Getting to Zero Coalition seeks CfD addition to EU ETS

The Getting to Zero Coalition has proposed the inclusion of an additional support system under the EU's emissions trading scheme (EU ETS), that would see a portion of EU ETS revenues reinvested into alternative marine fuel projects, to narrow the price gap between conventional and alternative bunker fuel options.

The alliance, which is spearheaded by the World Economic Forum and the Global Maritime Forum, has a membership of over 150 companies in the maritime, energy, infrastructure and finance sectors, with the aim of commercialising zero-emission vessels operating on deep sea trade routes by 2030, supported by infrastructure for zero carbon energy sources.

According to the group, a key barrier to achieving low and zero carbon targets remains, namely that the price gulf between alternative and conventional fuels significantly mutes the competitiveness of the alternative options. European shipping's inclusion in the EU ETS will help but will be insufficient to bridge this gap, according to the Global Maritime Forum. The shipping industry will be included in the ETS from 2023, with a proposed phase-in period with 20pc of verified emissions reported for 2023, rising to 100pc by 2026.

The EU ETS is part of the EU's wider 'Fit for 55' package that targets a net reduction in greenhouse gas (GHG) emissions by 2030. The package includes two measures pertinent to the shipping sector — EU ETS and FuelEU Maritime. The latter aims to incentivise the uptake of renewable fuels by implementing increasingly stringent GHG intensity-reduction targets on ships — 2pc by 2025, rising to 75pc by 2050.

The coalition has proposed complementing the EU ETS through the use of contracts for difference (CfDs), which would see a portion of the revenues generated from the EU's scheme reinvested into incentives and projects for the production and usage of zero carbon fuels. A CfD programme designed to meet a 5pc minimum target for zero carbon fuels in the EU, would cost around €1.2bn ($1.26bn) a year, which can be funded through ETS revenues which are estimated by the group to be €5bn-9bn a year, depending on the ETS price.

A CfD model would allow the EU to subsidise the difference between what it costs producers to make the newer, more expensive fuels — the strike price — and the price at which these alternative fuels are sold to buyers, the reference price. The strike price would be fixed for the length of the contract round, for example 2026 to 2028. Having a fixed price means that regardless of market dynamics, producers will be incentivised to reduce costs to widen their profit margins. The coalition envisages this would drive down fuel prices, ultimately lowering the cost for the shipping industry's energy transition.

By Jonah Sweeney