The direct use of ETS1 and ETS2 revenues can fund incentives for decarbonising ships and transport, as a win-win strategy for the EU

EU strategy for decarbonization of the maritime transport sector has been a top-tier initiative worldwide. Still, due to the recent evolution of the world geopolitical landscape, the path toward full decarbonization has undergone some relevant turbulences. Two elements have been standing out in this past year: the new Trump administration and the second Von Der Leien cabinet.

Intense political pressure from the United States administration has effectively derailed the adoption of the International Maritime Organization (IMO)’s Net-Zero Framework, pushing the objective of zero net emissions off course. The fragility of global consensus on the topic creates a puzzling void, placing an overwhelming responsibility on regional mechanisms—specifically, the European Union’s Emissions Trading System (EU ETS)—to force the industry’s green transition.

While the global IMO framework falters, the industry grapples with the inclusion of maritime emissions in ETS1 starting from 2024. Unlike other sectors, there are no free quotas assigned to the maritime industry. Furthermore, the system strictly accounts for emissions on a “tank-to-wake” basis. According to a recent, comprehensive study by BIP Consulting, Federchimica, and Assogasliquidi, the financial burden is impressive. In Italy alone, maritime emissions (estimated at 9 Mton of CO2 in 2023) are projected to generate an additional tax burden between 0.7 and 1.4 billion euros annually under the ETS mechanism.

For logistics operators and shipping companies, this translates into an immediate hit on their balance sheets. The study highlights that the ETS mechanism can drive up the Total Cost of Ownership (TCO) by up to 50% for vessels running on highly climate-altering fossil fuels, such as Heavy Fuel Oil (HFO) or Marine Diesel Oil. This financial burden is compounded when viewed alongside the FuelEU Maritime regulation, which introduces strict mandates on carbon intensity and onshore power supply. When ETS and FuelEU Maritime are combined, the TCO impact can virtually double. For instance, the TCO for HFO surges by 57% due to ETS alone, and an additional 56% because of FuelEU Maritime.

Faced with these financial penalties, the sector is seeking viable alternatives. Here, Liquefied Natural Gas (LNG) and biogenic solutions like Bio-LNG assert themselves as the most economically competitive short- to medium-term options. However, the transition is not frictionless. The competitiveness of Bio-LNG heavily relies on the price of Guarantees of Origin (GO). While currently sustainable, medium-term GO price fluctuations could absorb the competitive advantage granted by avoiding ETS penalties. Despite this, the lack of immediate, scalable technological alternatives means LNG consumption in shipping is projected to multiply by 3 to 4 times by 2030, potentially reaching 1,500 to 2,000 kilotons per year in the long run.

Moreover, the maritime sector’s burden under ETS1 stands in stark contrast to the rollout of ETS2. Due to the retrenchment of the European Green Deal under the rightward-shifting second Von Der Leien cabinet, the activation of ETS2, originally aimed at broadening the carbon pricing scope, slipped to 2028. ETS2 will eventually target heavy road transport and off-grid industry the same way ETS1 is targeting the maritime environment, but its financial bite will be noticeably softer. The Federchimica-Assogasliquidi study models that ETS2 will only increase the TCO for heavy road transport by less than 10%. Even with this limited impact, ETS2 is expected to generate massive national costs—between 4 and 15 billion euros annually for the Italian road transport sector. Yet, strategically, this relatively modest TCO increase on the asphalt contrasts sharply with the brutal 50% spikes seen on the water.

The current regulatory architecture is thus unbalanced. On one side, the derailment of the IMO’s global decarbonization framework leaves international shipping without a unified roadmap. On the other hand, the localized EU ETS1 could act as a punitive financial lever without parallel global enforcement. For the maritime sector to successfully navigate the long-term decarbonization journey, stakeholders must bridge the gap between regional taxation and viable green technologies. Until global policies align (again?), shipowners will be forced to absorb massive operational costs, relying heavily on transitional fuels like LNG to stay afloat in an increasingly expensive European market.

Of course, the solution to the puzzle cannot compromise on existential climate target. Yet, what could be useful for maritime operators could be the direct use of the ETS1 and ETS2 revenues to foster incentives schemes for vessels and transport decarbonization, for a win-win strategy in the EU landscape. This way, while pushing for a steep decarbonization path, EU could ease the transition and avoid compromising the EU maritime environment competitiveness.