Navigating change: FuelEU, EU ETS could propel bio- and e-methanol into the marine fuel spotlight

The EU’s FuelEU Maritime and the EU Emissions Trading System (EU ETS) could create a level playing field for bio- and e-methanol, making eco-friendly fuels economically competitive compared to fossil marine fuels, a new white paper by the trade association Methanol Institute suggests.

With significant penalties for using fossil fuels, the white paper, titled “Economic Value of Methanol for Shipping under FuelEU Maritime and EU ETS”, suggests that the two regulatory frameworks could ‘effectively encourage’ the transition to sustainable fuels, particularly methanol, opening the door for the maritime industry to adopt further alternative fuels and take sizeable leaps toward its all-embracing net-zero by 2050 target.

A landmark initiative by the EU designed to cut GHG emissions from shipping, FuelEU Maritime applies to vessels over 5,000 gross tonnage, covering energy usage both in EU ports and on voyages between EU ports, as well as 50% of the energy used on voyages that either begin or end at an EU port.

On the other hand, the EU ETS, already a fixture in other sectors, was extended into the maritime industry as of 2024. It is being rolled out in phases, starting with 40% of emissions in 2024, 70% in 2025, and reaching full coverage by 2026, placing a cap on total CO2 emissions and requiring shipping companies to purchase allowances for each ton of CO2 emitted.

As detailed in the white paper, with the rising costs of non-compliance with FuelEU’s GHG intensity reduction targets coupled with the gradual phase-in of EU ETS, bio- and e-methanol represent a ‘compelling’ economic upper hand by helping ship operators avoid the rising non-compliance penalties .

According to the Methanol Institute—which was given consultative status by the International Maritime Organization (IMO) in August this year, allowing it to contribute their knowledge to the development of shipping regulations—the cap-and-trade system of FuelEU and EU ETS might add a financial layer of incentive for companies to transition from traditional fuels like very low sulfur fuel oil (VLSFO) to cleaner alternatives.

The maximum price for bio-methanol to remain economically viable compared to VLSFO, once non-compliance costs are included, the institute points out, averages €1,193/ton from 2025 to 2050. For e-methanol, this price could be as high as €2,238/ton by 2033, driven by the specific incentives tied to renewable fuels of non-biological origin (RFNBO) under FuelEU Maritime.

As per the Methanol Institute, by 2050, the combined non-compliance costs of FuelEU Maritime and EU ETS could raise the cost of using VLSFO further. As a result, this would make methanol a more cost-effective option over time.

The paper further emphasizes that the flexibility of methanol becomes even more clear when one considers the fact that it can be utilized in dual-fuel engines. As per the Methanol Institute, this flexibility may be ‘crucial’ for the shipping industry’s green transition, as it allows operators to gradually shift to sustainable methanol while still relying on existing infrastructure.

For instance, dual-fuel vessels using bio- or e-methanol could reduce their annual GHG intensity to meet the FuelEU Maritime targets without the need for 100% methanol usage, allowing for flexibility in fuel sourcing.

That said, the institute states that methanol is not only a solution for individual vessels but also for vessel pools, where emissions reductions can be averaged across a group, with some ships using higher shares of methanol to offset others that may use more diesel.

This way, operators could cut down on the overall costs of compliance and potentially accelerate the transition to environmentally friendly shipping practices.

In related news, earlier this September, representatives of the Methanol Institute, ECSA, FuelsEurope, eFuel Alliance, EWABA, and HydrogenEurope held their first meeting for their latest Clean Maritime Fuels Platform, which the organizations jointly established to improve communication channels between the shipping sector and fuel producers.

The parties involved in this initiative have said that, through regular meetings, the new platform could focus on policies and tools to support the production and uptake of clean marine fuels in Europe, including areas such as maritime in EU ETS and funding opportunities.