IBIA studied the “” of the European CommissionFit for 55”Set of proposals with the aim of understanding the different aspects and the impact they can have on the marine fuels sector, and created a compact but comprehensive background document for IBIA members summarizing the key elements . In doing so, we have highlighted a number of consequences and potential concerns.

The “Fit for 55” package of 13 proposals has thousands of pages forming a complex network of measures. The four having the most direct impact on the maritime sector and bunkering are summarized in this table:

Together, they aim to boost the uptake and delivery of renewable and low-carbon (RFL) fuels for ships arriving and departing from ports in the European Economic Area (EEA), including from countries outside of Europe. the EEA. The measures are carefully designed to prevent ‘carbon leakage’ – recognizing that the international nature of shipping could easily cause ships to evade fuel taxes, charges and EU specific GHG intensity requirements by sourcing from outside the EEA.

Nonetheless, the proposals have the potential to upset the level playing field. The complexity that these regulations would create for shipping companies and marine fuel suppliers is of concern, while their ability to shift demand from fossil fuels to RFLs over the next decade appears limited.

Potential impact of the introduction of a tax on marine fuels

Globally, marine fuels are generally duty free when sold to ships for international use; while fuels for domestic use are subject to tariffs set by each country. The proposal presented by the Commission aims to remove tax exemptions on aviation and marine fuels by 2023 by updating the EU Energy Tax Directive (EDT).

Rough conversion factors would place the proposed tax on HFO sold and used in the EEA at around € 38 per tonne, or $ 45 per tonne at current exchange rates. This price difference would make bunkering prices at EEA ports less competitive, potentially eliminating the current price advantages of taking bunkers at EEA ports and causing bunkering demand to shift away from ports in the EEA. the EEA.

FuelEU Maritime’s proposals concern

This is a new concept of GHG policy that sets a limit on the overall life cycle GHG intensity of the fuels used. The policy aims to overcome the “chicken and egg” hurdle for wider market penetration of renewable and low-carbon fuels for maritime transport.

A major concern with these proposals is the complexity they would introduce for users and suppliers of marine energy to prove and certify the full sink to wake up life cycle GHG emissions from non-fossil alternative fuels.

For shipping companies, this would extend the reporting requirement of annual CO2 equivalent emissions under the EU MRV regulation, using accredited verifiers to ensure the accuracy and completeness of monitoring and reporting by companies.

Marine fuel suppliers around the world wishing to supply non-fossil fuels to comply with regulations would, according to the proposal, be required to document well-to-tank GHG emission factors on bunker delivery notes (BDN ) as well as the CO2 equivalents per gram of fuel, accompanied by a separate certificate identifying the fuel production sector.

Certifying the actual WtT GHG emissions and production route could be very complex, as it is highly likely that new alternative fuels – just like today’s petroleum-based fuels – will be blends of components from different producers. and production methods.

Representatives of the shipping industry opposed the FuelEU approach because it requires shipping companies to comply and source compliant fuels; arguing that the requirement should be placed on marine fuel suppliers to make renewable and low carbon fuels available. While this is quite understandable, the Commission proposal makes it clear that it has placed the onus on energy consumers in order to create demand that might otherwise not materialize.

There is a parallel here with the sulfur limits; it was always up to the ships to comply. Suppliers have no obligation to supply low sulfur fuels, only to meet the required sulfur limit if they choose to supply such fuels. Whenever regulations have led to an increase in market demand for low sulfur fuels, the supply has responded.

Another criticism leveled at FuelEU’s proposals is the potential over-reliance on biofuels, which may have questionable sustainability credentials. IBIA’s analysis of the proposal identified two mechanisms that appear to address this issue.

The question remains, however, to what extent the proposal can be effective in promoting increased demand – and therefore supply – of truly sustainable, low-GHG-intensity fuels, at least in the first five to ten years. The initial requirement to improve GHG intensity by 2% and then 6% can, at best, help establish a niche market for alternative fuels, most likely in Europe, and help reward early entrants.

Will the inclusion of maritime transport in the EU ETS have an impact on the marine fuels market?

There are two main potential impacts on the marine fuels market linked to the extension of the EU ETS to maritime transport; one being the extent to which this price signal prompts the adoption of low-carbon alternative fuels, and the other the extent to which it causes ships to change their trading patterns to reduce their exposure to carbon. EU ETS. Both will depend on the price of carbon, which would need to be relatively high to have a significant impact.

Carbon price projections in the EU ETS assessment of around 45-55 € / tCO2 between 2023 and 2030 would have very limited ability to stimulate the adoption of alternative fuels, given that the shift to alternative fuels is not just about bridging the price gap with fossil fuels. The availability, technical feasibility of alternative fuels, regulatory safety standards and the level of investment required to use them are also major factors.

The EU ETS proposal assessed the escape potential, which becomes lucrative when the cost of compliance exceeds the costs associated with the evasive stopover. The exact level of the carbon price at which this can occur is not certain and will depend on the type of cargo, but ETS could potentially cause short and long term changes in trading patterns and therefore which ports ships find the most profitable for lifting bunkers.

A lot of questions

In addition to the questions and uncertainties identified above, the EU’s proposals raise several other questions, including:

• Are the EU standards for measuring life cycle GHG intensity the right ones and can they be adopted globally?
• Will it send the right signals to achieve a long-term transition to truly sustainable forms of energy?
• Will this lead to a faster decarbonization of international maritime transport than the already adopted IMO instruments?
• Will this hinder or accelerate progress on other GHG reduction measures at IMO?
• Will IMO commercial fuel safety regulations and quality standards be developed in time to ensure that alternative fuels and energy sources are safe and fit for purpose?

The answer to many of these questions will be tainted with opinions, some will be predictions, while others should be clarified in the process and the negotiations that lie ahead before any of the proposals are adopted. The Commission said many details are subject to change before the reforms are adopted.

In summary, the IBIA sees many unanswered questions regarding the impact of the proposals. We will invite our members to share their views and concerns regarding the “Fit for 55” proposals to assess their potential impact and appropriate responses, and to engage on this issue accordingly.

Photo credit and source: International Bunker Industry Association
Posted: Aug 3, 2021