Draghi Report: EU needs to secure shipping’s competitiveness by scaling up clean fuel production

September 11, 2024, by Naida Hakirevic Prevljak

Significant investments in green transition are needed for European shipping to remain competitive, a new report found.

Illustration. Courtesy of Offshore Energy

The report by Mario Draghi — former European Central Bank President and one of “Europe’s great economic minds” — delivers recommendations to enhance the competitiveness of the European economy.

“The future of European competitiveness” paper acknowledges the global leadership of European shipping and identifies that a fit-for-purpose regulatory and taxation framework has ensured that the sector has remained globally competitive.

The report also recognizes that shipping together with aviation, are the most difficult sectors to decarbonize. Investment needs for shipping alone will be around €40 billion each year from 2031 to 2050. Scaling up the production of clean fuels and clean and innovative technologies in Europe is set as a major objective. In this regard, the report identifies the need for adequate access to finance, including special calls for shipping under the ETS Innovation Fund.

“The Draghi report firmly recognises the global leadership role of European shipping and the need to maintain its international competitiveness. European shipping is a success story and a cornerstone of the energy, food and supply chain security of our continent. In these times of geopolitical uncertainty, it is crucial for Europe to maintain and grow the EU-operated fleet, which ensures Europe’s position in the global supply chains as well as access to key international markets,” Sotiris Raptis, Secretary General of European Community Shipowners’ Association (ECSA), said.

“An internationally competitive shipping sector is also a prerequisite for a thriving European maritime industrial cluster, which must be part of the upcoming EU Clean Industrial Deal. It is crucial to focus investments into European industrial capacity for clean fuels and innovative technologies for shipping, to deliver on our climate objectives and to enhance European competitiveness and security,” he added.

Upskilling and reskilling needs for the green and digital transition are also highlighted. The report estimates that up to 250,000 seafarers in the EU could be affected in the coming years, with the figure going up to 800,000 seafarers globally that will have to be reskilled in the next decade.

Competition is fierce

The report is said to be an important reminder of the challenges Europe faces in global competition, including within the shipping sector.

In recent decades, although European shipping has grown, Europe has been gradually squeezed by both the US and China: Europe’s share of the global merchant fleet has declined, while China has gained a significant market share. Nevertheless, European shipping is highlighted as a considerable strength, with over 35% of the world’s fleet under the European flag.

“European shipping continues to grow, but others are growing faster. Therefore, we must constantly optimise our competitiveness and focus on innovation,” Jacob K. Clasen, Deputy CEO of Danish Shipping, commented.

“The Draghi Report points to the right areas, and we wholeheartedly support strengthening the framework for European shipping companies, with green transition being part of our competitiveness.”

The report noted that the EU’s decarbonization goals are also more ambitious than its competitors’, creating additional short-term costs for European industry. The EU has put in place binding legislation to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. The US, by contrast, has set a non-binding target of a 50-52% reduction below (higher) 2005 levels by 2030, while China only aims for its carbon emissions to peak by the end of the decade. These differences seem to create massive near-term investment needs for EU companies that their competitors do not face.

The EU is also the only major region worldwide to have introduced a significant CO2 price. This cost factor is of limited importance so far as heavy industrial production has been largely covered by free allowances under the Emissions Trading Scheme (ETS). However, these allowances will be progressively phased out with the introduction of the Carbon Border Adjustment Mechanism (CBAM).

Need for large investments in green transition

The report stressed the importance of expanding green energy and producing green fuels for the shipping sector.

Trade association Danish Shipping has urged the EU to earmark funds for this transition and to simplify bureaucracy.

“A strong European competitiveness also requires shorter decision-making processes and a proactive approach to global climate agreements, particularly through the International Maritime Organisation (IMO),” Jacob K. Clasen continued.

As already mentioned, there is also a focus on the future of the workforce, as new skills and education are needed in the shipping sector to meet the digital and green transformation.

“We must strengthen the talent pipeline and ensure that the necessary skills are in place for the future of the shipping sector,” concluded Clasen.