Starting January 1, 2025, new European Union regulations targeting marine fuel emissions will increase shipping costs significantly, as reported by Reuters. Under the FuelEU Maritime regulation, commercial ships operating in EU ports must cut their carbon emissions from bunker fuels or face penalties. This is part of the EU’s broader effort to cut carbon emissions and is the second shipping regulation in two years.
Impact of the EU’s Carbon Reduction Push on Shipping Costs
The new regulations will increase the shipping cost, particularly for vessels using traditional marine fuels. However, companies with ships capable of using alternative fuels, such as biodiesel and LNG, stand to benefit from the policy. Shipbrokers say limited biofuel supply and competition from sectors like aviation will raise prices, which shipping companies will pass on.
The policy follows the EU’s 2024 decision to include shipping in its Emissions Trading System, requiring ships to pay emissions fees.
Kenneth Tveter, head of green transition at shipbroker Clarksons, stated, “It is important that we understand that shipping decarbonisation will be inflationary, as freight rates will be impacted.”
Also read: US Pushes for Alignment of Methane Standards with EU for LNG Shipments
Compliance and Penalties
The FuelEU Maritime regulation mandates ships over 5,000 tons in EU ports to reduce emissions by 2% annually, aiming for 80% by 2050. Penalties will drive ships that fail to meet targets toward adopting cleaner fuels. BRS estimates that penalties could raise freight costs by 3% for large tankers between the U.S. Gulf and Rotterdam, widening fuel price differences.
The Cost of Greener Fuels
As of January 3, 2025, the price of very low sulfur (0.5%) marine fuel in Rotterdam was 505 euros per ton. In contrast, biodiesel-blended very low sulfur marine fuel in the same port costs 686 euros per ton, says ZeroNorth and Engine.
Aviation will drive fierce competition for the limited supply of biofuels, as it is used to paying a premium. This means that the shipping industry is currently under two pressures: high fuel costs and possible supply shortages.
Liquefied Natural Gas and biofuel-blended bunker fuels will be popular choices for ships complying with the new regulations. Clarksons’ Tveter noted that low biofuel availability will increase competition, making it challenging for shipping companies to secure supplies.
A potential solution for shipping firms to meet compliance is a pooling system. Marine consultancy DNV suggested that ships reducing emissions below the required threshold could generate surplus allowances to share across fleets. Companies with multiple vessels can meet compliance by having some ships meet the target, while others use the surplus reductions.
The Future of Shipping Emissions
Under the EU scheme, LNG-powered ships can generate surplus compliance for others, helping companies meet regulations cost-effectively. FuelEU Maritime will drive alternative fuel innovation, but shipbrokers warn the shift will raise costs and affect consumer prices.
