Killian O’Brien, DAAD Lecturer (Fachlektor), University College London
To achieve its European Green Deal objectives, the EU aims to cut greenhouse gas emissions by at least 55% of 1990 levels by 2030. As part of this goal, the European Commission introduced the “Fit for 55” legislative package on July 14, 2021. This collection of measures aims to rapidly decarbonize the EU economy by significantly altering the trajectory of emissions and aligning EU policies and legislation across 12 sectors. Given its sizable contribution to total EU emissions (approximately 25%) and recent emission increases, the transportation sector is a primary focus, with many proposals targeting its emissions. This blog post will highlight some aspects of the proposed measures specifically related to maritime transport.
Out of the ten proposals announced on July 14, four directly address maritime transport. Three focus on shipping: a revised system for greenhouse gas emission allowance trading (EU ETS proposal), the use of renewable and low-carbon fuels in maritime transport (Fuel EU Maritime), and a proposal restructuring the Union framework for energy product and electricity taxation (Energy Taxation Directive). The fourth proposal, applicable to certain ports within the European Economic Area, deals with deploying alternative fuels infrastructure (AFIR).
The most significant proposal is arguably the revised Emissions Trading System Directive (EU ETS), which would incorporate international shipping into the EU ETS framework. Currently, shipping, not regulated under the Paris Climate Agreement, falls under the UN’s International Maritime Organisation (IMO). Despite having a broad mandate to regulate marine pollution, including GHGs, the IMO’s progress has been slow. The EU, citing inadequate IMO measures for decarbonizing international shipping in line with global climate objectives, has decided to proceed with unilateral regulation. This isn’t entirely new; the EU previously took the lead in unilaterally lowering the sulfur content of marine fuels due to a lack of progress at the IMO. Legally, there are no barriers to this type of action. International law permits states to establish environmental protection requirements for foreign vessels entering their waters. Further, the substantial impact of GHGs on the environment and human health satisfies jurisdictional criteria for the EU to implement unilateral market-based measures like the ETS. Nevertheless, concerns remain regarding potential competitiveness losses, regulatory fragmentation, and administrative burdens on shipping companies due to multiple monitoring and reporting standards. A review clause within the EU ETS Directive proposal will assess IMO progress.
Under the EU ETS, companies purchase allowances, each equal to one tonne of CO2 emitted. Shipping companies, or those responsible for emissions, will not receive free allowances and must surrender sufficient allowances to cover annual emissions. These allowances can be traded, enabling environmentally friendly companies with surplus allowances to sell them or keep them in reserve. The scheme will apply to vessels of 5,000 gross tonnes and above, covering emissions from voyages between EEA ports, while at berth in the EEA, and 50% of emissions from voyages entering or leaving the EEA. The European Commission’s commitment is evident in the requirement to purchase emission allowances from 2023 onward. A phased introduction of allowances is planned, starting with 20% of emissions in 2023 and reaching 100% in 2026. Sanctions include fines of €100 per tonne of CO2, with potential port entry denial for repeat offenders.
Another significant element is the Fuel EU Maritime proposal, which imposes the first greenhouse gas intensity requirements on shipping fuels. This regulation sets limits on the GHG intensity of energy used by ships arriving at, within, or departing from ports under the jurisdiction of an EU Member State. Ship fuels must improve their GHG intensity by a specified percentage compared to a 2020 baseline. This percentage will increase every five years until 2050. Applicable to vessels of 5,000 gross tonnes and above, this proposal could lead to a significant portion of energy used by ships calling at EU ports being LNG and biofuels by 2035. This raises concerns, as LNG offers minimal emission reductions and releases unburned methane during combustion. Furthermore, the sustainability criteria of many biofuels are questionable, and requiring shipping companies to source compliant fuels outside the EU could be burdensome.
A key development in the EU ETS and Fuel EU Maritime proposals is the emphasis on the “polluter pays” principle. While shipping companies were typically considered responsible for a vessel’s emissions and GHG intensity, the proposals now recognize the role of the commercial operator. Shipping companies can transfer compliance costs to charterers, who determine fuel choice, route, and speed, through commercial agreements.
The Energy Taxation Directive (ETD), the third proposal targeting the shipping industry, discourages fossil fuel use through taxation. It sets higher tax rates for fossil fuels and lower rates for renewables, reducing the price advantage of fossil fuels. The ETD imposes taxes on bunker fuels sold in the EEA for voyages within the EEA, with Member States having the option to extend this to voyages outside the EEA. Unanimous approval in the Council is required for this taxation legislation, making it possible for Member States with significant shipping interests, like Cyprus, Greece, and Malta, to block or amend proposals.
The AFIR proposal focuses on ports within the Trans-European Transport Network (TEN-T), which encompasses 329 of the largest freight and passenger ports. By January 1, 2025, these ports will need to provide LNG refueling infrastructure and shoreside electricity supply for container and passenger ships by January 1, 2030. The regulation sets national targets for deploying alternative fuels infrastructure for vessels, road vehicles, and stationary aircraft, along with common technical mechanisms, national policy frameworks, and reporting mechanisms. The selection of LNG as the preferred fuel source is noteworthy, as it requires alignment with the Fuel EU Maritime proposal. However, considering criticisms of LNG as a medium-term solution and the preference for alternatives like ammonia by some carriers, the proposal’s long-term viability remains unclear. Further discussions will likely focus on preventing carbon leakage, future-proofing, clarifying reporting obligations, and funding capital infrastructure projects.
Conclusion
This initial assessment highlights the ambitious approach of the European Commission. While potentially controversial from trade and political standpoints, the EU’s unilateral action is legally permissible. Past successes in driving the international regulatory agenda, such as with fuel sulfur content limits, suggest that these measures could expedite IMO negotiations. However, all proposals face scrutiny and negotiation within the Parliament and Council of the EU. It remains to be seen which measures will be implemented and whether they will effectively prepare the EU maritime transport sector for the 2055 targets.
Photo credit: Łukasz Golowanow via Wikimedia commons
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