EU’s Proposed Shipping Subsidies Could Make BioLNG Cheaper Than Fuel Oil

The European Union's plan to offer shipping subsidies may make bioLNG less expensive than fuel oil in the near future. The European Commission recently proposed a revision of the EU's Emissions Trading System called the Sustainable Maritime Alternative Propulsion (SMAP) mechanism, which aims to bridge the cost gap between fossil marine fuels and sustainable alternatives.

According to Rystad Energy's analysis, this proposal, combined with the EU ETS and FuelEU Maritime regulation, could significantly alter the cost ranking of marine fuels in Europe. BioLNG and renewable e-fuels are projected to gain the most from this support, while biodiesel made from used cooking oil (UCO) and animal fats is excluded.

The timing of the proposal is crucial, as from 2026, shipping companies will surrender emissions allowances for all verified emissions in scope, including methane and nitrous oxide. Both the ETS and FuelEU Maritime are based on the EU's revised Renewable Energy Directive (RED III) sustainability rules. SMAP would cover 55% of the remaining price gap to fossil fuels for biogas and advanced biofuels, and 90% for RFNBOs such as e-ammonia and e-methanol, with additional support for feedstocks produced in the EU.

These support measures push several alternative fuels below the cost of VLSFO (very low sulfur fuel oil) on intra-EU voyages. The business case for LNG dual-fuel ships trading in Europe is strengthened, as bioLNG can already undercut VLSFO without SMAP. However, liquid biofuels made from waste oils and fats are likely to be left out of the support.

The proposal still requires negotiation with the European Parliament and European Council, but if finalized, shipowners with LNG dual-fuel tonnage and early movers in e-fuels are expected to benefit the most, while those relying on waste-oil biodiesel may face a widening cost gap.