EU clean fuel rules may hike shipping costs, fuel inflation

By Abbas Nazil

The European Union’s new marine fuel rules, effective January 1, are expected to raise shipping costs and fuel inflation as part of efforts to reduce carbon emissions, according to shipbrokers.

These regulations require commercial vessels over 5,000 gross tonnage operating in EU ports to cut emissions from marine fuels or face penalties, potentially impacting global freight rates and consumer prices.

The FuelEU Maritime regulation, designed to align shipping with the EU’s broader climate objectives, follows the sector’s inclusion in the Emissions Trading System (ETS) in 2024, where ships must pay for their emissions during voyages involving EU ports.

Together, these policies aim to address shipping’s role as a major contributor to greenhouse gas emissions, which account for nearly 3 percent of the global total.

Compliance with the FuelEU regulation mandates an annual 2 percent reduction in emissions starting in 2025, based on a baseline of 91.16 grams of CO2 equivalent.

By 2050, the target rises to an 80 percent reduction. However, shipbrokers warn of limited availability and fierce competition for alternative fuels like biodiesel and liquefied natural gas (LNG), which are also sought after by the aviation sector.

Kenneth Tveter, head of green transition at shipbroker Clarksons, noted that decarbonizing shipping will be “inflationary” as freight rates are likely to rise. Shipowners face increased costs either by paying a premium for alternative fuels or incurring penalties for non-compliance.

Calculations by shipbroker BRS indicate that FuelEU penalties could amount to 3 percent of the total freight cost for a tanker transporting 70,000 metric tons of crude or fuel oil between the U.S. Gulf and Rotterdam.

Currently, the price disparity between traditional marine fuels and greener alternatives highlights the challenge. A ton of very low sulphur fuel oil (0.5 percent) in Rotterdam cost €505 ($522) on January 3, while biodiesel-blended fuel was priced at €686 ($709) per ton.

To navigate compliance, shipping companies may adopt biofuel blends, LNG, or a pooling system allowing vessels with surplus emissions reductions to offset less-compliant ships. Firms with fleets capable of running on alternative fuels stand to benefit under these new regulations.

Marine consultancy DNV highlighted that a single LNG-powered vessel could generate surplus credits sufficient to make four similarly sized ships compliant. This strategy, along with trading allowances between companies, may offer flexibility as the industry adjusts to the rising demands of decarbonization. END

Source: MarineLink