Impact of emission reduction in shipping

Emission regulations and the financial impact for shipping

Spliethoff Group is committed to contributing to a more sustainable shipping environment and bases its agenda, and especially its emission reduction targets, on the directions set by international regulations and initiatives such as the EU Green Deal and Fit for 55, the IMO EEXI and CII, and the Poseidon Principles. The reduction goals set by these organizations present challenging, but realistic and achievable goals. A general overview of initiatives and regulations can be found in the document ‘Emission reduction regulations and its financial impact for shipping’ (click here).

Spliethoff Group’s ambition is to reduce its fleet’s average emissions (gram CO₂ per mt/mile) by an average of 2% per year (% reduction of mt CO₂ / (dwt*distance sailed)) to reach 70% reduction of carbon emissions in 2050, thereby meeting the requirements as set out in current international regulations.

Our current progress has been made by operational measures, dual fuel LNG and improved efficiency in newbuild vessels. To achieve the future reduction targets, biofuels or gas and, at a later stage, synthetic fuels or gasses will have to be used.

However, the shipping sector’s contribution to a better environment does not come for free. The higher the required percentage of reduction becomes, the higher the costs becomes.

Vessels Energy Efficiency regulations

The IMO EEXI and CII require vessels to become more efficient every year. Along with technical and operational measures, slow steaming could be carried out, affecting transit times and total available transport capacity.

CO₂ Allowances

Starting in 2024, under the EU Emission Trading Scheme, shipping companies must acquire and submit CO₂ allowances for the CO₂ emitted by their vessels. This will apply to all vessels above 5,000 GT, for 50% of their emitted CO₂ for voyages from/to Europe and 100% for intra-European voyages. In 2024, 40% of the emissions must be compensated, increasing to 70% in 2025 and 100% in 2026. Prices of allowances in 2023 vary per day. At the time of writing (June 2023) one emission allowance costs around € 100.

As a mt of fossil fuel emits slightly more than 3 mt of CO₂, the additional costs of these allowances vary from € 60 per mt HSFO on a voyage to Europe in 2024 to € 300 per mt HSFO for an inter-European voyage in 2026, subject to the allowances price of that time.

Fuel prices

Fuel prices will increase from 2025 onwards, under the Fuel EU directive. Biofuel or synthetic fuels must be used in increasing percentages in order to lower the carbon intensity of fuel used in European ports and on European voyages. Subject to fuel price levels, this will lead to an estimated price increase of € 50 per mt fuel in 2025 and a further increase thereafter.

Fuel Taxation

Although the regulations are not yet finalized by the European Union, under the EU Energy Taxation Directive, the tax exemption of fossil fuels will end. From then on, a new tax structure will be in place for all bunkers sold and used in the EU. The fuels will be taxed depending on their caloric value. A current estimate is that this will increase the price of fossil fuels by almost € 40 per mt.

Influence on Shipping contracts

These extra costs incurred by the move to more sustainable shipping will result in an increase in operational costs. Depending on the type of contract or shipment, the extra costs will be either included in the freight, charged separately or covered by contractual clauses on fuel, allowances and tax prices.