EU maritime emissions measures interact poorly: Study

The EU's 'Fit for 55' climate package contains two measures that could interact poorly with each other, hampering the overall aim of reducing greenhouse gas (GHG) emissions in the shipping industry, according to trade association Danish Shipping.

The EU's proposals target a reduction of net GHG emissions by at least 55pc by 2030, and include two policies pertinent to the shipping sector: the EU Emissions Trading Scheme (EU ETS) and FuelEU Maritime.

The shipping industry will be included in the ETS from 2023, with a proposed phase-in period seeing 20pc of verified emissions reported for 2023, rising to 100pc by 2026. The ETS caps the amount of CO2 emissions permitted by a business and creates a market for carbon allowances. This theoretically incentivises businesses to reduce emissions, with the prospect of being able to sell their surplus allowances.

FuelEU Maritime 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.

Danish Shipping said that given expected fuel and ETS prices, the two policies "separately and combined" incentivise the use of LNG as a marine fuel because different compliance options can be pursued. While the EU ETS covers tank-to-wake (TTW) CO2 emissions, FuelEU Maritime covers the well-to-wake (WTW) emissions of GHGs such as CO2, methane (CH4) and nitrous oxide (N2O).

The dominant incentive comes from the costs for different fuel blends that meet the FuelEU Maritime target, which promotes the use of 100pc LNG. Used in a slow speed, dual fuel diesel engine, the 2025 and 2030 GHG intensity targets of FuelEU Maritime can be met without using renewable methane (the majority element in LNG). EU ETS costs are optimised when using a blended renewable and fossil fuel LNG in a medium speed engine.

Danish Shipping said this apparent lack of synergy has two implications. First, given the measures both incentivise LNG usage, the establishment of production plants and supply chains for renewable fuels may not take place at the required pace for the shipping sector's energy transition. Second, the sector risks heading towards a "lock-in of assets with high sunk costs" unless renewable methane sources become sufficiently available and economically viable.

Other industry stakeholders have highlighted these issues. Environmental campaign group Transport and Maritime (T&E) said fossil LNG would be the cheapest compliance options for shipowners, followed by waste-based biodiesel, European Parliament politician Vera Tax said the proposals boost LNG rather than ammonia and renewable hydrogen, and the International Chamber of Shipping (ICS) pointed to issues the promotion of biofuels would have, under the FuelEU Maritime scheme.

Danish Shipping recommends greater alignment between the policies, saying the ETS should reflect a fuel's WTW emissions rather than TTW, thereby allowing for differentiation between grey and green hydrogen. The European Parliament's transport committee will consider a compulsory sub-target for renewable hydrogen and ammonia as a means to meet shipping GHG reduction targets.

By Jonah Sweeney