Beyond Carbon Pricing: Policy-Driven Willingness to Pay for e-Fuels in EU Shipping

Abstract

The decarbonization of maritime transport requires alternative fuels that are not only technically viable but also economically competitive. We quantify economic competitiveness through the willingness-to-pay (WTP), defined as the maximum e-fuel price at which ship operators remain cost-neutral relative to fossil alternatives. Using this framework, we assess how two EU regulations — the EU Emissions Trading System (EU ETS) and FuelEU Maritime— shape the economic case for e-fuel adoption.Our results show that FuelEU Maritime is the dominant regulatory driver, accounting for 70–80% of total WTP, while the EU ETS contribution is comparatively modest. Beyond this, the non-linear structure of the FuelEU Maritime non-compliance penalty causes WTP to vary with the vessel’s compliance level—defined as the share of low-emission fuel required to meet the GHG emission intensity target in a given year. Consequently, the marginal value of e-fuel is not constant: early units yield smaller penalty reductions than later ones. For instance, in 2050, a compliance level of 50% reduces the non-compliance penalty by only 16%. This structure inherently favors full compliance in individual vessels over partial compliance across fleets, even when aggregate emission reductions are equivalent.When benchmarking the obtained WTP against current production costs, our results suggest that existing regulation largely bridges the cost gap for most e-fuels, with ammonia emerging as the most cost-competitive option. Although biofuels and fossil fuels with carbon capture may offer lower production costs at comparable WTP levels, but their large-scale deployment faces binding supply-side constraints. E-fuels are therefore expected to play a complementary yet critical role in achieving long-term decarbonization targets as lower-cost alternatives become increasingly scarce.

The decarbonization of maritime transport requires alternative fuels that are not only technically viable but also economically competitive. We quantify economic competitiveness through the willingness-to-pay (WTP), defined as the maximum e-fuel price at which ship operators remain cost-neutral relative to fossil alternatives. Using this framework, we assess how two EU regulations — the EU Emissions Trading System (EU ETS) and FuelEU Maritime— shape the economic case for e-fuel adoption.Our results show that FuelEU Maritime is the dominant regulatory driver, accounting for 70–80% of total WTP, while the EU ETS contribution is comparatively modest. Beyond this, the non-linear structure of the FuelEU Maritime non-compliance penalty causes WTP to vary with the vessel’s compliance level—defined as the share of low-emission fuel required to meet the GHG emission intensity target in a given year. Consequently, the marginal value of e-fuel is not constant: early units yield smaller penalty reductions than later ones. For instance, in 2050, a compliance level of 50% reduces the non-compliance penalty by only 16%. This structure inherently favors full compliance in individual vessels over partial compliance across fleets, even when aggregate emission reductions are equivalent.When benchmarking the obtained WTP against current production costs, our results suggest that existing regulation largely bridges the cost gap for most e-fuels, with ammonia emerging as the most cost-competitive option. Although biofuels and fossil fuels with carbon capture may offer lower production costs at comparable WTP levels, but their large-scale deployment faces binding supply-side constraints. E-fuels are therefore expected to play a complementary yet critical role in achieving long-term decarbonization targets as lower-cost alternatives become increasingly scarce.