Maritime Sector Calls for EU ETS Revenue Hypothecation Amid Market Crash

While the EU carbon market hemorrhages value—crashing over 20% this week following Italy’s suspension demand—the maritime sector is offering a counter-narrative that could salvage the system’s political legitimacy. Rather than joining the chorus of heavy industrial emitters demanding a regulatory freeze, Transport & Environment (T&E) and maritime stakeholders are calling for a radical pivot in how Member States utilize their carbon cash.

The core argument is economic pragmatism: the EU ETS is currently functioning as a tax extraction mechanism rather than a decarbonization engine for shipping. With emissions from the sector actually rising 13% in 2024 despite the new carbon cost, the data suggests that without hypothecating (earmarking) revenues for technology adoption, the ETS will fail to alter the sector's trajectory.

For carbon traders and compliance officers, this proposal represents the likely "compromise architecture" that the European Commission will adopt to quell the current revolt: transforming the ETS from a punitive instrument into the "Investment Tool" promised earlier this week.

The Red Sea Reality Check

The first full year of maritime ETS integration (2024) provided a brutal lesson in the limitations of price signals during geopolitical crises. While compliance was high—99% of required allowances were surrendered—aggregate emissions surged.

• 13% Increase: Total maritime emissions under the Monitoring, Reporting and Verification (MRV) system hit 148.7 million tonnes in 2024.
• The Driver: The Red Sea crisis forced vessels around the Cape of Good Hope, increasing container ship sailing distances by 18%.
• The Cost: As compliance obligations ramp up to 70% in 2026, owners face costs approaching €319 per tonne of VLSFO burned on intra-EU voyages.

The "So What?": The 2024 data proves that operational constraints (security, route length) currently trump carbon pricing. A carbon price of €60–€85 is insufficient to force fuel switching when the alternative fuels simply do not exist at scale. The market is efficiently pricing carbon, but the physical economy cannot yet respond with abatement.

The €10 Billion Revenue Battle

As the phased implementation moves toward 100% coverage in 2027, the maritime ETS is projected to generate approximately €10 billion annually. Currently, the vast majority of this revenue flows into the general budgets of Member States, where it disappears into fiscal black holes rather than maritime decarbonization.

T&E’s June 2025 consultation outlines a specific allocation framework to correct this capital misallocation:

1. The "E-Fuel" Kickstart (25%): Approximately €2.5 billion annually should be ringfenced at the EU level specifically to subsidize green marine e-fuel production. This is designed to bridge the massive OPEX gap between fossil bunkers and green ammonia/methanol.
2. National Infrastructure (75%): The remaining €7.5 billion should be distributed to Member States, but with strict conditionality. Funds must be deployed for port-side electrification (cold ironing), R&D for propulsion, and workforce retraining.

This proposal directly challenges Finance Ministries across the bloc. In the current fiscal environment, governments like France and Germany are desperate for unrestricted revenue. However, the "Italy Crisis" demonstrates that industry will no longer tolerate high carbon costs without visible return on investment.

The 96% Supply Gap

The urgent need for revenue recycling is driven by a catastrophic supply-side bottleneck. Despite the FuelEU Maritime regulation mandating lower greenhouse gas intensity, the physical molecules required to comply are missing.

• Supply Shortfall: Current committed projects for maritime e-fuels cover only 3.76% of the EU shipping sector’s projected energy demand by 2030.
• The Funding Gap: Confirmed projects have secured funding for only 0.24% of demand.
• Price Spread: Green ammonia currently trades at roughly 5x the price of conventional marine gas oil.

Without the injection of ETS revenues into Contracts for Difference (CfDs) or similar subsidy mechanisms, the ETS price would need to exceed €300/tonne to make green ammonia commercially viable—a price level that would trigger political intervention long before it was reached.

Expanding the Scope: The Small Vessel Opportunity

Beyond revenue allocation, the proposal calls for expanding the ETS to vessels between 400 and 5,000 gross tonnage (GT). Currently excluded, this fleet segment emits 17.8 million tonnes of CO₂ annually.

Bringing these vessels into the fold would generate an additional €1.5 billion in 2026, rising to €2.4 billion by 2030. For the carbon market, this represents a source of fresh structural demand. Unlike deep-sea shipping, which relies on unproven global supply chains for ammonia, smaller vessels are prime candidates for existing battery-electric and hydrogen technology. This segment offers the "low-hanging fruit" for decarbonization that the current ETS scope misses.

Market Outlook: The "Investment Tool" Pivot

The timing of this push is critical. As reported earlier regarding the Commission's restructuring plans, Brussels is scrambling to rebrand the ETS to prevent a collapse of the directive.

The maritime proposal offers a blueprint for the broader market. If the Commission can successfully ringfence maritime revenues for maritime tech, it creates a precedent for the steel and chemicals sectors to demand the same. We are moving away from a "General Revenue" model of carbon pricing toward a "Closed Loop" model, where sector-specific levies fund sector-specific transition.

For compliance buyers, this is bullish in the medium term. It suggests the political fix to high prices isn't to flood the market with allowances (lowering the price), but to subsidize the abatement technology (lowering the cost of compliance).

What to Watch

• The "Investment Tool" Legislation: Watch for amendments to the ETS Directive in Q2 2026 that legally bind Member States to specific revenue recycling percentages. If maritime gets a "hypothecation clause," buy EUAs.
• FuelEU Maritime Penalties: The first compliance period for FuelEU Maritime is looming. If e-fuel supplies remain at <4% of demand, expect a wave of penalty payments that may dwarf ETS costs for some operators.
• IMO vs. EU Alignment: The IMO is finalizing its own Net-Zero Framework for approval in October 2025. If the global levy is set too low (below $100/t), the EU ETS will remain the dominant driver for European shipping, reinforcing the need for regional revenue recycling.
• MSC & Maersk Earnings Calls: Look for commentary from major carriers on "pass-through" rates. If carriers successfully pass 100% of ETS costs to cargo owners, their pressure for revenue recycling may soften. If they absorb the costs, their lobbying for the €10bn pot will intensify.