How the EU maritime sector can decarbonize through biofuels, onshore power, and efficiency

Europe’s geography has played a central role in shaping its economic strength. With more than 67,000 kilometers of coastline and a dense network of navigable rivers and canals connecting major industrial hubs, the continent is fundamentally a maritime economy. Very few regions lie more than a few hundred kilometers from a port, giving Europe a built-in logistical advantage: short transport distances, high connectivity, and the ability to move goods efficiently and at scale. This proximity to waterways makes maritime transport not just a facilitator of trade but a core pillar of Europe’s economic competitiveness.

From a climate perspective, maritime transport is currently the lowest-emission freight mode per metric ton-kilometer, substantially outperforming both road and air transport (see figure 1). This structural advantage means that shifting freight to waterways, where feasible, represents an effective decarbonization lever for the broader economy. Against this backdrop, EU climate policy increasingly views shipping not just as a sector that must lower its own emissions, but as a strategic tool for reducing the carbon footprint of Europe’s entire transport system.

Despite its efficiency, the maritime sector’s absolute emissions remain significant. In 2023 it accounted for 14.2% of EU transport CO2 emissions, even though it represented 67.4% of the EU’s freight by ton-kilometer.[1] As a result, maritime transport remains the EU’s third-largest source of transport emissions, behind passenger cars and heavy road vehicles. Reducing emissions from such a foundational sector is essential if Europe is to meet its 2030, 2040, and 2050 climate targets.

This analysis therefore focuses on the decarbonization of short sea shipping (defined as maritime transport operating between EU ports).

Overview of the EU fleet

Within freight transport, vessel types vary widely depending on the type of cargo and the distance traveled. For bulk commodities – such as grain, iron ore, or fertilizers – bulk carriers are the preferred option, designed to transport unpackaged goods in large holds. For manufactured goods, the industry relies on dry cargo vessels, which make up 92% of the vessels arriving in EU ports (see figure 2). This category includes container ships, which can accommodate thousands of standardized containers. Certain types of dry cargo use specialized vessels – such as roll-on/roll-off (RoRo) vessels for transporting vehicles. For oil, petroleum products, and other liquid cargoes, the sector uses tankers, specialized vessels engineered to safely transport liquids across long distances. Finally for passenger transport, the sector operates cruise ships, which represent about 1% of the vessels arriving in EU ports.

[1] According to the UNFCCC GHG inventory data.

FuelEU Maritime

FuelEU Maritime, one of the core pillars of the EU’s Fit for 55 package, is set to materially reshape the economics and operational strategies of the EU shipping sector. The regulation, in place since January 1, 2025, targets a structural reduction in the GHG intensity of maritime energy use and applies to all ships above 5,000 gross tonnage calling at EU ports, regardless of flag.

The regulation sets a series of progressively stricter GHG-intensity reduction targets, measured relative to a 2020 baseline of 91.16 grams of carbon dioxide equivalent per megajoule (gCO2e/MJ). Shipping companies must achieve a 2% reduction by 2025, 6% by 2030, and much steeper cuts thereafter – reaching 80% by 2050 (see figure 3). These limits take a well-to-wake perspective, capturing lifecycle emissions of CO2, methane, and nitrous oxide from fuel production through final combustion.

Geographically, the scope covers 100% of energy use on intra-EU voyages and 50% of energy use on voyages entering or departing the EU. It also applies to voyages involving EU’s outermost regions. As a result, even international operators calling at a single EU port fall under the regulation.

Beyond emissions intensity limits, FuelEU Maritime introduces several additional operational requirements. To curb local air pollution, passenger and container vessels will be required to connect to OPS during berths exceeding two hours. This obligation starts in 2030 for ports listed under the Alternative Fuels Infrastructure Regulation and expands to all OPS-equipped EU ports by 2035. The ambition is not only climate-related but also aimed at improving air quality in densely populated port areas, where heavy marine fuels emit pollutants such as sulfur oxides and nitrous oxides.

Another structural change is the introduction of a sub-target for renewable fuels of non-biological origin (RFNBO), which may require vessels to use a minimum 1% share of RFNBOs starting in 2034, depending on market readiness. This mechanism is explicitly tied to RFNBO uptake in 2031, ensuring that the requirement does not enter into force prematurely in an underdeveloped RFNBO market.

Compliance costs and penalties:

FuelEU Maritime includes a robust penalty framework that functions as a carbon-intensity price signal. Vessels surpassing their permitted GHG-intensity threshold, face monetary penalties of up to EUR 2,400 per metric ton of very low sulfur fuel oil (VLSFO)-equivalent emissions above the target. This creates a strong incentive for operators to internalize the cost of cleaner fuels or accelerate fleet-wide efficiency gains.

For OPS non-compliance – i.e., failing to plug into shore power when required – ships face penalties calculated using the following formula: EUR 1.5 × total electrical demand (kWh) × hours of non-compliance. This makes avoiding shore power increasingly unattractive, especially for large cruise ships with high hotel loads.[2] BloombergNEF estimates that, without significant adoption of low-carbon fuels, the maritime sector could face EUR 81bn in cumulative penalties by 2050.

The RFNBO sub-target includes a compliance enforcement mechanism under which vessels must pay the equivalent cost of the RFNBO fuel they failed to use. For example, if the target is a 1% RFNBO share and a vessel achieves only 0.5%, the remaining 0.5% is subject to a penalty equal to the cost of purchasing that fuel. However, enforcement is subject to the market readiness of RFNBOs.

Flexibility mechanisms

Recognizing the scale of investment required for alternative fuels and related technologies, FuelEU Maritime provides flexibility tools to help smooth compliance costs:

These mechanisms mirror the economic logic of emissions trading, giving operators additional time and financial buffers as they transition their fleets.

EU emission trading system (EU ETS)

Since January 2024, the EU ETS places a direct carbon price on maritime emissions, meaning shipowners must purchase allowances for the CO2 emitted by the fuel they consume, which raises operating costs and strongly incentivizes fuel switching and efficiency improvements. Because emissions are calculated using fuel-specific CO2 factors, the type of fuel used plays a major role in determining compliance costs: Heavy fuel oil emits about 3.114 metric tons of CO2 per metric ton of fuel, while marine diesel oil (MDO) or marine gas oil (MGO) emits slightly more at 3.206 metric tons of CO2 per metric ton, and light fuel oil (LFO) produces around 3.151 metric tons of CO2 per metric ton. Liquefied natural gas (LNG) offers lower direct CO2 emissions at 2.750 metric tons of CO2 per ton of fuel, although methane slip can reduce its overall climate advantage under lifecycle rules. With a price of EUR 70 per metric ton of CO2, the cost of fuels could rise considerably, and the EU ETS will drive ship operators toward lower carbon fuels, as any reduction in fuel consumption or shift to cleaner fuels directly lowers ETS compliance costs.

The international scene

The revized 2023 GHG strategy of the International Maritime Organisation (IMO) sets a global decarbonization pathway that begins with comparatively modest reductions but becomes significantly more stringent over time. The strategy includes “indicative checkpoints” of 20% to 30% absolute GHG reduction by 2030, and 70% to 80% by 2040, both relative to 2008 levels, before reaching net-zero emissions by around 2050. While this trajectory initially lags the ambition of EU policies such as FuelEU Maritime, it overtakes earlier IMO ambitions and will require a substantial shift to zero- and near-zero emission fuels by mid-century. Initially, the GHG strategy was scheduled to be voted on in October 2025, however, it was postponed by one year. The decision to postpone was supported by the US, China, and Saudi Arabia.[3] With the US and China, the world’s two largest economies, opposed to the measure, it is uncertain if it will ultimately be adopted.

[2] The non-propulsion electrical demand for systems like lighting and accommodation services.

[3] According to WaterstofNet news.

The decarbonization pathway for EU short sea shipping rests on three strategic pillars: fuel choices, the rollout of onshore power supply, and targeted ship‑efficiency measures.

Choosing cleaner fuels

Selecting cleaner fuels has the greatest impact on reducing emissions. When FuelEU Maritime’s required GHG intensity reductions (see figure 3) are compared with the emission intensities of available marine fuels (see figure 4), it becomes clear that the regulatory pathway effectively narrows the industry’s long-term fuel choices.

Because HSFO and VLSFO already exceed the 2030 emission-intensity threshold, traditional fuel oils will be structurally non-compliant. Vessels running on these fuels would therefore be required to pay penalties. Fossil LNG – even when methane slip is taken into account – meets the 2030 thresholds but fall short of the 2040 target. This shifts the long-term viable options toward bio-LNG, especially when paired with high-pressure dual-fuel engines (DF-HP2S) that minimize methane leakage. This combination would remain compliant even under the 2050 target.

Because LNG systems allow flexible blending of fossil LNG and bio-LNG, LNG-capable vessels provide a pragmatic transition pathway: Operators can comply in the 2030s using fossil LNG and progressively increase bio-LNG blending share to meet the 2050 target. LNG as a fossil fuel source is already a popular option; 20% of the current order book of newbuild vessels will use LNG as a fuel as of 2025. However straightforward it might look, bio-LNG has a big challenge in the long run (see text box).

At the same time, emissions of RFNBOs – such as e-methanol and e-ammonia – are already well below the 2050 target. These fuels may become more attractive as supply chains scale, although their large-cale market availability remains uncertain.

Using onshore power supply

OPS allows ships to switch off their auxiliary engines while berthed and instead draw electricity directly from the port’s grid. The system connects the vessel’s onboard distribution network to a high-voltage shore connection that supplies power for essential hotel loads, including cargo pumps, cooling and heating for containers, lighting, and accommodation services for crew and passengers. OPS is an immediate way to reduce both greenhouse gas emissions and local pollutants in port areas because it replaces onboard combustion electricity with the grid. Since OPS-generated emissions depend on the grid’s energy mix – and nearly 50% of the EU’s electricity already came from renewables in 2024 – OPS is a lower-emission source and could become zero-emission as countries expand the deployment of renewables.

Auxiliary engines on large vessels typically run on MGO or very low sulfur fuel oil and can represent a significant share of total vessel emissions. For a crude oil shuttle tanker of a gross tonnage of 80,000, a full idle day can consume 7,721 liters of diesel; this is equivalent to 37.5 MWh according to a study by Sustainable Ships. By connecting to OPS, a ship effectively reduces its fuel consumption during berthing to zero, replacing all auxiliary power generation with electricity from the grid.

With the penalties from FuelEU maritime and expected EU ETS fuel price increases, shore power can become cost-competitive even at electricity prices up to EUR 0.35/kWh and remains cheaper than MDO or MGO even if electricity costs were to rise to EUR 1/kWh by 2040. For shipowners, the savings can be material: A 2,500 twenty‑foot equivalent unit (TEU) feeder vessel operating in Northern Europe could save up to USD 16.7m cumulatively between 2025 and 2040 by using OPS rather than running auxiliary engines.[4]

[4] According to a study by Sustainable Ships.

The expected rollout of OPS across major ports by 2030, and the requirement for all EU ports to be OPS-equipped by 2035, implies a substantial increase in electricity demand concentrated in port regions. OPS supplies power for hotel loads, reefer cargo, pumps, and other essential systems, all of which must be delivered through the local grid. Because these loads can reach multiple megawatts per vessel – and because large ports may host several OPS-connected ships at the same time – the cumulative grid requirement will scale rapidly as compliance deadlines approach.

Improving ship efficiency

Operational and energy efficiency improvements complement both fuel switching and the adoption of OPS. These measures reduce fuel consumption per metric ton-kilometer and can be implemented across several technical and operational domains:

1) Onboard energy consumption involves efficiency gains achieved through upgrades to lighting, auxiliary systems, and cargo handling equipment. Such interventions typically deliver 0.5% to 1.5% efficiency improvements, depending on vessel type and operating profile.

2) Energy-harvesting technologies include renewable onboard systems that help offset auxiliary loads and include options such as:

3) Propulsion and hull systems focus on hydrodynamic optimization measures such as:

4) Machinery and engine systems include technologies such as waste heat recovery systems, which can generate 5% to 12% energy savings by capturing and reusing exhaust heat. Additional measures include variable-speed engine systems, improved engine tuning, and advanced condition-based maintenance.

5) Operational practices encompass route and speed decisions that play a major role in fuel consumption. Speed optimization and weather routing can materially reduce energy use, although results vary with forecast accuracy, voyage length, and seasonal conditions.

These strategies support daily emissions reductions at reduced capital cost relative to changing the fuel source. Since 2020, efficiency-focused initiatives have accounted for 21% of all maritime decarbonization actions, with a notable acceleration in 2023-2024 as operators prepared for stricter regulatory thresholds.[5]

Collectively, these measures help operators lower fuel demand in the short term, while also extending the operational life of existing vessels. While efficiency alone cannot replace the need for renewable and low-carbon fuels, it reduces the scale, cost, and timing pressure associated with fuel switching.

[5] BloombergNEF.

FuelEU Maritime establishes a clear long-term regulatory trajectory by driving an 80% reduction in well-to-wake GHG intensity by 2050 and mandating OPS for key vessel types from 2030 onward. This framework requires shipowners to adopt a phased, portfolio-based approach: Selecting compliant future fuels for the long term, while relying on OPS and targeted energy-efficiency upgrades to meet short-term obligations.

In the short term, measures such as WAPS, hull optimization, and weather-voyage planning can materially reduce fuel consumption, lowering exposure to FuelEU penalties and reducing the volume of low-carbon fuels – bio-LNG or otherwise – required for compliance. OPS complements these efforts by eliminating auxiliary engine emissions during port stays, delivering immediate and verifiable reductions.

In the medium term, LNG remains one of the most practical compliance options for companies. Its compatibility with bio-LNG blending and the availability of high-pressure dual-fuel engines provide operators with an incremental pathway to lower emissions. Retrofitting vessels to dual-fuel configurations can further hedge against single-fuel risks while ensuring regulatory alignment.