The EU ETS Revision & Shipping: A Financial Perspective

The European Commission’s EU ETS proposal of 17 July 2026 would introduce a dedicated financial support mechanism for shipping’s energy transition. Alongside the wider revision of the EU Emissions Trading System, the package proposes to reserve allowances for sustainable maritime fuels and zero-emission propulsion, while directing a larger share of national auction revenue towards the decarbonisation of sectors covered by the ETS.

As a reminder, EU ETS creates a cost for covered emissions. FuelEU Maritime requires a progressively lower greenhouse-gas intensity of energy used on board. The proposed Sustainable Maritime Alternative Propulsion mechanism, or SMAP, would add financial support for eligible fuels and technologies that help companies make that transition.

A dedicated EU ETS allowance reserve to financially support shipping's decarbonisation

The central measure is a proposed new Article 3gaa of the EU ETS Directive. It would reserve up to 110 million allowances from the Union-wide allowance quantity for the use of sustainable maritime fuels and the deployment and operation of zero-emission propulsion technologies. Electric and wind-assisted propulsion are expressly included. The proposed support period extends to 31 December 2040.

The mechanism would provide support through allowances. Its economic value would therefore depend on allowance prices. At an illustrative price of 90 EUR per allowance, 110 million allowances would represent 9.9 billion EUR.

SMAP would add to existing ETS-funded support (for example, the Innovation Fund) but in a far more direct way. The additional feature is a dedicated mechanism under which shipping companies could apply for allowances linked to their eligible fuel consumption and the emissions reductions achieved through qualifying propulsion technologies.

Which fuels & technology would qualify?

The proposal identifies three principal fuel categories: qualifying biogas and advanced biofuels, renewable fuels of non-biological origin (RFNBOs), and qualifying low-carbon hydrogen and low-carbon fuels. Each category is linked to the relevant EU legal definitions and to eligibility for a zero emission factor under the ETS framework.

The distinction between biofuels and advanced biofuels is particularly important. Under the Renewable Energy Directive, advanced biofuels are produced from feedstocks listed in Part A of Annex IX. Used cooking oil is listed separately in Part B. The proposed reference to advanced biofuels therefore does not mean every certified biodiesel product. In particular, UCOME should not automatically be assumed to qualify under the advanced-biofuel category.

The technology component is also specific. SMAP would support the additional cost of deploying and operating eligible zero-emission propulsion technologies, including electric and wind-assisted propulsion, in proportion to the emissions reductions achieved. The Commission would establish further criteria for eligible technologies and the calculation of their emissions reductions.

How much of the cost gap would be covered?

The proposed support rates differ by pathway. The mechanism would cover 55% of the remaining price differential for qualifying biogas and advanced biofuels, 90% for qualifying RFNBOs, and 80% for qualifying low-carbon hydrogen and low-carbon fuels. Eligible zero-emission propulsion technologies would receive support equivalent to 90% of the additional cost compared with conventional propulsion systems.

For fuels, the Commission would establish the price differential using objective and verifiable information, including actual transaction prices where available. Where representative market prices are unavailable, it would establish reference prices. The fossil comparison would use a weighted average reflecting the actual maritime fossil-fuel mix reported under MRV.

Origin and Trading Pattern would affect the Entitlement

As a general rule, eligible fuels would need to be produced in the EU, a country with an ETS linking agreement, or a qualifying third country receiving specified EU support for capped greenhouse-gas pricing. Equivalent manufacturing-origin requirements would apply to zero-emission propulsion technologies. A derogation is envisaged for sustainable fuels used on eligible routes involving designated non-EU ports participating in green shipping corridors.

Further, qualifying feedstock sourcing could increase the fuel-support rate by ten percentage points. Certain island voyages could receive a five-percentage-point increase, while qualifying propulsion technologies fitted in EU shipyards could receive an additional five percentage points.

Reflecting the maritime ETS geographical scope, for voyages between an EU and a non-EU port, the calculated allowance allocation would be multiplied by 50%.

Support would follow actual use, with limits on compensation

Shipping companies would apply annually using the quantity of eligible sustainable fuels consumed and the emissions reductions achieved through qualifying propulsion technologies during the preceding calendar year. Note that, if applications in a particular year exceed the available allowance quantity, allocations would be reduced uniformly across the shipping companies concerned.

The interaction with other incentives will be equally important. The proposal allows other national, EU or international support to be taken into account and requires safeguards against overcompensation. Those safeguards are part of the detailed rules that the Commission would subsequently adopt.

Who receives the allowances and who pays the premium?

Similar to FuelEU Maritime settlements, the mechanism also creates an important contractual question. Its direct beneficiaries would be shipping companies, but the party receiving an allocation may not be the party that paid for the sustainable fuel or invested in the propulsion technology.

The proposal recognises this in recital 20. Where a shipping company receives allowances under the reserve and passes ETS surrender costs to another entity through the existing reimbursement mechanism, the recital says the allocation should be taken into account. It expressly anticipates contractual arrangements under which the allocated allowances could be transferred to that other entity.

Consider a time-chartered vessel whose charterer pays the premium for an eligible fuel. If a separately appointed shipping company receives the SMAP allocation, the charterparty and management arrangements would need to connect that allocation with the party bearing the cost. The same question arises where an owner finances wind-assisted propulsion but another party controls the vessel’s employment and fuel consumption.

National EU ETS Revenue would be directed more closely towards the sectors paying the carbon cost

SMAP is only one part of the funding proposal. The revised Article 10(3) would require Member States to use at least 50% of the relevant national auction revenue, or an equivalent financial amount, for defined priority purposes supporting the decarbonisation of ETS sectors. The provision excludes revenue assigned to the EU budget and makes a separate exception for indirect-carbon-cost compensation.

Maritime decarbonisation is expressly included among those priorities. Importantly, this national spending category is broader than SMAP: it covers ship energy efficiency, ports, innovative technologies and infrastructure, electrification, sustainable alternative fuels and zero-emission propulsion, but ultimately maritime projects would remain one eligible category among several.

The proposal would also require Member States to disburse revenue by the third year after it is generated and provide sufficiently detailed reporting for the Commission to assess compliance. Spending would have to remain consistent with the EU’s climate objectives.

Timeline & Relationship with FuelEU Maritime

The proposal now moves through the European Parliament and the Council under the ordinary legislative procedure. There is political appetite to advance the file quickly, and industry reporting points to a possible agreement in the first half of 2027, with implementation of the maritime measures expected to follow in the years thereafter. For SMAP, the draft retains the bracketed starting point “2028/first year after the entry into force”, with support running until 31 December 2040. The broader directive generally envisages application from 2029.

In the meantime, FuelEU Maritime remains in force as its own framework throughout. However, the ETS revision is designed to complement it and to simplify the interaction between the two, aiming to simplify and align the reporting obligations across MRV, FuelEU Maritime and the ETS in order to reduce administrative duplication.