E-fuels need own share of proposed EU ETS shipping subsidy - T&E

A significant share of the up to 110 million carbon allowances the European Commission has proposed allocating to shipping for clean fuels should be earmarked for e-fuels, non-profit Transport & Environment said.

IMAGE: Ineratec's e-fuel plant in Frankfurt. Ineratec

The campaign group made the call in a letter to EU lawmakers, which was also signed by 15 other companies and organisations, including Danish ferry operator DFDS, bunker supplier Moeve, utility Iberdrola and renewable energy developer European Energy.

The European Commission proposed the plan, called the Sustainable Maritime Alternative Propulsion (SMAP) mechanism, in July as part of a revision of the EU’s Emissions Trading System (ETS).

Since 2024, the ETS has made shipping companies pay for the carbon their ships emit by surrendering carbon permits, known as allowances. For ships of 5,000 gross tonnage and above, companies must surrender allowances covering all CO2 emissions in EU ports and on voyages between them, and 50% of emissions on voyages to or from non-EU ports.

SMAP would give some of those allowances back. Up to 110 million would be reserved between 2028 and 2040 for shipping companies that use cleaner fuels, to offset part of their extra cost over fossil bunker fuels. The Commission estimates the allowances to be worth around €15 billion ($17 billion).

E-fuels such as e-methanol and e-ammonia would get the highest support, covering 90% of the remaining price gap with conventional bunker fuel, according to EU’s draft proposal.

But every cleaner option would compete for the same pool of allowances, including biofuels and ships powered by zero-emission technologies like electric and wind-assisted propulsion.

If annual demand exceeds available allowances, everyone’s allocation would be cut by the same share, ENGINE reported in July.

T&E’s letter said the higher difference coverage for e-fuels is unlikely to be enough on its own, because e-fuel plants are expensive to build and need long-term buyers to attract investment.

Keeping a significant share of the allowances for e-fuels would make sure the subsidy backs long-term e-fuel options, not just short-term options that are already available, the letter said.

The signatories also want a “book-in-advance” system for e-fuels, so a shipping company could reserve its support when it signs a long-term supply deal.

Under the Commission’s proposed plan, companies can only claim support each year for fuel they have already used.

Without guaranteed support, shipping companies are unlikely to sign such deals, the letter said. Booking in advance would make e-fuel projects easier to fund, it argued, noting that most have yet to reach a final investment decision.

A similar system has already been proposed for airlines, the letter noted.

The EU ETS revision has not become law yet. The European Parliament and the Council of the EU, which represents member states, are negotiating it. They aim to reach agreement in the first quarter of 2027.

By Nachiket Tekawade

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