahead with green investments despite the debt that some of them racked up during the pandemic.

Carnival said it has fewer new ships on order than at any point in recent decades. However, the company said it hasn’t significantly reduced capital expenditures, which include investments in sustainability-related technologies. Royal Caribbean said its sustainability commitments remained steadfast during the pandemic.

Norwegian has indicated in earnings reports that compliance with environmental rules and its own climate commitments will be costly. The company announced plans for two new methanol-ready ships earlier this year.

The biggest cruise companies “have tremendous access to capital and continue to invest in sustainable technologies,” said Ivan Feinseth, director of research and analyst at Tigress Financial Partners.

Not every move to alternative technology is winning fans. LNG emits less carbon dioxide and significantly fewer air pollutants than the heavy fuel oil used in many ships. But environmental groups say any climate benefits are overshadowed by the escape of unburned methane, a potent contributor to global warming, into the atmosphere.

“LNG is the best thing out there today,” said William Burke, Carnival’s chief maritime officer and a retired vice admiral with the U.S. Navy. He said ships that are built to use LNG will also be capable of running on bio or synthetic forms of the fuel in the future.

Carnival is working with manufacturers to reduce the release of methane and will have more efficient engines in newer ships, he said.

Green methanol, which can be produced from biomass or by using renewable electricity, is gaining ground as a viable alternative fuel for the shipping industry, in part because it can be stored at room temperature.

Norwegian expects to take delivery of two methanol-ready ships in 2027 and 2028. Mark Kempa, the company’s chief financial officer, acknowledged on an earnings call earlier this year that the ships would cost more, but added, “going green is not free.”

Privately owned cruise company Viking, which has a fleet of 10 ocean vessels, says it sees renewable hydrogen as the best future fuel. The company ordered ships that can run on both hydrogen and traditional marine fuels, and its Viking Neptune vessel has hydrogen fuel cells on board to test out the technology. But supplies of the fuel are still limited.

“We can’t solve the world’s hydrogen supply problem,” Hagen said. He said the company plans to increase its use of the fuel as it becomes more available. “When that happens, then we are prepared.”

Auto dealers across many parts of the country say electric vehicles are becoming too hard a sell for buyers worried about the range, reliability and price of these models.

When Paul LaRochelle heard Ford Motor was coming out with an electric pickup truck, the dealer was excited about the prospects for his business.

“We thought we could build a million of them and sell them,” said LaRochelle, a vice president at Sheehy Auto Stores, which sells vehicles from a dozen brands in Virginia, Maryland and Washington, D.C.

The reality has been less positive. On Sheehy’s car lots, LaRochelle says there is a six- to 12-month supply of EVs, compared with a month of gasoline-powered vehicles.

With automakers set to release a barrage of new electric models in the coming years, concerns are mounting among auto retailers about whether the technology will have broader appeal given that many customers are still reluctant to make the switch.

Battery-powered models have been piling up on car lots, dealers say, as EV sales growth has slowed in the U.S. this year. Car companies have been offering a combination of discounts and lower interest-rate deals in an effort to juice demand. But it hasn’t been enough, because buyer reticence extends beyond the price tag, dealers say.

“I’m not hearing the consumer confidence in the technology,” said Mary Rice, dealer principal at Toyota of Greensboro in North Carolina. “People aren’t beating down the door to buy these things, and they all have a different excuse why they aren’t buying one.”

Customers cite concerns about vehicles burning through a battery charge faster in cold weather or not being able to travel as far as they expected on a single charge, dealers say. Potential buyers also worry that chargers aren’t as readily accessible as gas stations or might be broken.

Franchise dealerships fear that the push to roll out new models will inundate them with hard-to-sell vehicles. Research firm S&P Global Mobility said there are 56 EV models for sale in the U.S. this year, and the number is expected to nearly double to 100 next year.

“I start to think, you know maybe we should just all pump the brakes a little bit,” Rice said.

A group of dealers expressed their concerns about the government’s role in pushing electric vehicles in a letter last month to President Biden.

A Toyota Motor spokesman said the majority of dealers have become “increasingly more confident in their ability to sell Toyota EV products.”

At Ford, the company’s electric-vehicle sales are rising, including for its F-150 Lightning pickup, but demand isn’t evenly spread across the country, according to a spokesman.

Dealers say that after selling an EV, they sometimes hear complaints about charging and the vehicles not always meeting their advertised range. In some cases, customers seek to return them to the dealer shortly after buying them.

“We have a steady number of clients that have attempted to or flat out returned their car,” said Sheehy’s LaRochelle.

While EVs remain a small but rapidly expanding part of the new-car market, the pace of growth has slowed this year. Electric-vehicle sales increased 48% in the first 11 months, compared with a 69% jump during the same period in 2022, according to Motor Intelligence. Sales remain concentrated in a few states, with California accounting for the largest chunk, S&P Global Mobility data found.

The cooling growth has raised broader questions in the industry about whether car companies face a temporary hurdle or a longer-term demand challenge. Automakers have invested billions of dollars to bring more EV models to the market, and many analysts and car executives say they remain optimistic that sales will continue to expand.

“Although the rate of growth has slowed recently, EV demand is clearly moving in the right direction,” said General Motors Chief Executive Mary Barra on a recent conference call with analysts. A combination of more affordable model options and better charging infrastructure would help encourage more people to buy electric vehicles, she said.

There are also varying views within the dealer community about how quickly buyers will adopt the technology.In hot spots for electric-vehicle demand, such as Los Angeles, dealers say their battery-powered models are some of their top sellers. Those popular EV markets also tend to have more mature public charging networks.

Selling an electric car or truck outside of those demand centres is proving more difficult.

Longtime EV owner Carmella Roehrig thought she was ready to go full-electric and sold her backup gasoline vehicle. But after the 62-year-old North Carolina resident found herself stranded last year in a rural area of South Carolina, she changed her mind. Roehrig’s Tesla Model S got a flat tire, but none of the stores in the area carried tires for a Tesla. She ended up paying a worker at a nearby shop to drive her home.

Roehrig still has her Tesla but bought a pickup truck for long road trips.

Tesla didn’t respond to a request for comment.

“I have these conversations with people who say we’ll all be in EVs in 15 years. I say: ‘I’m not so sure. I’ve tried to do it,’” Roehrig said. “I think you need a gas backup.”

Customers who want to ditch their gas vehicle for environmental reasons are sometimes hesitant, said Mickey Anderson, president of Baxter Auto Group, which owns dealerships in Kansas, Nebraska and Colorado.

“We’re in the Colorado Springs market. If this is your sole mode of transportation, and you’re in a market in extremes of elevation and temperature, the actual range is very limited,” Anderson said. “It makes it extremely impractical.”

Dealers representing around 4,000 stores across the U.S. signed the letter in November addressed to Biden, saying the administration’s proposed auto-emissions regulations designed to promote electric-vehicle sales are unrealistic. The signatories ranged from stores owned by family businesses to publicly held giants such as AutoNation and Lithia Motors.

“Some customers are in the market for electric vehicles, and we are thrilled to sell them. But the majority of customers are simply not ready to make the change,” the letter said.

Some carmakers are pushing back EV-rollout plans. GM said in mid-October that it would delay the opening of an electric pickup plant by a year to late 2025. In response to weaker-than-expected consumer demand, Ford said in late October that it would defer $12 billion of planned spending on electric-vehicle investment.

Since September, dealers on average took more than two months to sell an EV, compared with 40 days for all vehicles, according to car-shopping website Edmunds.

While discounts have helped boost sales of some electric vehicles, they also have led to repercussions for some current owners because it reduces the value of their vehicles, dealers say.

“Most people don’t have the confidence to buy an EV and know what it will be worth in 10-15 years,” said Rice from the Toyota dealership.

It may take some time for the industry to adjust because it is still in an early stage of switching to electric vehicles, Sheehy’s LaRochelle said.

“We’re asking for this market to grow organically,” he said.

Cruise Lines Pursue Greener Journeys Ahead of New Climate Rules

As tourists flock to ships and strain port cities, companies are pushed to invest in cleaner tech

Concern about electric vehicles’ appeal is mounting as some customers show a reluctance to switch