Four ways the Clean Industrial Deal should boost EU shipping and aviation competitiveness
The much-anticipated Clean Industrial Deal is set to drop this week to harmonise European economic goals with climate endeavours. The SASHA Coalition suggests four policies to set the EU on track to decarbonise shipping and aviation all while building and cementing its competitive edge in these sectors and beyond.
Clean shipping and aviation present a huge opportunity for European competitiveness, and the Clean Industrial Deal (CID) is the chance to seize it. Green industrialisation is increasingly proving its economic worth, and decarbonising maritime and aviation in particularly is expected to create a wealth of jobs and secondary economic benefits. Moreover, no country has come out as a frontrunner in these sectors, leaving the competitive advantage still to play for.
Together shipping and aviation contribute 8% of European emissions. Yet rather than finding themselves on the trajectory to net zero, they’re left in a double-bind, squeezed between conventional fossil fuels and insubstantial alternatives touted as green solutions, namely biofuels and LNG.
Left in the lurch are green hydrogen solutions, such as e-fuels and hydrogen fuel cells. These have the lowest lifecycle emissions and least environmental impacts. Unfortunately, they are also – today at least – the least developed and most expensive.
The CID can turn this around, not just to consolidate the EU’s competitive edge in international shipping and aviation, but also to become a world leader in these burgeoning green technologies. These are the four policies needed to make this a reality.
1) Guarantee ReFuelEU Aviation and FuelEU Maritime targets
E-fuel producers are in need of investment. The fact that their market is relatively new compared to both fossil and biofuels means they automatically enjoy less of the stability prospective financiers look for and consequently face higher risk premiums and upfront costs. Strengthened regulatory stability is a key solution.
Current regulations already go some way to levelling out this risk, but not far enough. ReFuelEU Aviation and FuelEU Maritime’s alternative fuel targets include e-fuel sub-targets. This aids e-fuel producers’ business case that there will be enduring demand for their product.
Production isn’t yet at scale to reach the 1.2% by 2030 for aviation and 2% for maritime by 2034, but it could be with the right policy framework. Last year Transport & Environment research showed that only 11 out of 61 maritime e-fuel production projects in the EU had received final investment decision (FID), only six of which were solely dedicated to shipping. For aviation, none of the EU’s 56 e-kerosene projects had reached FID. The producers poised but policy must help them unlock stalled investment.
The EU can do this and capture a competitive edge in e-fuels by strengthening the demand signal that these regulations are today only sluggishly sending. This means using the Clean Industrial Deal to:
Guarantee targets won’t be rolled back or postponed;
Raise long term ambition, and;
Make maritime e-fuel targets legally binding, as aviation’s already are.
2) Expand the EU ETS in shipping and aviation
Just as an ambitious and stable regulatory landscape boosts e-fuels’ bankability, so does pricing carbon emissions. The EU emissions trading system (ETS) does just this by rewarding green industry and penalising pollution. Yet key oversights let emissions slip and limits its impact accelerating green solutions.
Up and running since 2005, the EU ETS was expanded to aviation in 2012 and shipping in 2024. It levels the playing field between e-fuels and fossil fuels by pricing in their respective environmental values, thereby undercutting fossil’s undeserved competitive advantage and narrowing the price gap. Furthermore, a portion of ETS revenues can be used to fund green technology research and development, or financial support mechanisms to get clean industries off the ground (more on this to come).
But the EU ETS has its blind spots. One is that while emissions from planes flying between EU member states are subject to the trading scheme, extra-EU flights, between EU countries and non-EU countries, are not.
The rationale is that international (rather than domestic) aviation emissions are covered by the UN agency the International Civil Aviation Organization (ICAO). The ICAO’s CORSIA mechanism should in theory price aviation emissions, yet is decisively ineffective.
Another key oversight is non-CO2 emissions. Research continues to show the seriousness of aviation’s other climate impacts beyond carbon, contributing as much as 35% of the sector’s warming effects. While non-CO2 emissions will be covered in the Maritime ETS from 2026, there are no plans for their inclusion in aviation.
The CID should put e-fuels on an equal footing with fossil by expanding ETS coverage to:
Extra-EU flights, and;
Non-CO2 emissions.
3) Create a zero emission flight (ZEF) market
While e-fuels will be indispensable for long-haul journeys, ZEF is key to decarbonising short-haul aviation, and an important industry in which to carve out a competitive advantage. Yet without targets, as e-fuels enjoy, there is no policy structure to incentivise the sector’s development.
While e-fuels are net zero, manufactured using sustainably sourced carbon that is then released into the air, ZEF systems powered by electricity, green hydrogen, or hydrogen fuel cells, release no carbon whatsoever.
Ambitious companies are taking serious strides to commercialise ZEF, SASHA Coalition members Cranfield Aerospace Solutions and ZeroAvia being just two examples of manufacturers, and Ecojet an offtaker, in the UK. The growth opportunity is clear, but the enabling regulatory environment is lacking.
The CID should set binding ZEF targets to become a global competitor in this burgeoning market. As a knock-on effect, marking another climate action-aligned green hydrogen end use provides further much-needed demand signals for producers.
4) Include ambitious financial support mechanisms in the Sustainable Transport Investment Plan
Pivoting from demand signals to the other end of the value chain, supply-side support is also needed. The EU Sustainable Transport Investment Plan (STIP), coming hot on the CID’s heals, is the moment to put this into practice.
More specifically, a contract for difference (CfD) scheme should be the financial support mechanism of choice. Tried and tested in electricity markets and on the road to implementation in the UK’s SAF revenue support mechanism, CfDs guarantee investors returns at a fixed price. This offsets the risk associated with new unpredictable markets helping projects get to FID. Since the UK’s mechanism, however, is not set to give e-fuels the targeted support needed, the EU has the chance to introduce this policy and capture the market.
Principally, the mechanism must be industry funded. The aviation industry should be accountable for its own emissions, not least because it is historically insufficiently taxed. Rather than taxpayers, new ETS aviation revenues should be channelled to provide this support for the transition.
Getting the Clean Industrial Deal to work for shipping and aviation
The opportunity for EU growth and competitiveness across clean aviation and shipping, ZEF and the numerous green technologies these sectors are itching to develop is evident. Moreover, the right industry actors are ready and waiting. The stepping stone they need is the right policy framework, and the Clean Industrial Deal can deliver it.
The EU must choose to make competitiveness and climate work hand in hand for shipping and aviation, so that what’s good for the economy is also what’s good for the planet.
Read our Clean Industrial Deal position paper for more detail.
