Conversion to low-emission shipping in the European Union increases costs – while climate action creates business opportunities

The Fit for 55 package of climate measures proposed by the European Commission will have a significant impact on shipping, effectively reducing emissions while increasing the cost of shipping in EU countries. These costs may well be higher in Finland than in comparable countries.

The Ministry of Transport and Communications and the Finnish Transport and Communications Agency (Traficom) have estimated the impact of the Commission initiatives on the costs and greenhouse gas emissions of navigation serving Finland's foreign trade and passenger transport.

Three of the Commission initiatives will have a particular impact on shipping:

1) the FuelEU Maritime Regulation governing the use of renewable and low-emission fuels in maritime transport (FuelEU Maritime),

2) emissions trading in maritime transport, and

3) a revised Energy Taxation Directive.

The International Maritime Organisation (IMO) is also planning measures for the maritime sector in order to meet international greenhouse gas emission reduction targets.

"Further negotiations must find a balance in which the most cost-effective policy measures promote both innovation and achievement of climate goals," says Minister of Transport and Communications Timo Harakka.

The EU climate package will have a significant impact on maritime transport. While emissions will be effectively reduced in Member States, the projected costs for Finnish maritime transport may be higher than in comparable countries.Finland may highlight the new impact assessments in ongoing negotiations. International regulation brings both challenges and opportunities.

"We need to ensure that Finnish enterprises can create new sustainable business. Finland already has advanced expertise in maritime transport. This is an excellent opportunity for the Finnish climate industry," Minister Harakka explains.

"I believe that products, services and solutions to reduce greenhouse gas emissions from shipping and curb global warming will increasingly emerge in Finland. Finnish businesses are already developing several emission-reducing technologies, such as new types of marine engine and rotor sails," Minister Harakka observes.

The Cabinet Committee on European Union Affairs discussed the impacts of the maritime transport proposals on 27 January 2022, and on 3 February 2022 the Ministerial Finance Committee expressed its support for the Government's Union communication to Parliament on this subject. The Union communication informs Parliament of the impacts of the Commission proposals in Finland. The impact assessments are subject to a great deal of uncertainty, as negotiations are ongoing, with many open issues remaining in relation to the green transition in maritime transport.

The EU is committed to reducing greenhouse gas emissions by at least 55 per cent of 1990 levels by the year 2030. The EU climate package initiatives presented by the Commission in July 2021 seek to achieve this goal.

Shipping costs forecast to rise

Increases in the cost of shipping raise the cost of foreign trade, which can weaken the national economy. The costs may be higher for Finland than for comparable countries, as Finland is distant from its main market and navigation in icebound waters increases transport costs. The increase in costs for other EU countries will nevertheless tend to reduce the relative impacts on Finland.

The three Commission proposals are estimated to increase Finland's annual maritime transport costs by EUR 300-600 million over the period 2026-2030, EUR 400-800 million over the period 2030-2034, EUR 600-1,100 million over the period 2035-2039, and EUR 1,000-1,700 million in 2040. Of these costs, navigation in icebound waters would, in total for the three proposals, account for EUR 20-50 million in 2030 and EUR 40-100 million in 2040. The costs of such navigation fall particularly on routes where waters are icebound for extended periods annually. Taking all modes of transport into account, Finnish businesses annually purchase or provide transport services in Finland to a total value of almost EUR 10 billion in addition to substantial logistics costs incurred abroad.

"We have been keen to determine where we stand in negotiations, and to set out the problems for the public debate well in advance," Minister Harakka says.

EU maritime emissions expected to fall

Particularly the Regulation on the use of renewable and low-emission fuels in maritime transport is expected to be effective in reducing emissions from this form of transport. This Regulation would reduce CO2 emissions from navigation serving Finland's foreign trade and passenger transport by 10-15 per cent from 2019 to 2030. There would be a 40-60 per cent fall in emissions by the year 2040. Emissions trading will boost the emission reduction impact of the FuelEU Maritime Regulation.

The emission reduction impact of the Emissions Trading and Energy Taxation Directive has not been estimated for Finnish shipping.

The implications of three initiatives of the Fit for 55 package for maritime transport

1. What is the Regulation on the use of alternative fuels?

The Regulation seeks to increase the proportion of alternative fuels used in shipping from 2025 onwards. Fossil fuels currently account for more than 99 per cent of fuel used in this sector. The Commission proposes a gradual reduction in the greenhouse gas content of vessel fuels from a target of -2 per cent in 2025 to -75 per cent by the year 2050. Container ships and passenger vessels would also be required to use shore-side electricity while in port as of the year 2030.

2. What is the extension of emissions trading to transport?

The Commission has proposed a broadening of emissions trading to include shipping. Emissions trading would begin in stages. 20 per cent of emissions would fall within the scope of emissions trading in 2023, and emissions from shipping would be fully covered by emissions trading from 2026 onwards. Emissions trading requires maritime transport operators to pay for the right to emit carbon dioxide.

3. What is the Energy Taxation Directive?

The fuels used in international merchant shipping are currently tax-free. The revised Directive would end the tax exemption for international maritime fuels. Fuels used in internal shipping between EU countries would be taxed from 2023 onwards.

What's next?

The French Presidency of the EU Council will seek a general approach on the Regulation on alternative fuels for maritime transport and emissions trading in maritime transport at the Council in June. Progress on the Energy Taxation Directive is slower.

Inquiries:

Johanna Juselius, Special Advisor to Minister Timo Harakka, tel. +358 50 372 7062, johanna.juselius(at)gov.fi

Päivi Antikainen, Director of Unit, Ministry of Transport and Communications, tel. +358 50 382 7101, paivi.antikainen(at)gov.fi, Twitter @PaiviAntikainen