EU level: a busy legislative summer
FuelEU Maritime: first lessons from year one
FuelEU Maritime, the EU regulation setting progressively tighter greenhouse gas (GHG) intensity targets for ships calling at EU ports, entered into force on 1 January 2025. The first compliance data is now available. Over 90% of vessels relied on the pooling mechanism, a flexibility tool that allows multiple vessels to combine their environmental compliance scores so that cleaner ships with surplus credits cover the emission deficits of heavier-polluting ships. LNG (liquefied natural gas) and biofuel blends account for most of the reductions achieved. The early lesson is clear in the sense that the regulation creates compliance incentives, but it does not yet generate sufficient demand for genuinely zero-emission fuels. The pooling mechanism, while useful in the short term, could become a structural workaround if not complemented by stronger fuel mandates in subsequent review cycles. Port operators and shipowners alike have also flagged that current incentives are insufficient to drive investment in next-generation fuel infrastructure at the pace required.
The ETS revision: a significant proposal, with significant gaps
On 17 July, the European Commission tabled a targeted revision of its carbon pricing tool, the EU Emissions Trading System (ETS), which has applied to shipping since 2024. The proposal contains several notable advances.
First, it extends the scope of the Monitoring, Reporting and Verification (MRV) framework, the system requiring ships to track and report their emissions, to additional vessel categories from 2029, including oil tankers, chemical tankers, gas carriers, LNG carriers, Ro-Pax vessels (hybrid ships designed to carry both wheeled cargo and passengers) and passenger ships between 400 and 5,000 gross tonnage. This matters because these categories currently fall outside the EU's emissions monitoring framework, creating blind spots in the overall picture of maritime emissions.
Second, the proposal creates a new allowance reserve named the Sustainable Maritime Alternative Propulsion (SMAP) mechanism, of 110 million allowances (estimated at approximately €15 billion between 2028 and 2040) to support clean fuels and zero-emission propulsion.
Third, it tightens the rules on neighbouring container transhipment ports, designed to close the loophole that allows carriers to reduce their ETS liability by routing cargo through nearby non-EU hubs.
That last point deserves emphasis. The current system designates only Tanger Med and East Port Said as protected transhipment ports, meaning calls at these terminals are not counted as the start or end of an ETS-covered voyage, preventing the most blatant forms of evasion. The revision would allow the Commission to expand this list annually and lower the threshold triggering inclusion. ESPO, the European Sea Ports Organisation, has called for exactly this, but the risk of evasion through port substitution remains structurally unresolved as long as global regulation lags behind EU rules.
The more fundamental question remains: where do ETS revenues go?
The Commission proposes maintaining a 50% earmarking for climate purposes, with maritime revenues flowing into the Innovation Fund, the Modernisation Fund, and the new Industrial Decarbonisation Bank. This falls short of what the scale of the challenge requires. Revenues generated by the maritime ETS, estimated at up to €9 billion per year at a carbon price of €100 per tonne, should be systematically directed toward maritime decarbonisation: port infrastructure, clean fuel development, and support for workers and communities affected by the transition. The case for stronger earmarking is not merely distributional; it is functional. Without dedicated investment flows, the supply-side infrastructure for alternative fuels will not materialise at the pace the regulatory framework implicitly assumes.
This question also sits within a broader fiscal context. Several major fossil fuel producers recorded substantial profits in 2025-2026, sustained in part by the continued dependence of sectors like shipping on fossil fuels. The revenues generated by carbon pricing (including the maritime ETS) offer one mechanism to redirect a share of those rents toward the transition. The ETS revision is the appropriate legislative vehicle to strengthen that logic, and the upcoming trilogue negotiations between Parliament and Council will determine whether the political will exists to do so.
Beyond EU regulation: climate change is reshaping shipping itself
Yet regulation is only one side of the equation. Climate change is already reshaping the physical and geopolitical environment in which shipping operates, with consequences that were foreseeable and that policy has been slow to address. The Arctic is the clearest illustration.
Indeed, one development that has received less policy attention than it warrants is that China launched weekly regular container services along the Northern Sea Route (NSR) this summer, the Arctic corridor running along Russia's northern coast, cutting transit distances between Asia and Europe by up to 40% compared to the Suez route. South Korea dispatched its first trial container vessel through the same route in late August. Cargo volumes on the NSR are on track for a record in 2026, up approximately 15% year-on-year in the first half.
Two dimensions of this development are directly relevant to decarbonisation policy. First, the route transits Russian Arctic waters, creating strategic dependencies that sit in tension with EU sanctions policy and the broader objective of reducing exposure to geopolitically unstable energy corridors.
Second, increased Arctic shipping is associated with significant black carbon emissions, a short-lived but potent climate forcer deposited on sea ice in a region already experiencing accelerated warming.
The expansion of Arctic shipping is, in part, a product of climate change, and risks, in turn, accelerating it. As fossil fuel-powered vessel traffic increases in the region, so does the deposition of black carbon on ice and snow, amplifying local warming in one of the world's most climate-sensitive areas. The result is therefore a self-reinforcing dynamic with a route opened by melting ice, travelled by ships that hasten that same melting. This feedback loop is further compounded by the geopolitical instability that climate disruption itself generates, of which the Arctic is already one of the most acute theatres. This intersection of environmental, maritime, economic and geopolitical pressures warrants sustained attention from European policymakers. The update of the EU's Arctic policy, expected before the end of 2026, represents an opportunity for the Union to demonstrate that it is equipped and willing to play a more strategic and proactive role in the region.
IMO: cautious momentum toward winter
SWG-GHG 22: steady progress, high uncertainty
The IMO's 22nd Intersessional Working Group on GHG Emissions (a technical body tasked with preparing the ground for formal decisions by the full IMO Assembly) met in London from 1 to 4 September. This was the last technical session before MEPC 85, the Marine Environment Protection Committee meeting at which the Net-Zero Framework (NZF), the IMO's proposed global instrument for shipping decarbonisation, is scheduled for formal adoption.
Two-thirds of the member states who took the floor backed a centralised revenue collection system with GHG pricing: the core architecture of the NZF approved in principle at MEPC 83 in April 2025. The bloc opposing a pricing mechanism remained small and, notably, consistently composed of fossil fuel-aligned governments. The chair concluded by noting "genuine willingness" to present a consolidated text to MEPC 85 in November. The UCL Shipping and Oceans Research Group characterises the overall picture as "steady progress" but "high uncertainty". That assessment remains accurate.
What comes next: the December decision
MEPC 85 and the resumed extraordinary session (30 November – 4 December)
This is the decisive moment. If the NZF is formally adopted, it would constitute the first legally binding emissions reduction and carbon pricing mechanism for an entire global industry. The framework would set fuel intensity targets for large ocean-going vessels, establish a two-tier compliance system, and create a global fund to support early adopters of clean fuels and a just transition for affected developing nations.
If the vote for adoption cannot take place, as it did in October 2025, under sustained pressure from the US administration and a coalition of fossil-fuel-aligned states, the consequences extend beyond the shipping sector. It would demonstrate that multilateral climate governance remains susceptible to obstruction by a small number of states with concentrated interests in the fossil fuel economy. In that scenario, the EU would face a structural dilemma between maintaining its unilateral framework - notably ETS, FuelEU, AFIR - at the cost of competitive disadvantage for European ports and operators; and moderating its ambition in the name of a global harmonisation that may not materialise.
Neither option is satisfactory, which is precisely why a "plan B" deserves serious consideration now, in parallel with the push for IMO adoption. That plan B could be advancing decarbonisation through coalitions of willing actors such as states, port authorities and shipowners that share common priorities and are prepared to act at comparable levels of regulatory ambition, even in the absence of a global framework.
One partnership that merits more serious consideration in this context is the EU-China relationship on maritime decarbonisation. China is the EU's largest maritime trade partner. For instance, in Q3 2025, the main maritime trade flow into EU ports was inward movements of large containers from China, at 18.5 million tonnes, making it structurally impossible to decouple European shipping decarbonisation from Chinese engagement. China's progress in green shipping reflects specific structural advantages, including the scale of its industrial base, concentrated maritime supply chains and strong state involvement. Yet these same factors make Chinese engagement particularly relevant in areas where scale and industrial capacity matter. Green corridors between EU and Chinese ports already exist as a promising framework, and China has been advancing its own domestic agenda on shipping emissions. We explored these dynamics in a dedicated discussion with shipping stakeholders in July, at which the potential for EU-China convergence on green corridors and fuel standards was identified as one of the more concrete near-term opportunities, particularly given the scale of bilateral maritime flows. If the NZF fails in December, that conversation could become not just useful but strategically necessary.
The ETS revision enters trilogue.
Parliament and Council negotiations will intensify in autumn. The key issues: the scope of carbon pricing, the ambition of the SMAP mechanism, and the allocation of revenues will be settled in these negotiations. The ETS revision is also the right moment to introduce firmer language against double payments, should a global IMO measure eventually be adopted: ensuring that European operators are not penalised twice for the same emissions as both frameworks come into effect.
The ETS revision now enters the co-legislative process. In Parliament, the file has been referred to the Committee on Transport and Tourism (TRAN), with Peter Liese (EPP, Germany) appointed as rapporteur. While the S&D group has warned against any weakening of the system, far-right groups have gone as far as tabling a draft law to repeal the ETS Directive entirely. A majority in favour of maintaining ambition exists, but it is not unconditional.
At Council level, the negotiations will reveal the limits of Member States' collective commitment. The Council's June 2026 Conclusions on the EU Port Strategy acknowledge competitive concerns linked to the ETS, including traffic diversion and carbon leakage, yet stop short of calling for a rollback. That tension reflects a real asymmetry within the Council. Indeed, northern Member States, with large and well-resourced ports, are better positioned to absorb the transition, whereas southern Member States face a harder trade-off between compliance costs and market share vis-à-vis non-EU competitors.
The December IMO vote and the ETS trilogue are not parallel processes but mutually conditioning ones. A credible ETS revision strengthens the EU's hand at the IMO; a successful IMO outcome, in turn, reduces the competitive risk that makes some Member States cautious. Getting both right, within the same window, is the central challenge of the months ahead.
