EU’s twin track to zero-carbon shipping is complicated
ENVIRONMENTAL lobby group Transport & Environment (T&E) announced late last month that the European Union (EU) had “agreed to the world’s first green shipping fuels law”.
T&E said that these EU policy decisions mean that ships will increasingly be required to switch to sustainable fuels, and that at least 2 per cent of the bloc’s shipping fuels will need to come from e-fuels derived from renewable electricity by 2034.
The lobby group said: “With negotiations ongoing at the International Maritime Organization (IMO), this marks the beginning of the end for dirty shipping fuels and should provide inspiration for other countries around the world.”
Delphine Gozillon, sustainable shipping officer at T&E, said: “The EU is charting the way, with the most ambitious package of green shipping laws ever adopted. This success should inspire other countries to do the same.”
But a lot of this depends on how one defines “green”; and in any case, the International Maritime Organization (IMO) already has regulations in place to start reducing shipping’s carbon dioxide (CO2) emissions.
T&E said the EU’s FuelEU Maritime law, agreed on by all EU bodies and member states, sends a strong signal to potential investors and fuel suppliers to start producing these green fuels for shipping. It added that e-fuels are one path to the decarbonisation of shipping, an industry in which direct electrification is not possible for many vessels.
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So environmental campaigners are generally very happy with the EU’s new policies – or least with their interpretation that it will almost inevitably mean shipping using electricity or fuel produced by electricity.
T&E notes that the final EU agreement also includes stricter greenhouse gas intensity targets, as well as a bonus for the use of green e-fuels until 2035. It says this should make e-fuels more attractive to use when the regulation takes effect in 2025.
However, T&E warns that “loopholes” risk letting biofuels and low-carbon fuels in through the backdoor, and has urged the EU to close these loopholes when it revises the law by 2028. (Biofuels are making significant inroads into the green fuel market – but the environment lobby really doesn’t like them.)
The two EU packages of decarbonisation measures are not that easy to understand. Classification Society Lloyd’s Register (LR) has just done a good job of analysing what it will all mean for the global shipping industry.
In a paper titled “EU carbon pricing brings new pressures – and new plays – to maritime”, LR says that CO2 emissions from ships of 5,000 gross tonnage and above in 2024, reported under the EU’s Monitoring, Reporting and Verification (MRV) system, will be included in the regional Emissions Trading Scheme (ETS).
Those vessels covered by the ETS will need to buy EU Allowances (EUA) to cover half their greenhouse gas (GHG) emissions to and from ports in the EU, Norway and Iceland, that is the European Economic Area (EEA) ports. However, they will need EUA to cover all their emissions for intra-EEA voyages and while at berth at EEA ports.
Forty per cent of the CO2 emissions from voyages in 2025, and at-berth stays in 2024, will be subject to the ETS; this goes up to 100 per cent in 2027.
Just as the ETS phase-in ends, shipowners will be hit with a financial double-whammy. In 2026, the MRV system will require the reporting of methane and nitrous oxide emissions from ships as well. EUAs will need to be paid on 100 per cent of the CO2 equivalent of those emissions, in addition to CO2, within the ETS from 2027.
However, the EU is also bringing in a second regulatory mechanism, the FuelEU Maritime, which takes effect in 2025. This regulation sets targets for reducing the yearly average GHG intensity of the energy used by a ship (or, crucially, by a fleet or pool of ships).
The required GHG intensity reduction starts small, at minus 2 per cent in 2025 (compared to a 2020 baseline); it will hit minus 6 per cent in 2030, minus 14.5 per cent in 2035, through to minus 80 per cent by 2050.
A penalty or reward is calculated based on the extent of under- or over-performance against the vessel or fleet’s target for the year, and the cost of low-carbon fuel that would have been needed to meet the target.
LR actually argues that shipowners who understand the new regulations could profit from them. Certainly, a good start to understanding them would be the LR paper. There is a lot of very interesting analysis in it, far too much to cover here.
However, to return to T&E’s views: Will the EU policies really “mark the beginning of the end for dirty shipping fuels”?
As is often the case in these discussions, definitions are important. If “dirty” encompasses greenhouse gas and other polluting emissions, yes, dirty fuels are on their way out.
But if “dirty” refers to fossil fuels, then the answer to the question is, quite possibly, no. Carbon-capture technologies are developing fast. Post-combustion carbon-capture systems, which would work with existing marine fuels, are starting to be installed on vessels.
But pre-combustion systems for LNG-fuelled ships are just emerging and look promising. All this is heresy to the green lobby but, just as sulphur oxide scrubbers have enabled ships to meet regulations while continuing to use high-sulphur fuels, new technological developments could mean fossil fuels will continue to power the world’s commercial fleet.
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