A report by UMAS, commissioned by the Environment Defence Fund Europe (EDF Europe), evaluates the European Commission's proposal to include shipping in the EU Emissions Trading System (EU ETS). The report sees the proposal as a positive step toward reducing international shipping emissions and encouraging investment in scalable zero-emission fuels (SZEF).
Inclusion in the EU ETS:
The report supports the inclusion of shipping in the EU ETS, as it would subject a portion of the global shipping industry to a carbon price. However, it raises concerns that the current proposed format may not lead to significant emissions reductions or incentivize investment in SZEF. These fuels have the potential to produce zero emissions and can be produced at a large scale to meet shipping's future demand.
The Need for Higher Carbon Price:
The study highlights the importance of a higher carbon price to incentivize efficiency improvements and make zero-carbon fuels more attractive. Current EU Allowance (EUA) price levels are deemed insufficient to bridge the gap between fossil shipping fuels and zero-carbon alternatives. UMAS estimates that an average price of approximately $200 per ton is necessary to fully decarbonize the shipping sector by 2050.
Widening the Scope and Tailoring the ETS:
The report emphasizes the benefits of expanding the emissions coverage of the EU ETS. The current proposal aims to cover maritime emissions within the European Economic Area (EEA) and 50% of emissions from voyages to and from the EEA. UMAS suggests that extending the coverage to 100% of extra-EEA voyages could increase emissions covered under the system by 70%. The report also suggests tailoring the ETS to support in-sector abatement, either through restrictions on the purchase of out-of-sector allowances or coupling with supply-side policies such as subsidies for SZEF.
Stimulating Shipping Research and Development:
UMAS recommends allocating a portion of ETS revenues, currently directed to the Innovation Fund, to stimulate shipping research and development. This would encourage the early adoption of SZEF and facilitate a more cost-effective transition.
Optimization and Decarbonization Opportunities:
EDF Europe sees the extension of the EU ETS to include shipping as an opportunity for optimization that could create a domino effect toward decarbonization. By combining the EU ETS proposal with tailored measures and focusing on scalable zero-carbon fuels, the shipping sector can make significant progress in reducing its emissions.
The UMAS report underscores the potential of including shipping in the EU ETS, but it also calls for additional measures such as a higher carbon price and broader emissions coverage. These measures, along with targeted policies and funding, can drive the adoption of scalable zero-carbon fuels and accelerate the transition to a decarbonized shipping industry.
