Unbundling ‘Fit for 55’ and its impact on the Superyacht industry

One cannot deny that climate change is having significant and far reaching effects on our lives. In Europe, particularly the Mediterranean area, we are experiencing record breaking temperatures, with bushfires, changing tides, storms and other natural phenomena occurring more frequently than ever before. These phenomena are without a doubt the effects of global warming and they constitute a huge threat, not only to our livelihood but also to the generations to come.

Discussions have long been held on the European Union’s aim to reach carbon neutrality by 2050. This objective is at the centre of the European Green Deal and is also in line with the European’s Union commitment to global climate change action under the Paris Agreement. All facets of society and all economic sectors will have a role to play to contribute towards this objective and the maritime sector is no different. Last year, the European Commission launched ‘Fit for 55’, which is a package of proposals intended to reduce the EU’s total GHG emissions by 55% by 2030, a move designed to pave the way for full EU decarbonization by 2050. Essentially, this means that the sector will face new tough EU regulations.

This paper aims at providing a level of awareness as to what is being proposed by the European Commission. The superyacht industry cannot afford to overlook this drive towards sustainability. We are at a stage were mindsets need to be changed and the skills of our workforce need to be upgraded, as businesses and employees alike will need to adapt to the proposed changes . The European Union is not leaving any room for interpretation on these proposals and will not permit the industry to dodge the bullet. The superyacht industry was not fully prepared when faced with new rules relating to ILO MLC 2006 and found themselves unable to implement the new standards. One does not want history to repeat itself and have the industry facing the same predicament with the package of proposals launched for ‘Fit for 55’.

In truth we have witnessed various papers and discussions about the movement to green solutions in the superyacht industry for the last 10 years. There have been improvements linked to the fuel consumption, efficiency and hybrid solutions but we daresay this is too little. As an industry, more will be expected of us and of our clients; the authorities, press and public at large will expect to see the industry at the forefront of the initiatives, as being early adopters and perhaps, even leaders. Perhaps at this juncture the industry needs to look at its image too, and doesn’t afford to be considered as a polluter? Certainly, we believe we will not be given any discounts when the authorities will drive the implementation of the new rules and regulations. ???

During the event organized last month by the Malta Maritime Forum, several speakers and panelists referenced the work the European Commission is doing and argued that it is moving at a much quicker pace than the maritime sector and the International Maritime Organisation. The EU has ambitious targets set with this new package of proposals, which they hope will pave the way for innovative ideas, regulations and higher quality standards. The idea is that the proposals also provide incentives for businesses to design new technologies with a view to ultimately become more sustainable and environmentally conscious.

An example of this is the new European Trading System (‘ETS’) Directive. A review of the current ETS legislation indicated that, if remained unchanged targets to meet EU climate objectives would not be met. Further to this, the IMO strategy targeted at reducing GHG emissions from ships to 50% GHG emissions by 2025 was not considered to be ambitious enough. The European Commission argued that these measure would prove to be unsatisfactory at decarbonizing the maritime sector in line with the EU’ commitment to global climate change.

As a result, through ‘Fit for 55’, the ETS directive will be applicable to the maritime sector as of 2023, where ships will be required to buy CO2 emission credits. Whilst all intra-EU emissions will be included, it is only 50% of the emissions for voyages when arriving in or departing from the EU, which shall be considered. There will also be a phase-in period where shipping companies will be liable to surrender allowances according to the following schedule:

·????????20% of verified emissions reported for 2023

·????????45% of verified emissions reported for 2024

·????????70% of verified emissions reported for 2025

·????????100% of verified emissions reported for 2026 and each year thereafter

Another proposal worth mentioning is the Energy Tax Directive. The existing energy taxation directive has been in force since 2003, rendering it outdated as it is not in line with the EU’s climate targets. Presently, maritime bunker fuel has enjoyed a tax-free status in the EU, however, come January 2023, all bunker fuel sold within the EU and used on voyages within the EU will be subject to tax. Further to this, the modified directive seeks to ensure that the taxation of energy products and electricity are aligned to the EU’s energy and climate objectives. This directive will also move to tax fuels which pollute the highest, whilst ensuring that sustainable and alternative fuels will enjoy a zero minimum tax rate over a 10 year transition period. On the bright side, In reviewing this proposal, it is immediately apparent that there is also room for opportunities. The European Commission recently adopted a package of incentives to support research and development initiatives geared towards new and cleaner practices and we understand EU yards are already working to tap into these funds.

The subject of fuel was also a topic of discussion at the event organized by the Malta Maritime Forum last July. Attendees and guest speakers debated that although the shipping world opted for LNG as a short term fix, it was not clear what fuel would be the preferred choice as a long term solution. Furthermore, when discussing the superyacht industry, it was argued that it might immediately move to new alternative fuels, in line with the fast pace which has been set by the automotive industry, particularly trucking.

It is good to mention that the topic of alternative fuels was also discussed at length during the first superyacht symposium held in Malta towards the beginning of summer. During this symposium, Cav. Massimo Perotti, CEO of Sanlorenzo, announced that San Lorenzo will build a 50m superyacht which will be equipped with hydrogen fuel cells which generate electricity from reformed methanol. The idea is for Cav. Perotti to test this technology prior to making it to available to clients. Attendees of this symposium commented that similar projects are being undertaken by German and Dutch yards. Could hydrogen be the fuel of the future for the superyacht industry?

There is certainly a lot which needs to be considered and a lot more which needs to be done to adopt these new and innovative technologies. What is definitely certain however is that our friends outside the EU are not sitting on the fence on such matters. During a superyacht conference organized in Dubai last November, where Vistra was in attendance, the authorities were already in discussions with operators and other stakeholders on the new and alternate fuels to be adopted by the industry and the upgrades which were required with respect to the infrastructure currently in place. This clearly showed that the authorities were ready to invest and poised to move quickly on the matter. The EU must do the same. Malta has opportunities here too. We must be ready to pivot when the time is right, to have a skilled workforce in place, who are knowledgeable about the new and upcoming technologies and ready to adapt to the proposed changes. Now is the time for businesses and industry stakeholders to be agile - the future is unpredictable and with technological advancements coupled with new legislations being drawn up, it is creating greater opportunities for all.

??

Sarah Martin works as an International Business Manager for Vistra Marine & Aviation Limited.