A new marine fuel regulation, which would become effective on January 1, aims to cut emissions within the European Union but eventually increases the costs of shipping, said two shipbrokers to Reuters.
In contrast, companies possessing vessels capable of using alternative fuels such as biodiesel and LNG will certainly benefit from this, but the net effect will be inflationary for the shipping sector as a whole.
This is the second significant among major carbon emissions EU regulations that hit the shipping industry over two years. This mode of transportation accounts globally for more than 80% in terms of trade and nearly 3% of greenhouse gas emissions. The FuelEU Maritime regulation stipulates penalties for commercial ships above 5,000 gross tonnage, operating within ports of the EU, if they fail to reduce emissions from marine fuels.
According to shipbrokers, biofuels and other alternative fuels for ships are less available, as the share another competition with aviation and other sectors, leading to high prices. These are further passed onto consumers and businesses, shipbrokers said to Reuters.
The policy follows the EU’s 2024 inclusion of shipping in its Emissions Trading System (ETS), requiring ships to pay for emissions on voyages involving EU ports.
Kenneth Tveter, head of green transition at shipbroker Clarksons, noted that shipping decarbonization will be inflationary, impacting freight rates. Mattia Ferracchiato, head of carbon markets at shipbroker BRS, agreed, saying freight rates will rise as ships pay premiums for greener fuels or penalties for non-compliance.
Under the FuelEU regulation, eligible ships must reduce bunker fuel emissions by 2% annually from 2025-2029, with the target increasing to 80% by 2050. Biofuel-blended bunker fuels and LNG are expected to be the most popular compliance options, though biofuel supply is limited, and competition will be intense, especially from aviation.
For companies with vessels capable of using alternative fuels, switching to biofuels or LNG will help meet the new regulations. Marine consultancy DNV suggested a pooling system, where ships that exceed emission reduction targets can create surpluses, allowing other ships to comply by purchasing allowances.
(Source: Reuters)