Shipping sector: EU ETS must adopt life-cycle approach on green fuels

Shipping organizations are urging politicians in the European Union to agree on a life-cycle approach of green fuels for the shipping industry in order to kick-start the necessary investments and deliver on the emission reduction targets from the Paris Agreement and the EU Green Deal.

An open letter signed by Danish Shipping, Methanol Institute, World Shipping Council, Swedish Shipowners’ Association, Royal Association of Netherlands Shipowners, and the Renewable Hydrogen Coalition called on the key members of the European Parliament and member state negotiators to consider the full climate impact of the new green fuels from extraction at the source to combustion on board the ship.

“The EU-ETS proposal to include shipping in ETS only puts a price on the greenhouse gas emissions from combustion. However, some Renewable Fuels of Non-Biological Origins (RFNBOs) release GHGs during combustion that were captured upstream during production; in this way RFNBOs avoid releasing additional carbon into the atmosphere compared to fossil fuels,” the letter said.

“By including a life-cycle approach the ETS encourages the use of green fuels and put a price on new types of fossil fuels. Furthermore, the existing proposal that only considers direct emissions could encourage the use of fuels that have significant emissions during production but no emissions when used onboard.”

Renewable fuels such as e-methanol and e-ammonia are expected to play a key role in decarbonizing shipping. However, these fuels need to be produced at a much larger scale to meet the upcoming demand. Hence, massive investments would be needed to incentivize the scaling up of production.

In the example of methanol, two production pathways are possible, one including hydrogen as a basis or from fossil energy, the latter one having a much greater impact on the climate.

As such, regulative clarity is needed to unclok long-term investments in the production of renewable fuels of the future in greater quantities.

“The lack of a life cycle approach in ETS defers investment in the production of green fuels because developers await certainty on the implications for their choice of fuel,” the open letter said.

“It has been argued that a focus on direct emissions ensures that emissions are not accounted for twice by the EU ETS, since EU-based fuels producers/refineries are subject to the ETS. This is correct when dealing with fossil fuels. However, RFNBO fuels are produced on renewable energy sources and have no upstream emissions. Since the EU-ETS is basically designed to penalize emissions, it is not adapted to reward zero-emissions in the fuel production line, which could be tackled through a life- cycle approach.”

Last month, the European Parliament adopted the FuelEU Maritime report, voting in favor of a 2% mandate for green shipping fuels by 2030.

The report establishes a clear trajectory for greenhouse gas intensity reductions calling for the maritime sector to cut its GHG emissions from ships by 2% as of 2025, 20% as of 2035 and 80% as of 2050 compared to the 2020 level. The targets are higher when compared to the proposal by the EU Commission seeking 13% and 75% GHG reduction respectively.

The parliament has also mandated containerships and passenger ships to use on-shore power supply while at berth at main EU ports as of 2030, with the aim of reducing air pollution in ports.

The move has been recognized as the beginning of the end of fossil fuels in Europe’s shipping industry, however, the maritime sector and environmental organizations have been calling it a good first step that needs to be reinforced by stricter targets and higher ambitions.

The International Maritime Organization (IMO) has been under growing pressure to increase its GHG emission reduction targets as well amid concerns that the current objectives are too weak to accelerate the sector’s transition to a greener future and cut overall emissions.

All eyes are being set at the upcoming revision of the IMO’s GHG Strategy set to be adopted in spring 2023.

Meanwhile, a study has emerged saying that Europe, China, and the US could decarbonize 84% of global shipping emissions and bypass IMO through their own regulations.