Climate Change

14 Jan 2022

CO2 Plans could Drive up EU Fuel Oil Exports

14 Jan 2022  by   

EU proposals to add CO2 emissions costs and taxes to conventional marine fuel prices starting in 2023 could reduce Europe's residual fuel oil demand for bunkering and drive up exports.

The EU proposal would fold marine fuel emissions into its Emissions Trading Scheme (ETS) by auctioning 20pc of CO2 emissions in 2023, increasing each year through 2026 to 100pc of CO2 emissions. The proposal applies to 100pc of the fuel burned on voyages between EU ports and to 50pc of the fuel oil burned on of voyages between EU and non-EU ports.

Another EU proposal calls for a minimum tax on residual fuel oil for bunkering starting at €0.9/gigajoule in 2023. The proposals are to be agreed upon this year.

The tax would add about $42/metric tonne (t) to the price of fuel oil for bunkering, considering the current euro-dollar exchange rate. A 20pc charge on CO2 emissions would add about $60/t to the cost of fuel oil, at current ETS CO2 emissions prices. Fuel oil for bunkering averaged $577/t on 1-13 January in the European bunkering hub of Amsterdam-Rotterdam-Antwerp (ARA), Argus data showed. At that level, the aggregate tax and CO2 charge would raise fuel oil for bunkering by $102/t, or 18pc in ARA.

Some ship owners might modify their routes to spend less time in EU waters. Vessels entering and exiting EU waters will not be able to avoid the CO2 charge. But they could avoid the fuel oil tax by fueling in ports outside the EU. The proposals would likely reduce demand for fuel oil for bunkering in the EU in 2023, driving up fuel oil inventories, prompting more European fuel oil exports and keeping the arbitrage from northwest Europe to Asia favorable.

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