The Environment

“Fit” for Decarbonizing Maritime Shipping: Improvements Needed to FuelEU Maritime Proposal to Meet coZEV Corporate Climate Ambitions

March 21, 2022  • Taylor Goelz, Ingrid Irigoyen & Dana Rodriguez

When the Aspen Institute Shipping Decarbonization Initiative launched Cargo Owners for Zero Emission Vessels (coZEV) in 2021, multinational climate-leading companies in their 2040 Ambition Statement emphasized the urgent need for policy support across various jurisdictions to enable new, climate-friendly shipping fuels to be adopted and come to scale quickly. Specifically, they called for measures that would enable scalable zero carbon fuels to become economically viable, which requires those fuels to reach price parity with fossil fuels as soon as possible.

A Strategy for the Transition to Zero-Emission Shipping” by UMAS for the Getting to Zero Coalition defines scalable zero emission fuels as “fuels that have the potential to achieve near-zero GHG emissions on a lifecycle basis, while also scaling production in line with the pace of the transition.” In practical terms, this means e-fuels (produced with renewable energy) that do not rely on biogenic inputs in the long-run, because we believe the most sustainable biofuels (e.g., those generated from waste) will become limited in supply relative to demand across sectors. 

This generally points to e-hydrogen-derived fuels as the most feasible, scalable, and affordable solution set for the maritime sector to achieve Paris Agreement goals. E-fuels are defined as Renewable Fuels of Non-Biological Origin in the EU’s Renewable Energy Directive. We will use the term “e-fuels” as shorthand in this article. We are confident such fuels will not be adopted at the vast scale necessary without strong policy support, just as fossil fuels have benefited from historically.

In July 2021, policymakers in the European Union (EU) started the process of providing strong policy support for maritime decarbonization through their ‘Fit For 55’ (FF55) proposal, a package of 14 legislative proposals aimed to help the EU deliver on its ambition to reduce net greenhouse gas emissions by at least 55% compared to 1990 levels by the year 2030. 

For the first time in EU climate legislation, maritime shipping is included in five proposals: 

  • A new FuelEU Maritime proposal, a low GHG standard for shipping fuels meant to drive the industry toward adoption of lower emission fuels 
  • A revision to the EU Emissions Trading System to include maritime shipping 
  • A revision to the Alternative Fuels Infrastructure Regulation meant to raise the availability of LNG by 2025 and shore-side electricity supply in main EU ports
  • A revision to the Energy Taxation Directive to end the tax exemptions for conventional marine fuels and incentivise the uptake of alternatives
  • A revision to the Renewable Energy Directive that creates a new EU economy-wide target of at least 40% share of energy from renewable sources in 2030 and a new renewables target of GHG intensity reduction of at least 13% by 2030

The EU’s inclusion of shipping in these proposals is particularly noteworthy in light of the slow pace of policy enactment to advance shipping decarbonization in other key jurisdictions, including shipping’s global regulator, the International Maritime Organization (IMO), and the United States. 
In a previous blog, we echoed criticism that the IMO has received due to the low ambition of its current climate goals and its slow pace of adopting ambitious measures. The EU is helping to fill that regulatory gap by incentivizing regional action and global investment in e-fuels and related technologies, with the hope that other countries and the IMO will follow suit to ensure a uniform global transition. EU global leadership on this issue is commendable.

“Collaboration across the maritime value chain is necessary to rapidly decarbonize this essential sector of the global economy. This includes collaboration with policymakers, who play a critical role in ensuring new zero-emission maritime fuels become mainstream and competitive with fossil-powered shipping in the coming decade. We applaud the EU’s global leadership in crafting policies to accelerate maritime decarbonization in the Fit for 55 package, and are hopeful that we can further ramp up ambition as the package is refined.” – Elisabeth Munck at Rosenschöld, Global Sustainability Manager, IKEA Supply Chain Operations

In addition to filling this void in policy leadership, the inclusion of maritime shipping in the FF55 package demonstrates the EU is acknowledging and attempting to align climate goals and economic objectives of the shipping industry. The maritime sector is crucial to the economy of the 27 countries that make up the EU. In fact, 75% of external trade and 31% of internal trade rely on maritime transport and four of the largest container shipping companies in the world – A.P. Moller-Maersk, MSC, CMA CGM, Hapag-Lloyd – are based in Europe. 

As the EU is a major importer of goods, all major global carriers, regardless of flag or port of origin, would be mobilized to engage constructively in the transition and use new e-fuel options as they call on EU ports. Collectively, these proposals would enable a gradual transition to e-fuels, helping address concerns about the high cost and disruption of delayed action, and provide shipping’s cargo owner customers much better shipping options to meet their supply chain emissions reduction goals. As the EU considers the five proposals on the table to drive decarbonization of the shipping sector, the benefits for climate-leading companies must be front and center.

“As a business that relies on maritime transport and has set an ambitious target for decarbonization of the maritime part of our supply chains through coZEV, we have a direct interest in ensuring EU policies are ambitious and create pathways for adoption and scaling of new fuels that offer long term and economically viable solutions. We are ready to do our part, and we now need policymakers to provide the supportive environment for zero-GHG shipping fuels to flourish.” — Alexander Ralfs, Director Supply Chain Management & Logistics, Tchibo GmbH

Despite the important progress these proposals represent, unfortunately, as currently written, they don’t yet work for climate-leading businesses or the planet. By including LNG – a fuel that offers only modest GHG reduction potential – in the mix of alternative fuels, the Alternative Fuels Infrastructure Regulation proposal risks further locking in fossil LNG through the coming decades and delaying necessary investment in e-fuels that can actually achieve Paris-aligned climate goals. Additionally, coZEV founding partners UMAS and Clean Air Task Force identified ways in which the ETS proposal could be improved, including moving up the date for inclusion of shipping in the ETS and expanding the ETS scope, both of which would help disincentivize LNG investment and more quickly close the price gap between e-fuels and fossil fuels. 

However, the current proposal that would benefit the most from alterations is the FuelEU Maritime Proposal. The FuelEU Maritime proposal has been identified as having “the highest potential to put the [shipping] sector on track to decarbonize by 2050”. This is, in part, due to the critical importance of deployment and rapid scaling of e-fuels. In fact, e-fuels must make up at least 5% of the international shipping fuel mix by 2030 if we are to achieve Paris-aligned decarbonization of the sector, according to the industry-backed Getting to Zero Coalition. Additionally, the EU Parliament acknowledged fundamental linkages between the broader legislative outcomes of its maritime decarbonization agenda (including the four other proposals identified above) and the FuelEU Maritime proposal, emphasizing the importance of getting the ambition and incentives of FuelEU Maritime right. 

There are two main issues with the FuelEU Maritime proposal as currently written: 

First, the GHG fuel standard does not sufficiently encourage e-fuels. Instead, the proposal incentivizes and locks-in the use of fossil LNG. In the coZEV 2040 Ambition Statement, cargo owners cautioned against promoting fuels and technologies that experts have indicated will offer only modest greenhouse gas reduction potential and be costly to replace or retrofit for use with e-fuels. 

This echoes concerns regarding LNG (particularly fossil-LNG) that have been expressed by the World Bank and other prominent organizations. A study by the nonprofit organization Transport & Environment estimates that the EU’s shipping energy demand for fossil LNG, as a result of this policy as currently written, would actually grow from 6% today to 23% by 2030. 

Given geopolitical dynamics at this pivotal moment in history, we would be remiss to not also point out that there are broader benefits of reducing reliance on fossil fuels, beyond our immediate focus on addressing climate change. A transition to e-fuels would also have benefits for local port communities that have been suffering health impacts of local air pollution for decades. 

Second, the proposal as currently written disregards alternative efficiency technologies that can cut emissions already today – such as wind propulsion. These technologies should be widely adopted now for immediate emissions reduction, and to ensure that e-fuels will be used as efficiently as possible as they come online.

To address these shortcomings, we recommend three changes that would both raise the ambition of FuelEU Maritime and help facilitate a smoother, more cost efficient introduction of e-fuels as soon as possible:

  1. Add a subtarget for use of a specific percentage of e-fuels by 2030 on the FuelEU scope. Specifically, we recommend a subtarget of 6% of the energy demand used by ships be fulfilled by e-fuels by 2030.
  2. Establish a multiplier for use of e-fuels that allows every tonne of such fuel to count multiple times toward achievement of the Fuel EU GHG intensity reduction targets (so that investment in e-fuels is more attractive) and exclude fossil fuels from eligibility to meet the targets. We recommend a multiplier of 5, which means that every 1 tonne of e-fuel used counts for 5 tonnes towards the targets. 
  3. Include language to incentivize or mandate the use of fuel efficiency technologies or energy efficiency measures.   

Labeled a “hard-to-abate” sector, the shipping industry has avoided meaningful decarbonization regulations and policy for too long. Today, we have the necessary technology know-how and growing private industry willpower to move toward long-term solutions that can decarbonize this sector on a trajectory that makes both climate and business sense. The EU’s 2050 net zero policy has already mobilized billions of Euros in investment in green infrastructure. If EU policymakers raise the ambition of the FuelEU Maritime proposal, they will open a similar floodgate of investment and innovation toward decarbonizing the maritime sector. 

“Unilever has set a goal to reach net zero emissions across our value chain by 2039, and shifting to zero emission shipping throughout our global supply chain is an important step. It is essential we collaborate with our peers and logistics partners to explore new solutions, but we also need significant support from governments and legislation that promotes a smooth and cost-effective transition to zero emission fuels. As a cargo owner and a founding signatory of coZEV, we therefore fully support the proposed changes to the FuelEU Maritime Proposal which will raise the ambition level and better facilitate the transition to zero emissions shipping.” – Michelle Grose, VP Global Logistics and Fulfillment, Unilever

By making the changes recommended here, our keen interest in the maritime components of the FF55 – and FuelEU Maritime proposal in particular – would blossom into full-throated applause. We encourage MEPs to seize this rare and important opportunity by avoiding technological dead-ends and instead driving long term climate solutions. The world is watching and will be inspired by your leadership – we hope you lead us in the right direction.