Aviation has long been seen as the great exception in that it is so resistant to decarbonisation. But shipping is worse. Defined by tax havens and bad labour practices, the industry has done nothing to reduce its impact on the climate. For decades shippers have been free from paying taxes on fuel, despite using the dirtiest fuel of all: heavy fuel oil.
Shipping operators have had to pay nothing for their climate emissions, and to add insult to injury, were recently exempted from the global minimum 15% corporate tax requirements agreed by world leaders. All this despite emitting more greenhouse gas emissions than the entire Germany economy and the air pollution from just a handful of ships far outweighing those of all passenger cars in Europe.
This is about to change. For the first time in history, all shipping companies, regardless of ownership, carrying European trade will be required to pay for their climate pollution under the revised EU carbon markets directive (ETS). Once the system is fully phased in, under current prices, ships will be required to pay more than €50 for every tonne of CO2 they emit. This will make the continued use of the world’s dirtiest fuel about a third more expensive, and incentivise a shift to cleaner alternatives.
The EU ETS also envisages returning some of the revenues generated to industry to subsidise the deployment of zero carbon technologies, such as green hydrogen, green ammonia and wind propulsion. There are many front-runner companies who are keen to deploy the first zero-emission vessels (ZEVs). But financial and technical risks of being the first could be significant. For example, running a ship on green ammonia could be four-to-five times more expensive than running it on heavy fuel oil. The EU’s financial support will reduce the risk of some of those investments through capital and operational support.
What about the rest of the package? There is a complementary law, dubbed FuelEU Maritime Regulation, that will require shipping companies to progressively switch to alternative fuels. Though the proposal contains some smart and innovative ideas, such as incentivising the deployment of new ZEVs as opposed to marginally improving old ships, it still lacks reliable mechanisms to incentivise the uptake of sustainable marine fuels, such as green hydrogen and ammonia.
These fuels are more expensive than other alternatives, such as natural gas and biofuels, and in a competitive shipping market where cost-cutting is the name of the game, the insatiable drive to find the cheapest possible compliant fuels is a question of survival. As a result, sustainable but expensive fuels are put on the back burner unless given support by governments. The most straightforward way of doing it is mandating specific targets for green hydrogen deployment or giving “super credits” – so called multipliers – to ships using green hydrogen under the FuelEU regulation.
The system also needs EU ports to install charging stations and H2 refueling stations for ships. These would involve costs, but the use of revenues from the maritime carbon pricing could help support them.
The first ammonia powered containerships are expected to come to market from 2025. But if the EU adopts the proposed mandate for port-LNG infrastructure, this will slow down the transition to zero-emission vessels and instead lock the sector into gas, which is just another fossil fuel.
All in all, the Fit-for-55 package makes the future for shipping’s technological transition look far more likely than before. The European Parliament and member states need to seize the opportunity, improve these proposals and write them into law. This could mark a revolution not only in the decarbonisation of shipping, but in our ability to avoid catastrophic climate change.