The SMAP mechanism, introduced under the ETS system, provides an opportunity for the maritime sector to transition to clean fuels and green propulsion technologies. This scheme aims to strengthen Europe's industrial leadership, with an estimated support of €15 billion between 2028 and 2040, which can encourage shipping companies to use greener electronic fuels. To achieve long-term decarbonization goals, these fuels need to increase by 4.6 million tons during this period.
Challenges Facing Electronic Fuel Production
The high price gap of electronic fuels compared to other alternative fuels under SMAP is considered a positive step, but it alone cannot lead to a real transformation in the direction of using these fuels. Due to the capital-intensive nature of the electronic fuel production process, these projects require long-term agreements with companies for financing.
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The Need for Reforms in the SMAP Mechanism
The current SMAP proposal does not seem to provide adequate support for this process. While some alternative fuels and zero-emission propulsion technologies play a significant role in reducing maritime pollutants, SMAP should primarily be used to reward the long-term use of electronic fuels, rather than short-term technological options that may already be incentivized under existing regulations.
In the ongoing negotiations regarding the ETS file, implementing the following changes in SMAP can ensure that this mechanism directs investments towards real and long-term options for electronic fuels:
- Retaining a significant portion of SMAP allowances for electronic fuels: This action ensures that the SMAP mechanism is utilized to assist long-term decarbonization options for electronic fuels, including domestic production in Europe.
- Including a pre-payment reserve mechanism for electronic fuels: In the absence of guaranteed price support, shipping companies are unlikely to sign long-term agreements with electronic fuel producers. The pre-payment reserve mechanism can improve the bankability of electronic fuel projects, which often remain at the pre-investment decision (pre-FID) stage.
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