Navigating the future of sustainability in shipping through biofuels, ETS taxation and emissions certificates.
In the last few years, heavy emitters have witnessed the development of decarbonisation solutions, with financial markets facilitating connections between low-carbon fuel producers and consumers, offering solutions for a rapid scale-up and comprehensive adoption.
Heavy industry, including shipping, is responsible for approximately 40% of global CO2 emissions. While there exists no single solution to decarbonise heavy emitters, a combination of smaller ad hoc initiatives can add up to a broad shift away from fossil fuels across the industrial world.
Blending ethanol into the gasoline pool, mixing used cooking or crop oils into middle distillates, replacing regular power with renewable alternatives, or using gases produced from waste or compost can together amount to a significant decarbonisation effort.
With increasing regulatory and stakeholder pressure, two heavily emitting industries are facing particular challenges in their decarbonisation paths: shipping and aviation.
Volume and weight constraints, combined with the extended length of a typical voyage compared to even the best battery usage cycles, have meant electrification has not yet been practicable for either ships or planes.
Small-scale initiatives exist and should not be discounted, from algal biofuels to ships running on hydrogen or ammonia, but these would either be constrained by scale limits, or by prohibitive retrofitting costs.
Biomethane, a potential silver bullet?
In decarbonising the shipping industry, a number of pathways have emerged in low carbon fuels: The Maersk Mc-Kinney Møller Center estimates that for the deep sea shipping sector in 2050, biogas fuels could account from 19% to 37% of the overall mix. A credible alternative will emerge from biomethane and its derived marine fuels.
Produced from the smallest hydrocarbon building block – methane – contained in organic waste, biomethane has nearly the same chemical composition as natural gas.
It can be directly injected into the gas grid, and then consumed as feedstock to create hydrocarbon chains tailored to the end-user’s specifications and engineered to any length or degree of complexity — with virtually zero sulphur content and minimal, or sometimes negative, carbon intensity.
Logistical advantages
Furthermore, port infrastructures are typically located near population centres and can easily be connected to existing gas grids, removing the need to move Natural Gas Liquids through dedicated supply chains to bunkering stations, and greatly improving the scalability of this new type of fuel production.
The technology may not be revolutionary, but its ability to be deployed on-site makes it far more economically viable than the other contenders to replace oil-based marine fuel oils and diesels.
Emissions offsetting
Altogether, the International Energy Association predicts that biofuels, hydrogen, ammonia and methanol will account for 85% of the share in final energy consumption in the shipping industry by 2050. But until biomethane and renewable fuels constitute a meaningful share of the daily fuel consumption for ship engines, the industry must face the reality of its carbon footprint.
End-users who can access an alternative to fossil fuel-based energy sources are likely to do so – driven by regulations, investor pressure, or a genuine desire to reduce the impact of their operations.
When no such alternative exists, operators must turn to emissions offsetting: having positive carbon emissions to conduct business but financing a carbon sink for the same amount of emissions and be in the legitimate position to claim a net-zero operation.
Navigating the transition
CSC Commodities, a division of Marex, has been trading oil derivatives and physical emissions for over a decade, and believes emissions markets are about to face an inflexion point in their sizes, with radical changes in supply-demand balances.
“We will see new jurisdictions mirroring the EU and embracing ETS markets that include the shipping industry.
Instead of levying a carbon tax that does not finance a carbon capture or avoidance initiative, the levy in these cap-and-trade systems, is physically settled with a carbon certificate – a far cheaper and meaningful option than paying a tax to the government.”
Bastien Declercq
CEO, CSC – a division of Marex
The FuelEU Maritime regulation, which took effect on 1 January 2025, will further tighten the screws on the shipping industry. This regulation mandates gradual reductions in the greenhouse gas intensity of fuels used by ships, starting with a 2% reduction by 2025 and aiming for up to an 80% reduction by 2050.
Ships will also be required to use onshore power supply or zero-emission technologies while at berth, particularly for container ships and passenger ships. The framework is also expected to drive increased investment in low-carbon fuels and the infrastructure needed to support them, sparking renewed discussions about the advantages of various low-carbon alternatives such as biomethane.
These measures, combined with the EU ETS, which extends emissions trading to the maritime sector, will create a dual pressure on shipowners and operators to adopt cleaner fuels and technologies while managing the financial implications of purchasing emissions allowances.
Many in the industry remember the seismic shock of IMO2020 and the introduction of a sulphur cap for marine fuels. The International Maritime Organization has so far left local jurisdictions to decide whether shipping should be in scope of ETS initiatives and mandatory emissions reductions schemes.
But with the ever more urgent climate emergency, and ever greater public awareness, it is only a matter of time until a complete offset of carbon footprint is mandated to the industry – it will come in a package of new obligations: the use of zero carbon intensity fuels, the payment of an ETS tax, and the surrendering of emissions reductions certificates.
Navigating these regulatory waters will be challenging, but the integration of biomethane as a marine fuel offers a promising pathway to compliance and sustainability. A discussion around shipping’s emissions efforts is also helpful in this context.
CSC Commodities, a division of Marex, has been helping shipping companies hedge and manage risk for over a decade. Its deep knowledge of the sector, combined with its experience in biofuels and emissions trading, means CSC has a deep understanding of the risks and opportunities that shipowners and operators face in the wake of the green transition.
