In the “race to zero” the EU is stepping up the pace for shipping

By Hendrike Kühl, IUMI Policy Director

In September 2020, the European Commission adopted its proposal on "European Climate Law" to cut greenhouse gas emissions by at least 55% by 2030 and put the European Union (EU) on a path to becoming climate neutral by 2050. On 14 July 2021 the European Commission published its “Fit for 55 package”, a plan consisting of various proposals aimed at enabling a quantum leap toward decarbonisation across the EU. The package has to be negotiated with the European Parliament and EU member states before it can be adopted. Four of the proposals have direct implications for the maritime industry:

  • Inclusion of shipping in the EU Emission Trading System (ETS)
  • FuelEU Maritime: Reduction of carbon intensity, incentive to increase use of zero/low carbon fuel
  • Taxation of marine fuels
  • Requirements for ports to install LNG infrastructure and electricity for vessels at berth.

The measures aim to stimulate the uptake of zero and low carbon fuels for ships sailing between ports of the European Economic Area (EEA), but they would also include inbound and outbound journey into and out of the EEA.

Reactions from shipowner associations and bunker suppliers have been sceptical due to the complexity of the rules and their implementation. The “well to wake” approach which takes into account the emissions of the entire life cycle of a fuel has also been criticised as it allows LNG for the transition phase despite it being a fossil fuel. The impact of biofuels is also viewed with some scepticism due to their impact on land use outside of the EU.

Concerns were further raised about a potentially negative impact on the competitiveness of shipping within the EU due to higher costs imposed by the new rules. The measures may also have a stifling effect on the international regulatory framework currently being negotiated at the IMO. A patchwork of different regulations across various geographies would hamper international trade largely carried by the maritime industry.  

Notwithstanding these concerns, the publication of the IPPC’s 6th landmark report is yet another stark warning of why taking climate action now is essential: extreme heatwaves, droughts and flooding are all realities which are already happening across all parts of the planet. While an international framework to regulate shipping at the International Maritime Organization (IMO) would be the ideal pathway to tackle decarbonisation in shipping, the EU’s move forward is understandable given the urgency and magnitude of the challenge.

Within IUMI’s deliberations to develop an environmental, social and governance (ESG) approach, climate change is a salient theme. Marine insurers have a role to play in the “race to zero”, not least as facilitators for alternative fuel and propulsion types which are on the horizon and which bring new risks that need to be assessed carefully. IUMI is raising awareness for the regulatory developments and new fuel types, e.g. through our webinars, conference presentations and the Policy Agenda, but also by facilitating discussion and exchange among marine insurers from around the world on how to tackle the maritime transition to zero emissions.