T&E calls for planned EU ETS funds to back shipping e-fuels

Campaign group Transport & Environment says two new funds proposed in the EU ETS review should support e-fuels for ships, which would otherwise rely on one existing fund that is set to shrink.

IMAGE: EU flag in front of the Berlaymont building, the headquarters of European Commission. Getty Images

The European Commission’s review of the EU Emissions Trading System (ETS), published in July, would make member states spend at least half their ETS revenues on cutting emissions in priority sectors, including shipping.

Transport & Environment (T&E) welcomed the inclusion of shipping as a priority sector, saying the money could help get e-fuel production off the ground. But it called for tighter reporting rules, as many countries put ETS revenues into their general budgets without earmarking them.

The 50% rule also covers less money than it seems, T&E said. Under the Commission’s plan, 30% of ETS revenues would go to the EU’s long-term budget from 2028, and while additional shares to EU-level funds. Compensating energy-intensive industries can take up 25% or more of what countries receive. Only what is left falls under the 50% rule.

That makes EU-level funds more important, T&E said. The Commission has proposed two new ones:  

• The Investment Booster would hand out €30 billion to industrial projects that cut emissions in 2027-2030     
• The Industrial Decarbonisation Bank would take over from 2031

Both focus on energy-intensive industries and waste, and neither covers shipping.

That leaves shipping with the Innovation Fund, an existing fund that T&E said would shrink from around 530 million allowances, to 200 million after 2030.

T&E said the two new funds should be accessible for shipping and aviation e-fuels. The group also recommended that the Modernisation Fund should be open to e-fuel support in lower-income member states.

Bridging the e-fuel price gap

The ETS review also proposes a subsidy for shipping, called the Sustainable Maritime Alternative Propulsion (SMAP) mechanism. It would give shipping companies up to 110 million allowances in 2028-2040 to cover part of the extra cost of cleaner fuels and zero-emission technologies.

T&E also repeated its call for part of SMAP to be kept for e-fuels, as ENGINE reported last month. T&E is now asking for about 70%, or 76 million allowances, to be kept for e-fuels, with 30.5 million going to e-fuels made in the EU.

T&E also recommended that the EU set up a middleman system to buy e-fuels from producers on long-term deals and sell them on to shipowners, airlines and fuel suppliers on shorter contracts.

It would cover the price gap between the two through double-sided auctions, where producers bid the lowest price they will sell at, and buyers bid the highest price they will pay.

While SMAP mainly helps buyers, T&E said the middleman would take risk off producers and buyers at the same time.

T&E urged the EU to pool ETS revenues and other money into a fund to pay for this, with the scheme running by 2028.

The Commission has already said in its Sustainable Transport Investment Plan that it will work towards such double-sided auctions for sustainable shipping and aviation fuels.

It expects to finish assessing whether this is feasible by 2027 but has not yet set out how it would be designed or financed.

The Commission’s ETS proposal still needs approval from the European Parliament and the Council of the EU.

By Nachiket Tekawade

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