FuelEU Maritime and EU ETS. Sound incentives for the fuel choice?

In July 2021, the European Commission presented a comprehensive package of legislative proposals, including the ‘Fit for 55’ package. This package addresses the emissions of maritime shipping and proposes, in particular, a revision of the European Emissions Trading System (EU ETS) as well as a revision of the Regulation on the use of renewable and low-carbon fuels in maritime transport (‘FuelEU Maritime’).

While both proposals address the emissions from maritime shipping, they differ with respect to the GHGs covered, as well as the extent to which the life cycle emissions of the fuels are included. The EU ETS would only include CO2 emissions on a Tank-to-Wake basis, while FuelEU Maritime would include three GHGs on a Well-to-Wake basis. The aim of this study is to assess whether the incentives provided by the two proposals are well aligned.

This short study, commissioned by Danish Shipping, analyses both the separate and the combined incentives of the EU ETS and the FuelEU Maritime Regulation for maritime shipping. The incentives set by the EU ETS and the FuelEU Maritime are analysed in terms of EU ETS allowance costs and fuel costs for nine sample ships for the years 2025 and 2030. Different blends of fossil and renewable fuels and different LNG engines that allow meeting the FuelEU Maritime targets are considered.

Capital costs are not considered in the study. This means that not all regulated ships would necessarily have an incentive to use a fuel blend/engine option that has been assessed to be advantageous in terms of fuel and/or EU ETS costs. If the use of a fuel blend option requires a ship to be retrofitted, high retrofitting costs can make this option less attractive and the option might only be considered when a ship is replaced.

The analysis allows the potential adverse incentives for the fuel choice created by the measures to be identified, as well as the inconsistencies in the proposals and makes recommendations accordingly.