Financial impact of EU ETS

to bring seismic change in biofuel demand

- 11.04.2022

Shipowners and operators looking to comply with the European Union Emissions Trading System (EU ETS) are likely to turn to biofuels, United European Car Carriers’ (UECC) Energy & Sustainability Manager, Daniel Gent, tells


Last April, Gent told that the company had committed to using sustainable biofuels onboard the 20,010 GT Autosky for the remainder of 2021. The vessel continues to run on a range of biofuels and feedstocks and this strategy, says Gent, has enabled the company to broaden its technical understanding of an increasingly diverse biofuels market.

However, it is regulatory rather than technical issues that are causing the biggest headaches for UECC and other European-based owners and operators. The European Union Emissions Trading System (EU ETS) and the FuelEU Maritime, part of the Fit for 55 package, says Gent, are ‘two of the biggest bits of legislation we’ve ever seen’ – far more so than the introduction of the 0.10% sulphur emission control areas (ECAs) in 2015.

‘We’ve been monitoring the price of carbon and exactly how this is going to play out in the coming years. We have a calculator set up with different levels of consumption and the price of carbon and fuel. If you consider at the moment that the price of carbon around €80 per tonne, and a tonne of gasoil contains a little over three tonnes of carbon – your gasoil is €240 per tonne more expensive.’

Gent says he is surprised that this extra expense does not seem to be causing more alarm in the shipping sector, including amongst shippers. The EU ETS is one of several new regulations that will enter into force in the coming years, and which will drastically reshape the industry – ‘it will look completely different in 10 years’ time,’ he says. However, he suggests that in the short-term these measures could spur demand for marine biofuels.

‘I can see a rapid increase in biofuel demand because it is the fuel that gives you that easy, immediate reduction [in CO2 emissions],’ says Gent. ‘Even on a well-to-wake basis, our biofuel gives you around an 85% well-to-wake reduction and 100% reduction tank-to-wake.’

If this rush is to come, then UECC’s decision to be an early adopter may stand the company in good stead in terms of locking in supply. The Autosky first began using biofuels at the beginning of 2020 and in the subsequent two years UECC has been building a network with suppliers.

‘We have put ourselves into the premium position to offer our customers with a carbon neutral product that is underpinned by long-term biofuel commitment,’ says Gent ‘We’re also broadening our scope to bio-LNG as well, and we have some interesting projects where we’re looking to secure on long-term contracts – 5+ years – molecules with a bio-LNG supplier. The existing investments in our LNG dual fuel E- and A- classes also offer a lower carbon solution which can mitigate the impact of forthcoming legislation.’

This bio-LNG will be used to supply UECC’s latest gas-powered vessels: Auto Advance, which operates on the company’s Atlantic trade; Auto Achieve, which will soon be starting its maiden voyage; and TBN Auto Aspire, which is scheduled for delivery in early fall 2022.

‘Those vessels will phase out the older tonnage which struggles to meet the IMO Carbon Intensity Index (CII) requirements,’ says Gent. ‘These vessels are coming ready-made to replace them and it’s a timely arrival for them.’

With the price differential between LNG and LBG shrinking significantly in recent months, these vessels could be bunkering the bio option sooner than expected. According to Gent, there is no shortage of supply of LBG, even if that supply is ‘fragmented’.

‘Once you demonstrate there’s demand in the maritime sector, then you can start to put together the logistics for it – but at the moment, no one’s coming up with a tailor-made LBG maritime solution primarily because customers are not really asking for it.’

Gent continues: ‘Because of that barrier between where the biogas is being produced and where the customers want it…people are looking more at certified biogas. It’s good to incentivise production of biogas but I think it would be far better if you can get the direct biogas molecules from wherever they’re being produced to vessel, physically using the trucks, barges or pipeline in that region.’

Fuel strategy is one variable the company has agency over. But as a car carrier whose customers trade in global markets, UECC has to monitor geopolitical volatility closely. Up until the Russian invasion of Ukraine at the end of February, UECC had dual-fuel vessels operating on a two-week rotation to St Petersburg. Not any longer. The company suspended its Russian operations with immediate effect. UECC had bunkered LNG in Zeebrugge, Gothenburg and Hanko in Finland, and was also looking into the possibility of availing itself of new LNG bunkering infrastructure in St Petersburg. In December 2020, Gazprom Neft launched Russia’s first LNG bunker vessel, the 5,800 cbm-capacity Dmitry Mendeleev – and by May 2021, the vessel had completed sea trials.

‘It would have been a potential avenue to broaden the LNG supply infrastructure in Europe, but that’s obviously all on hold,’ says Gent.