A new EU proposal to subsidize sustainable shipping fuels via carbon allowance reserves threatens the long-term dominance of traditional marine fuel oil by lowering costs for Bio-LNG.
The European Commission's proposed Sustainable Maritime Alternative Propulsion (SMAP) mechanism aims to bridge the price gap between fossil fuels and sustainable alternatives like BioLNG. By reserving up to 110 million ETS allowances between 2028 and 2040, the policy effectively subsidizes the adoption of BioLNG, potentially making it more cost-competitive against traditional marine fuels.
It uses reserved ETS allowances to subsidize the price difference between sustainable fuels and fossil marine fuels.
The introduction of the SMAP mechanism creates a structural disadvantage for fossil marine fuel oil by subsidizing its cleaner competitors. As the EU incentivizes shipowners to switch to sustainable alternatives through allowance-backed support, demand for traditional fuel oil is expected to face downward pressure.
It makes sustainable alternatives cheaper, reducing the relative economic attractiveness of fossil marine fuel oil.
The proposal to set aside 110 million allowances for the SMAP mechanism represents a significant change in the supply dynamics of the European Union Emissions Trading System. By removing these allowances from the general market circulation between 2028 and 2040, the policy could tighten supply and influence carbon price volatility.
It reserves up to 110 million allowances for maritime support, effectively reducing the supply available for other sectors.
The European Commission plans to reserve 110 million EU ETS allowances between 2028 and 2040 to fund the Sustainable Maritime Alternative Propulsion (SMAP) mechanism. This initiative aims to bridge the price gap between fossil marine fuels and sustainable alternatives like Bio-LNG, potentially reshaping the maritime energy landscape.
The Sustainable Maritime Alternative Propulsion (SMAP) mechanism is a proposed EU initiative designed to bridge the price gap between expensive sustainable marine fuels and traditional fossil fuels using reserved carbon allowances.
By subsidizing sustainable alternatives like Bio-LNG, the proposal increases competition for fossil-based marine fuel oil, likely leading to reduced demand for traditional bunker fuels over the long term.