OPIS Market News

Brazil’s Law 15.042 established the Brazilian Emissions Trading System (Sistema Brasileiro de Comércio de Emissões de Gases de Efeito Estufa – SBCE) and set out general provisions for the country’s emissions trading system. Additionally, the law defined a Verified Emission Reduction or Removal Certificate (CRVE), or carbon offsets, as a tradable asset representing the actual reduction or removal of one tonne of CO2 equivalent (tCO2e) from the atmosphere. The CRVEs can be used for offsetting emissions in national allocation quotas or in the transfer of Internationally Transferrable Mitigation Outcomes (ITMOs) under Article 6 of the Paris Agreement.

While the law determines that reductions or removals must follow accredited methodologies and be recorded in a national registry, it does not provide many specifics for the supply side including which project types and methodologies would be permitted as well as the criteria for assessing the quality of projects, nor for the demand side in terms of the quantity of CRVEs that are allowed for a company to meet its compliance obligation.

It is expected that these details will be defined, at the latest, by the end of 2026. According to Article 50 of the law, there is a 12 to 24-month period for developing and implementing regulations including the definition of the former specifications and the establishment of the SBCE’s managing body, which will be responsible for accrediting the national and international certification standards.

New Recommendations for the Brazilian Government on CRVEs

To guide the Brazilian Government’s decisions for the implementation of the SBCE on the specifics not yet defined in the law, the United Kingdom’s capacity building program—UK PACT (Partnering for Accelerated Climate Transitions) developed an initiative (Carbon Market Framework to support the Federal Government), in partnership with Brazil’s Ministry of Development, Industry, Trade, and Services (MDIC), specifically related to the acceptance and registration of offsets.

The first technical report for the initiative was published on February 13, 2025, “Output 1 – Recommendations for the accreditation of independent carbon certification standards for the acceptance of offsets in the Brazilian Emissions Trading System.” Developed by technical partners, ICC Brasil and WayCarbon, the report’s recommendations are based on an analysis of emissions trading schemes in other jurisdictions, including California and China, interviews with global experts, and workshops with private sector and civil society representatives that commenced in October 2023. The recommendations of this report can be broken out into four main themes:

1. General Offsets Policy: Limiting the use of offsets to meet compliance obligations, national-boundary restrictions for the location of carbon projects, and alignment with sectors to ensure project activities are not regulated by SBCE.
2. Project Specifications: Eligible project scopes and the criteria for approving methodologies.
3. Integrity and Quality of CRVEs: Coupling project development and monitoring methodologies with additional layers of SBCE verification processes to ensure the quality and integrity of credits.
4. Social Impact: Safeguarding and including local communities as well as co-benefits of carbon projects.

Offsets Limits and Sector-Specific Considerations

The report suggests that the regulations should introduce a quantitative limit on offsets within the SBCE once the system’s objectives are clearly defined. Aligned with other international requirements, a low offset limit would be recommended if the primary goal is to decarbonize sectors already covered by the SBCE. Alternatively, a higher offset limit would be appropriate if the goal is to target emissions in unregulated sectors. Moreover, the prioritization of CRVEs should center on carbon projects generated within Brazil’s territory.

Eligible Project Scopes

Another aspect of the recommendations was to focus on sectors not traditionally regulated by most emissions trading systems, such as Afforestation, Reforestation, and Revegetation (ARR), Reducing Emissions from Deforestation and Forest Degradation (REDD+), Improved Forest Management (IFM), agriculture, and waste management. These sectors account for the largest share of emissions in Brazil, especially emissions from Agriculture, Forestry, and Other Land Use (AFOLU). It should be noted that in regards to REDD+, the SBCE, and the technical report refer to eligibility of jurisdictional programs in addition to project activities.

Maintaining Cost-Effectiveness and Methodological Rigor

To maintain the highest levels of quality, as well as to keep operational costs in check, the report recommends that the regulatory framework should prioritize a select set of robust and well-established methodologies. In addition, regular revalidation of these methodologies would ensure that they stay aligned with Brazil’s specific needs and international standards, particularly those under Article 6.4 of the Paris Agreement.

A Holistic Approach to Emission Reductions

The report advocates for a holistic framework that focuses on reducing or removing emissions and considers the social impacts of project development. For the early stages of the SBCE, it suggests internationally recognized standards such as Verified Carbon Standard (VCS) or Gold Standard, both of which are widely used in Brazil and can include additional social certification labels.

Looking ahead, the report envisions incorporating independent standards endorsed by the International Carbon Reduction and Offset Alliance (ICROA), with a particular focus on jurisdictional approaches. In this sense, reforestation programs should look to go beyond on-the-ground actions to include national or state-level initiatives that protect large forest areas from deforestation.

Looking to the Future

If the recommendations from this report are adopted, the SBCE could set a global precedent for carbon markets by ensuring strong social considerations are integrated into the development and ongoing implementation of carbon projects. If successful, the Brazilian market could serve as an example for other ETSs to follow in balancing climate and environmental impacts with the well-being of local communities, making CRVE carbon offsets more valuable and ensuring lasting positive effects on the environment.

As Brazil continues to navigate its transition to a sustainable future, the Carbon Market Framework to support the Federal Government initiative and this technical report’s insights and recommendations will continue to play a pivotal role in shaping the success of its emissions trading system.

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California Carbon Allowance (CCA) trade prices approached their lowest level in two years in January 2025, nearly 12 months after setting all-time highs for forward delivery.

The OPIS CCA V25 December 2025 price sank more than $5/mt between Jan. 2-31, punctuating a year-long decline from all-time high CCA prices assessed one year ago. OPIS assessed the CCA current vintage forward price at a record high of $43.93/mt on Feb. 5, 2024, before prices declined, essentially erasing any gains made in anticipation of the forthcoming cap-and-trade rulemaking.

Trade prices and auction settles deflated throughout 2024 amid delays in the ongoing cap-and-trade program review, which began in late 2022 with approval of the updated Assembly Bill 32 climate scoping plan. The California Air Resources Board (CARB) held its initial workshop to update the state’s Cap-and-Trade Program rulemaking in Nov. 2022. During the 2023-2024 workshops, the agency released piecemeal updates for the forthcoming rulemaking.

“The work continues here at CARB on this rulemaking. We expect to complete and release the regulatory package for a 45-day public comment period in early 2025,” according to CARB’s rulemaking website.

Prices climbed during the program review throughout 2023 and early 2024, before deflating sharply on announced delays and other stalls in the process. See the chart for a recap of CARB program review updates and secondary market CCA pricing in 2024. (Click the image to view it larger.)

CARB released information, including potential emissions budget cut scenarios throughout 2023 and 2024, before announcing it would delay the release of a formal Initial Statement of Reasons (or 45-day package) from autumn 2024 to “early 2025.” Rulemaking delays in 2024 signaled that the proposed emissions budget cuts would arrive later than expected, and CCA trade values weakened accordingly. CARB more recently signaled it does not expect to release the ISOR soon.

During comments made on Jan. 14, 2025, at the 13th Annual OPIS LCFS & Carbon Markets Workshop in San Diego, CARB Deputy Executive Officer Rajinder Sahota said that publication of the rulemaking’s Initial Statement of Reasons is “not imminent.”

“There are a couple of things on our plate that we have to juggle in the near term, so it’s not imminent and I’m not going to say it’s going to be a few weeks from now,” Sahota said.

OPIS CCA prices deflated more than $3/mt through two trading sessions following Sahota’s comments on Jan. 14, and by Jan. 31 the OPIS CCA V25 December 2025 price was down $5.605/mt from an assessment of $36.58/mt to start of the year.

The California Cap-and-Trade Program will hold its first quarterly allowance auction of 2025 on Feb. 19. Auction 42 will offer 51.47 million V25 CCAs in the current portion and 6.8 million V28 CCAs in the advance portion. The Q4 auction in November sold out all 52.63 million CCAs in the current portion of the event and settled at $31.91/mt.

The transportation sector is making substantial strides toward carbon neutrality by 2050, driven by groundbreaking innovations in clean fuels, including Carbon Capture and Storage (CCS) technologies aimed at reducing emissions, and the potential of hydrogen as a versatile energy source. One major advancement is Sustainable Aviation Fuel (SAF), which has the capacity to play a significant role in shaping the future of aviation, transforming how government agencies approach air mobility.

Currently, aviation accounts for a modest share of global greenhouse gas (GHG) emissions, contributing approximately 2.5% of the world’s carbon dioxide (CO2) emissions and 9%-12% of the U.S.’s transportation GHG emissions. Still, the aviation sector presents unique challenges for decarbonization. Although energy efficiency has improved since 1990 due to advancements in design and technology, the carbon intensity of fossil-based jet fuel has remained constant. Green hydrogen, produced by splitting water into hydrogen and oxygen using renewable electricity, presents a viable alternative. However, the technology to power jet engines with hydrogen is still under development, and storing hydrogen comes with its own challenges, making SAF the most practical solution for decarbonizing air travel in the near term.

In September 2021, U.S. federal government agencies unveiled the Sustainable Aviation Fuel Grand Challenge, which aims to scale up new technologies for producing SAF commercially. This initiative seeks to achieve a production goal of 3 billion gallons of domestic SAF annually by 2030, reducing life cycle GHG emissions by at least 50% compared to fossil-based jet fuels, and aims for 35 billion gallons annually of SAF production to meet 100% domestic demand by 2050.

SAF boasts lower carbon intensity than fossil-based jet fuel, paving the way for it to be a key contributor in reducing aviation GHG emissions. Life cycle GHG reductions attributed to SAF utilization can range from 50% to 80% compared to fossil jet fuel. In 2023, using SAF led to approximately 200,000 metric tons of carbon dioxide equivalent (MTCO2e) domestic GHG emission reductions, equivalent to CO2 emitted from 463,042 barrels of oil consumed (EPA’s Greenhouse Gas Equivalencies Calculator). Currently, SAF is approved for use in blends of up to 50% in commercial flights.

By the end of September 2024, SAF predominantly utilized the hydroprocessed esters and fatty acids (HEFA) process for fat, oil, and grease feedstocks. Domestic SAF consumption surged from 5 million gallons in 2021 to 26 million gallons in 2023, according to the SAF Grand Challenge: October 2021-September 2024 Progress Report. A total of 93 million gallons of SAF has been produced and imported through September 2024. (This data is based on U.S. Environmental Protection Agency (EPA) Renewable Identification Number (RIN) values.) However, there is relatively weak demand for SAF because of its higher prices and possible competition with Renewable Diesel (RD), which often shares production facilities and technologies with SAF.

Federal agencies estimate that by 2030, between 2.6 and 4.9 billion gallons of SAF could be produced annually if RD capacity is shifted to SAF. However, the transition has historically been limited due to the higher production costs of SAF, which makes it less economically viable. Many existing RD production facilities lack the infrastructure required to adapt for SAF production without substantial capital investment and modification. Additionally, most of these facilities lack fractionation equipment, which allows both RD and SAF to be produced from the same feedstock, as it is necessary to separate lighter jet fuel-like fractions (SAF) from the heavier RD components. As a result, the amount of SAF produced is usually limited to about 15% of the total RD output. Nevertheless, the growing demand for SAF is encouraging more RD plants to invest in the necessary technology, especially in light of potential government incentives for SAF production.

For facilities equipped with the necessary fractionation equipment, incentives from the Inflation Reduction Act of 2022 (IRA), such as the 45Z clean fuel production tax credit, could help make SAF more competitive in markets that also have low-carbon fuel programs. However further incentives are necessary to bring SAF prices in line with fossil-based jet fuel. At the OPIS 13th Annual Carbon and LCFS Workshop, it was noted during a panel discussion on RD and SAF that airlines often pay an additional $1-$2 per gallon for SAF, which could lead to higher airfare for consumers, potentially decreasing air travel demand significantly in the U.S., a scenario airlines want to avoid.

One reason for the additional production cost per gallon of SAF is that the sustainable fuel currently lacks the volume of incentives that RD is eligible for. Regulatory incentives like the federal Renewable Fuel Standard (RFS) and clean fuel programs in California, Oregon and Washington often incentivize RD production as opposed to SAF due to RD’s higher energy density. The RFS and state-level programs also add cost benefits to fossil-based diesel and not to fossil-based jet fuels, in many cases making RD production more profitable than SAF.

The IRA also provides federal funding for public-private partnerships to support the transition to clean energy. Initiatives include funding from agencies such as the U.S. Department of Agriculture (USDA) and the Federal Aviation Administration (FAA). The USDA has awarded $175 million to a total of four projects that address SAF feedstock production, availability and sustainability, and the FAA funded $3.7 million for projects focused on feedstock market evaluation, soybean oil market impact, fire remediation, and hydrogen production support. The FAA also awarded $244.5 million in Fueling Aviation’s Sustainable Transition (FAST) discretionary grants to support the build out of infrastructure projects related to SAF production, transportation, blending and storage; and $46.5 million in FAST grants to projects that develop and demonstrate new aviation technologies to improve fuel efficiency and reduce emissions.

President Trump issued an Executive Order titled “Unleashing American Energy” on January 20, 2025, directing federal agencies to “immediately pause the disbursement of funds” appropriated through the IRA and the Bipartisan Infrastructure Law. This pause is intended for federal agencies to “review their process, policies, and programs for issuing grants, loans, contracts, or any other financial disbursements of such appropriated funds for consistency with the law.” Federal agencies have 90 days to report back to the Office of Management and Budget and the head of the National Economic Council regarding how funds from the IRA and the Bipartisan Infrastructure Law align with the Trump Administration’s energy objectives. While the full ramifications of this Executive Order are still unfolding, it could potentially violate the Impoundment Control Act, which prohibits the executive branch from withholding funds for policy reasons, and may constitute a breach of federal contracts. Consequently, this action could expose the federal government to litigation and liability from funding recipients and could also be perceived as encroaching on Congress’ “power of the purse.”

Meanwhile, states such as California are looking for ways to increase SAF production and usage. A recent commitment between the California Air Resources Board (CARB) and Airlines for America (A4A) aims to increase SAF availability in the state to 200 million gallons by 2035, addressing about 40% of intrastate travel demand. This public-private partnership will also create a Sustainable Aviation Fuel Working Group to monitor progress annually and address any barriers.

The growing demand for sustainable aviation solutions, along with advancements in SAF production, positions SAF as the most robust market opportunity in biofuels today, likely sustaining forward momentum in the SAF market. For example, in April 2023, Shell and Delta signed a two-year agreement with the Los Angeles Internal Airport (LAX) to purchase 10 million gallons of SAF from Shell Aviation, with Delta planning to procure over 400 million gallons annually by the end of 2030 to meet its 10% SAF utilization target.

Ultimately, the journey toward SAF presents both challenges and opportunities. With concerted efforts from federal and state agencies, alongside involvement from the private sector, the foundation is being laid for a cleaner aviation future. As technological advancements continue and demand for sustainable solutions grows, SAF has the potential to play a pivotal role in decarbonizing air travel, shaping a more sustainable aviation industry for years to come.

Pricing data is the most sought-after information in durable carbon dioxide removal (CDR). To address this market need, OPIS has partnered with CDR.fyi to conduct the durable CDR pricing survey. The survey, which targeted purchasers and suppliers of durable CDR, aimed to increase transparency in pricing and support the industry’s development by gathering data on acceptable price ranges, optimal price points, and market dynamics.

Ninety-seven suppliers and twenty-five purchasers answered questions about various CDR project types for 2025 and 2030 delivery. Suppliers reported four price thresholds (Below Cost, Breakeven, Reasonable Profit, High Profit but Risky), and purchasers identified their own four price categories (Too Cheap, Cheap/Good Value, Expensive/High Side, Too Expensive). Respondents also noted which methods they had already traded and which ones they planned to transact in the future, allowing the survey to capture both current pricing experience and anticipated price ranges.

The biggest takeaway from the survey is a significant gap between what purchasers said they are willing to pay and what suppliers said they need to achieve profitability. This gap is biggest for 2025 but remains substantial for 2030.

For example, biochar providers require $187 per metric tonne in 2025 and $180/mt in 2030 to achieve a Reasonable Profit. However, buyers see prices of $155/mt in 2025 and $130/mt in 2030 as Expensive. For Enhanced Weathering, suppliers seek a price of $349/mt in 2025 and $328/mt in 2030 to be profitable, but buyers see $271/mt in 2025 and $238/mt in 2030 as expensive. Across most CDR methods, the prices purchasers view as expensive are consistently below the profitable price points for suppliers.

Despite these gaps, many suppliers’ Breakeven prices are below what buyers label as Expensive/High side. This indicates that there is a possibility of finding prices that work for both buyers and suppliers.

Purchasers expect prices to drop by 2030 for nearly every method. Direct Air Carbon Capture and Storage (DACCS) shows the biggest potential decline, with some buyers believing costs could fall by about 45% from current levels. Suppliers also project lower prices by 2030, especially for DACCS and other high-tech methods.

The average values also hide disparate answers. For example, if we look at the Breakeven cost of Bioenergy with Carbon Capture and Storage (BECCS) stated by suppliers in 2030, the average is $212/mt. But the lowest individual answer is $80/mt and the highest is $370/mt. For DACCS, the average Breakeven cost in 2030 is $341/mt. But one supplier answered above $600/mt and several below $300/mt. Another example is Biochar, with an average Breakeven in 2025 of $143/mt. The lowest answer was $50/mt, and the highest was $600/mt, and most Biochar respondents were in the $100/mt to $200/mt range.

One interesting thread: respondents who have already purchased or sold credits, the “veterans,” often provided different numbers from prospective market entrants who haven’t yet closed a deal. In some categories (like BECCS or DACCS), experienced suppliers reported lower Breakeven prices than newcomers, possibly reflecting operational efficiencies or a sharper sense of real costs. However, for Biochar, we see the opposite, with veterans stating a much higher Breakeven price for 2025 than those who haven’t sold any biochar credits, indicating that production costs are higher than new entrants anticipate.

On the buyer side, veterans generally anticipated higher price ranges than rookies, except for DACCS, where new buyers expected to pay more. These nuances reflect not only distinctions across durable CDR methods but also that real-world experience influences people’s willingness to accept or propose certain prices.

CDR.fyi’s Assessment

The survey points to durable CDR being higher-priced than purchasers expect. Suppliers of all kinds stating Breakeven prices of $140-$340/mt and Reasonable Profit at $180-$430/mt for 2030 will be a bit of a reality check for many buyers. Price development is highly heterogeneous: Suppliers in some methods will struggle to further decrease their prices post-2030.

Today’s significant CDR buyers are still what we would classify as “innovators” with the market yet to reach the “early-adopter” stage. We expect regular market dynamics to govern the purchase behaviour of the next group of buyers. Even among the innovators, very few have bought the highest-priced tonnes. Based on CDR.fyi market data, only 32 purchasers have paid over $500/mt, and 98.5% of the purchase volume above $1,000/mt are from Frontier Buyers and the Milkywire Climate Transformation Fund buyers¹. These entities deploy their funds with catalytic impact on scaling carbon removal among their purchasing decision considerations.

In most cases, purchasers are expected to choose the lowest-cost options that allow them to credibly claim they are reaching their climate targets². This behavior would favor durable biomass-based methods in the short to medium term. High-cost CDR suppliers, on the other hand, will need to find a way to reduce their costs and pricing significantly to secure large-scale offtake agreements and potentially their survival. Given purchaser price expectations, suppliers cannot rely on economies of scale alone to reduce costs, nor can they rely on purchasers to fund their trajectory along the scaling curve. Instead, cost reductions will mainly depend on innovation-driven R&D, iteration through modular approaches, and low capital expenditure strategies.

The Google-Holocene deal is an example of a supplier forward-selling their technological learning and scaling curve at a price that is palatable for the purchaser. Without this kind of pricing strategy, deployment risk remains limited to equity-financed projects or smaller pre-purchases from altruistic buyers. This will be particularly challenging for suppliers of high, fixed-cost methods such as DACCS, leading to the likelihood of significant consolidation in the next few years.

A much deeper dive into the results including data tables and method-specific breakdowns is available in the report “Bridging the Gap: Durable CDR Market Pricing Survey.” The report also includes CDR.fyi’s deeper assessment of the different factors that may affect prices across the major durable CDR methods tracked as well as OPIS’s reporting on the survey results. Given the importance of pricing transparency for scaling the durable CDR market, CDR.fyi and OPIS are making the white paper freely and publicly available.

¹For transactions where the price per tonne is known.
²The Science-Based Target initiative (SBTi) requires permanent carbon removal for remaining emissions to reach net zero but currently, there is little official guidance on exactly what methods will be counted as permanent. Companies claiming net zero without third-party certification may opt to use removals with lower durability, however claims may become regulated as is happening in the EU.

Disclosure: CDR.fyi Co-founder Robert Höglund manages the Milkywire Transformation Fund.

As the maritime industry navigates through the waters of decarbonization, the need for strategic investments has never been more critical. The sector is undergoing a profound transformation driven by stringent regulatory demands, technological advancements, and the global push towards sustainability. Read on for an exploration of the journey of maritime decarbonization, the growing trend of investing in dual-fueled vessels, the future outlook of methanol as a marine fuel, and the importance of making informed, forward-thinking investments to stay ahead of regulatory changes and market shifts.

The Journey of Decarbonization in Maritime Transport

The maritime industry’s journey towards decarbonization has been marked by significant milestones, particularly with the expansion of the European Union’s Emissions Trading System (EU ETS) to include maritime transport in 2024. This move has placed the shipping sector under increased pressure to reduce greenhouse gas emissions, driving the adoption of cleaner fuels and innovative technologies.

Over the past few years, the industry has seen a growing commitment to sustainability, with stakeholders exploring various pathways to reduce their carbon footprint. These efforts include the adoption of alternative fuels like methanol, investment in energy-efficient technologies, and the development of dual-fueled vessels capable of operating on both conventional fuels and low-carbon alternatives. As the industry continues to evolve, the need for strategic investments becomes paramount to navigating the complex landscape of decarbonization.

Investment in Dual-Fueled Vessels: A Growing Trend

One of the most notable trends in the maritime industry is the increasing investment in dual-fueled vessels. These vessels are designed to operate on both conventional marine fuels and alternative fuels like methanol, providing shipowners with the flexibility to adapt to changing regulatory environments and fuel availability.

Investing in dual-fueled vessels offers several strategic advantages:

1. Regulatory Compliance: With the EU ETS and other global regulations tightening emissions standards, dual-fueled vessels allow shipowners to switch to lower-carbon fuels as required, ensuring compliance with evolving regulations.
2. Operational Flexibility: The ability to operate on multiple fuel types provides operational flexibility, enabling vessels to adapt to varying fuel availability and pricing conditions in different regions.
3. Future-Proofing: As the maritime industry moves towards more stringent emissions targets, dual-fueled vessels position shipowners to take advantage of new fuel technologies as they become commercially viable, future-proofing their fleets against upcoming regulatory changes.

Currently, there are fewer than 40 vessels capable of using methanol, but hundreds of dual-fueled vessels are on order, signaling a significant shift towards more sustainable operations. According to forecasts, methanol demand for bunker fuel could rise to over 18 million metric tons by 2050, reflecting the growing adoption of this alternative fuel​.

Market Outlook: The Future of Methanol as a Marine Fuel

Methanol is emerging as a promising alternative fuel in the maritime industry, offering a viable pathway to decarbonization. As a low-carbon fuel, methanol can significantly reduce emissions of sulfur oxides (SOx), particulate matter (PM), and nitrogen oxides (NOx), aligning with global decarbonization goals. When produced from renewable sources, methanol can achieve a carbon-neutral lifecycle, making it an attractive option for shipowners looking to mitigate carbon costs and enhance sustainability​.

However, the broader adoption of methanol as a marine fuel faces several challenges:

• Production Capacity: The current production of green and blue methanol is limited, with high costs and scalability issues hindering widespread adoption. Economic feasibility remains a key barrier to expanding production capacity, particularly for less carbon-intensive variants like green methanol.
• Energy Density: Methanol has a lower energy density compared to conventional marine fuels, requiring larger storage capacity onboard vessels. This can impact vessel design and operational efficiency.
• Regulatory Uncertainty: While methanol offers significant emissions reductions, future global regulations may necessitate a shift towards carbon-free fuels like ammonia, which could challenge methanol’s long-term viability as a dominant marine fuel​.

Despite these challenges, methanol’s potential as a transitional fuel remains strong, especially as the industry works to overcome production and scalability hurdles. Strategic investments in methanol production and infrastructure, along with the development of dual-fueled vessels, will be crucial to unlocking its full potential in the maritime sector.

Strategic Investments for a Sustainable Future

As the maritime industry stands at the crossroads of sustainability and regulatory compliance, strategic investments in low-carbon technologies and alternative fuels are essential. Investing in dual-fueled vessels and supporting the development of methanol production will not only help shipowners navigate the current regulatory landscape but also position them for success in a rapidly evolving market.

By staying ahead of regulatory changes and embracing innovative solutions, maritime companies can ensure their fleets remain competitive and compliant, while also contributing to the global effort to reduce greenhouse gas emissions. The journey towards a sustainable maritime future is complex, but with the right investments, the industry can sail confidently towards a greener horizon.

Stay ahead of the curve in maritime decarbonization. Download our comprehensive whitepaper to explore strategic investment opportunities and plan your path towards a sustainable future in maritime transport.

As the world gets closer to mid-century climate deadlines, carbon markets are stepping onto the global stage at an unprecedented scale. These programs are maturing from a series of fragmented projects into an interconnected ecosystem of policies that are guiding the world toward a low-carbon future. According to the World Bank’s State and Trends of Carbon Pricing 2024, there are now over 75 carbon pricing instruments in operation worldwide, covering approximately 24% of global GHG emissions, up from around 15% just five years ago. The total value of these initiatives exceeded USD $104 billion in 2024. Carbon pricing is a pillar of international climate policy, providing a powerful incentive for emission reductions and green technology investments in the private sector, while unlocking key funding for a diverse array of climate programs and initiatives.

Expansion of Industries and Regions

One of the most interesting developments over the last decade is how carbon markets have expanded across industries that were once considered challenging to decarbonize. While power generation and heavy industry have been core targets of Emissions Trading Systems, policy frameworks are extending to sectors like maritime, aviation, buildings, and road transport. The EU ETS, administered by the European Commission’s Directorate-General for Climate Action (DG CLIMA), is a great example of this evolution. The ETS was created in 2005 as the world’s first major carbon market and it originally focused on power and industrial emissions. Over time, the EU ETS has been strengthened and broadened. By January 2024, it included maritime transport and has actively explored ways to integrate emissions from road transport and buildings. This would be done through a separate but similar market system, ETS II. Throughout the year, EU allowance prices have traded above EUR 70 per ton. This rising price trajectory, compared to prices six years ago which were just breaking into double digit figures,  and ongoing policy refinements show that the EU’s approach is not only about emissions reductions for those under compliance, but also about driving innovation in cleaner fuels, efficiency measures, and emerging technologies.

In the Asia-Pacific (APAC) region, carbon markets are evolving very quickly, and there is an interesting interplay between rapid economic growth, climate commitments, and more investor interest in sustainable industries. China’s national ETS, which is overseen by the Ministry of Ecology and Environment, is now the world’s largest by volume, initially covering over five billion tons of CO2 from the power sector. This October, China expanded its coverage to include high-emitting industries like cement and steel, moving towards a more comprehensive system. Although Chinese carbon allowances have remained modestly priced at around CNY 103 per ton (USD 14-15), it is likely that prices will increase as caps tighten.

South Korea, guided by its Ministry of Environment, has built on its pioneering role as Asia’s first nationwide ETS. Prices in the Korean ETS, hovering around KRW 7,020 (USD 5.38) in July of 2024, showcases a well established market that has gained the trust of participants and covers 89% of South Korea’s national GHG emissions. Meanwhile, Southeast Asian countries such as Indonesia and Vietnam are piloting ETS phases, with Indonesia launching a carbon exchange in 2023 and Vietnam preparing a pilot program by 2025 to align with their Paris Agreement commitments. New Zealand’s ETS, managed by the Ministry for the Environment, stands as a model of stability in the region as well. Since its beginning in 2008, it has had rising prices  of NZD 50–60 (USD 30–35) per ton and comprehensive offset provisions that encourage both technological and nature-based solutions such as afforestation and reforestation to enhance carbon sequestration, as well as Carbon Capture and Storage initiatives.

In Latin America (LATAM), carbon markets are advancing as countries refine existing pricing instruments and explore new ones. Mexico, under the leadership of its Secretaría de Medio Ambiente y Recursos Naturales, completed its three-year ETS pilot phase in 2023 and entered a full compliance period in 2024. Although allowance prices remain relatively low, the focus for Mexico now is on strengthening emissions caps and creating a stable environment for future price increases and compliance as a whole. Key steps taken include enhancing transparency in allowance allocation and reporting processes, and improving monitoring, reporting, and verification frameworks to build trust among market participants. Chile, an early adopter of a carbon tax in 2014, is also exploring an ETS to complement it and drive deeper emissions reductions. Moreover, Colombia continues to allow offset use of carbon offsets to help meet its greenhouse gas reduction commitments, encouraging domestic forestry, agriculture, and other land use projects that deliver benefits like biodiversity conservation and support for rural livelihoods. It has made strides in developing its ETS since the passage of the National Climate Change Law in 2018, including integrating offsets and designing emissions caps, with a pilot phase from 2019 to 2020. However, full implementation is still underway as the country refines its framework to align with climate goals.

LATAM also plays a significant role in the global voluntary carbon market, particularly through the supply of high quality nature-based credits such as those generated from REDD+ initiatives. These credits not only help businesses meet voluntary sustainability targets but also bring finance into ecosystem restoration and community development. As policymakers explore integrating nature-based solutions into compliance regimes, which is encouraged by emerging frameworks under Article 6 of the Paris Agreement, LATAM’s leadership in this arena could position it as a vital source of credible reductions and removals. Brazil’s new ETS, known as the Sistema Brasileiro de Comércio de Emissões (SBCE), was approved under Law N 15.042 on December 12th, 2024, and has been a major evolution in the country’s climate policy. The SBCE pledges to target companies emitting over 10,000 metric tons of CO2 annually, requiring them to report GHG emissions. Those exceeding 25,000 metric tons must adhere to emissions caps or obtain eligible credits. What sets the SBCE apart here is its integration of nature based solutions such as REDD+ forest conservation, which creatively blends voluntary and regulated markets.

The Middle East (MENA) presents a more cautious approach to carbon markets. Long reliant on hydrocarbons, countries like the UAE and Saudi Arabia are recognizing the potential of carbon pricing as part of their economic diversification. With guidance from environment ministries and sovereign wealth funds such as the Saudi Public Investment Fund, these nations have hosted voluntary credit auctions since 2023 and have drawn immense international interest achieving auction prices around USD 20–25 per ton. In 2023, the Regional Voluntary Carbon Market Company announced the successful auction of more than 2.2 million metric tons of carbon credits at the largest ever voluntary carbon credit auction. Although still nascent, these developments show a growing readiness to integrate carbon markets into broader strategies aimed at sustainable development and placing MENA on the scene as an environmental player. Hosting global climate summits like the UAE’s COP28 intensifies the region’s spotlight even further.

Predictions for Future Growth

Looking ahead, several key trends are likely to define carbon markets and how they evolve through the remainder of the decade and beyond. One major development will be the increased linkage of ETSs and cross-border collaboration. The existing connection between the EU and Switzerland’s ETSs demonstrates the benefits of linking, such as enhanced liquidity and shared practices. The United Kingdom is evaluating potential linkages of its post-Brexit UK ETS with other systems such as the EU ETS in order to improve market stability. Colombia, Chile, Mexico, and Brazil are advancing carbon pricing mechanisms, and through this are creating the potential for regional market linkages in LATAM. This type of integration could enhance market liquidity and reduce compliance costs, however challenges like regulatory alignment and political coordination need to be addressed in this region to realize these linkages. Discussions in the APAC region could eventually pave the way for interconnected carbon markets, enabling countries to exchange credits that meet uniform standards in the same region. As Article 6 mechanisms under the Paris Agreement progress, Internationally Transferred Mitigation Outcomes may facilitate a truly global trading system, ensuring reductions happen wherever they are most cost-effective and environmentally sound.

Another area of opportunity is the integration of emerging technologies and nature-based solutions. Many markets are exploring ways to include carbon removal options such as Direct Air Capture and innovative agricultural practices into compliance frameworks. As Measurement, Reporting, and Verification protocols grow more stringent and as confidence in the environmental integrity of offsets strengthens, carbon markets may reward a breadth of innovative mitigation strategies. This could encourage investors to increasingly diversify their low-carbon portfolios and support the research and commercialization of new climate solutions. With sectoral initiatives like the International Civil Aviation Organization’s CORSIA scheme for aviation and growing interest in maritime decarbonization, carbon pricing will increasingly shape industries once viewed as difficult to regulate, and incentivize them towards cleaner fuels and long-term innovation.

A Global Carbon Market

From the world standard EU ETS to China’s evolving national system, and LATAM’s nature-based credits to the MENA’s emerging voluntary platforms, carbon markets are much more than isolated policy ventures. They are integral pieces of international climate architecture and provide a venue to foster cross-border collaboration in efforts to reduce global carbon emissions. As carbon market systems spread across multitudes of sectors and regions, we are coming closer to a cohesive global carbon marketplace. The optimism and increased participation surrounding carbon markets in 2024 is truly a testament to this. Through forging stronger connections,  integrating natural and technological solutions, and by committing to continuous changes, carbon markets are poised to become even more transformative tools on the international journey to net-zero emissions. Their importance lies not only in their ability to reduce emissions but also in addressing the global nature of climate change, which is an issue that knows no borders.

As the maritime industry faces increasing pressure to reduce its carbon footprint, the search for sustainable and viable alternative fuels has become a priority. Among the emerging options, methanol stands out as a promising low-carbon fuel that can significantly contribute to the decarbonization of maritime transport. Read on for an exploration of the role of methanol as a sustainable marine fuel, highlighting its environmental benefits, the types and challenges associated with its use, and its potential to meet the industry’s evolving regulatory demands.

Methanol as a Low-Carbon Alternative

Methanol, a simple alcohol primarily produced from natural gas and coal, is gaining attention in the maritime industry as a low-carbon alternative to traditional marine fuels. Unlike other fuels, methanol can be stored as a liquid at ambient temperature, making it easier to handle and integrate into existing infrastructure. Its ability to reduce greenhouse gas emissions, particularly when produced from renewable sources, positions methanol as a key player in the future of sustainable maritime transport.

Environmental Benefits: A Cleaner Alternative

Methanol offers several environmental and strategic benefits, making it an attractive option for shipping companies aiming to reduce their carbon footprint:

• Reduction in Emissions: Methanol combustion results in significant reductions in sulfur oxides (SOx) and particulate matter (PM) emissions by over 95%, as well as nitrogen oxides (NOx) emissions by up to 80% compared to conventional marine fuels. This makes methanol a cleaner alternative that aligns with global efforts to minimize air pollution from shipping activities.
• Carbon-Neutral Potential: When produced from renewable sources such as biomass or renewable electricity, methanol can achieve a carbon-neutral lifecycle. This aligns with the International Maritime Organization’s (IMO) decarbonization goals, offering shipping companies a strategic way to meet increasingly stringent environmental regulations.
• Infrastructure Compatibility: Methanol’s liquid state at ambient conditions allows it to be seamlessly integrated into existing bunkering and storage infrastructure with minimal retrofitting costs, unlike other alternative fuels such as liquefied natural gas (LNG). This compatibility reduces the barriers to adoption and facilitates a smoother transition to cleaner fuel options.

Types and Challenges: Understanding Methanol Variants

Methanol comes in several forms, each with different environmental impacts and production processes:

• Grey Methanol: Predominantly produced using a Steam Methane Reformer (SMR) from natural gas, grey methanol is the most common form but carries a higher carbon footprint due to its reliance on fossil fuels.
• Advanced Grey Methanol: Utilizing an Autothermal Reformer (ATR) to convert natural gas, advanced grey methanol reduces fuel consumption and emissions compared to traditional grey methanol.
• Blue Methanol: Produced using an ATR, blue methanol involves converting syngas to hydrogen and CO2, with the CO2 being sequestered to achieve near-zero carbon emissions.
• Green Methanol (e-Methanol): The most environmentally friendly option, green methanol is produced from captured CO2 and hydrogen via electrolysis powered by renewable energy. However, its production is currently limited by high costs and scalability challenges.

Challenges: Despite its advantages, methanol faces several challenges in becoming a mainstream marine fuel:

• Lower Energy Density: Methanol’s energy density is about half that of conventional marine fuels, meaning ships require more storage capacity to achieve the same range, which can affect vessel design and operational efficiency.
• Lifecycle Emissions: While methanol can reduce direct emissions, its overall lifecycle emissions can be comparable to liquefied natural gas (LNG) unless produced through less carbon-intensive processes. This raises questions about its long-term sustainability unless cleaner production methods are scaled.
• Regulatory Compliance: Methanol provides about 10% carbon savings compared to conventional fuels, which may not meet future emission limits as regulations become more stringent. Competing fuels like ammonia, which offer carbon-free combustion, might be more attractive as regulations tighten.

Methanol’s Viable Path Forward

Methanol presents a viable path forward for the maritime industry to reduce emissions and comply with regulatory demands. Its ability to significantly lower harmful emissions, coupled with its compatibility with existing infrastructure, makes it an appealing option for shipping companies. However, the industry must address the challenges of energy density and lifecycle emissions to maximize methanol’s potential as a sustainable marine fuel.

As the maritime sector continues to evolve, strategic investments in dual-fueled vessels and low-carbon methanol production will be crucial. These efforts will not only support the industry’s transition to cleaner fuels but also position it to meet the ambitious global emissions targets on the horizon.

Curious about how methanol and other alternative fuels can shape the future of maritime transport? Explore the potential of methanol and gain deeper insights into sustainable fuel options by downloading our comprehensive whitepaper. Equip your business with the knowledge to navigate the shift towards a greener maritime industry.

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania (currently barred from active participation in the program due to ongoing litigation), Rhode Island, and Vermont to cap and reduce power sector CO2 emissions. With its initial auction held in September 2008, RGGI became the first market-based, mandatory cap-and-trade regional initiative in the United States.

Heading into 2025, key policy and programmatic developments continue to unfold involving RGGI. Ongoing litigation remains a barrier for Virginia and Pennsylvania to participate in the program. Meanwhile, RGGI’s Third Program Review could lead to important design changes and updates to the Model Rule, which acts as a template for each state to shape its own CO2 budget trading program.

Door Cracked Open for Virginia to Rejoin RGGI

Virginia’s participation in RGGI started in 2020 when the Virginia General Assembly passed the Clean Energy and Community Flood Preparedness Act, which allowed full participation. Virginia had been active in twelve RGGI auctions from 2021 until December 2023.

Efforts to withdraw Virginia from RGGI started in 2022 when Governor Glenn Youngkin (R) issued Executive Order 9. This order directed the Virginia Department of Environmental Quality (DEQ) to reevaluate the impact of participation in RGGI. In response, DEQ sent the report titled Virginia Carbon Trading Rule and Regional Greenhouse Gas Initiative Participation – Costs and Benefits on March 11, 2022, which provided the following conclusions:

• “Because of the captive nature of their ratepayers, the ability for power-generators to fully pass on costs to consumers, and the fact that the Code of Virginia dedicates RGGI proceeds to grants programs, participation in RGGI is, in effect, a direct carbon tax on all households and businesses.
• RGGI fails to achieve its goal as a carbon ’ system because it lacks any incentive for power generators to actually reduce carbon-intensive gas emissions.
• Carbon emissions rates have been reduced in Virginia by over 50% in the past 10 years, prior to the Commonwealth’s participation in RGGI.”

Following this report, the Virginia Air Pollution Control Board came to a decision to repeal Virginia’s participation in RGGI in a 4-3 vote in June 2023. Of the Board’s seven members, Youngkin had appointed four. This decision was challenged two months later in the Fairfax Circuit Court by the Southern Environmental Law Center which filed a petition on behalf of four clients: the Association of Energy Conservation Professionals (AECP), Virginia Interfaith Power and Light, Appalachian Voices, and Faith Alliance for Climate Solutions. In November 2023, the Fairfax Circuit Court dismissed three clients and transferred the case to Floyd County, where AECP is headquartered.

Most recently on November 18, 2024, the Floyd County Circuit Court ruled that the action by Governor Youngkin’s Administration to withdraw Virginia from RGGI was “unlawful and without effect.” In its ruling the court found that the “Petitioner does in fact have standing to bring this suit, and, the putative repeal of the RGGI Regulation was beyond the statutory authority of the Respondents, and therefore unlawful and without effect.”

Rejoining RGGI would require an order that officially repeals the regulation that withdrew Virginia from RGGI and reinstate the previous regulation which required participation. The state’s DEQ would then need to initiate action to resume participation. Notably, Youngkin has implied his intention to appeal the decision in response to the court ruling.

While it is unlikely that Virginia will begin participation during the remainder of Youngkin’s current term, efforts to do so could be expedited under a democratic administration resulting from the upcoming 2025 gubernatorial election on November 4. It is important to note that Youngkin will be ineligible to run for re-election as the Constitution of Virginia prohibits the state’s governors from serving consecutive.

Pennsylvania’s RGGI Participation in Limbo

In 2019, Governor Tom Wolf (D) initiated Pennsylvania’s participation in RGGI through Executive Order 2019-07. This action was followed by the Pennsylvania Department of Environmental Protection’s (DEP) Environmental Quality Board publishing regulation which set the state’s participation to begin on July 1, 2022.

In response to the Administration’s regulation, the Commonwealth Court of Pennsylvania issued two   enjoining the Pennsylvania DEP from implementation—completely halting the state’s participation in RGGI. As a result, RGGI Inc. issued an amended auction notice in August 2022 which stated that Pennsylvania would be removing all its allowances offered for sale in the CO2 Allowance Auction 57 held on September 7, 2022, as every state contributes a designated share of allowances for sale in each auction. Pennsylvania has yet to participate in any RGGI auctions due to this ongoing litigation.

More recently, on November 1, 2023, the Commonwealth Court of Pennsylvania ruled that RGGI participation violates the state constitution. The court concluded that the regulation did not create a “fee” but rather a “tax” within the exclusive authority of the Pennsylvania General Assembly. On November 21, 2023, the Administration of Governor Josh Shapiro (D) appealed this decision to the Pennsylvania Supreme Court. The Court is now considering written arguments but has not yet posted a schedule for oral arguments.

The Pennsylvania Senate has also been recently active in regard to the state’s participation in RGGI. On September 17, 2024, the Republican-controlled Senate approved Senate Bill 1058, which repeals Pennsylvania’s participation in RGGI. However, the bill did not move in the House of Representatives, where Democrats hold the majority. As a result of the election in November, the Pennsylvania General Assembly will continue to be divided, with Republicans maintaining control of the Senate and Democrats in the House. It is possible that another bill to repeal RGGI participation could be reintroduced in future legislative sessions.

As an alternative to RGGI, Governor Josh Shapiro proposed in March 2024 the Pennsylvania Climate Emissions Reduction Act (PACER) to establish a Pennsylvania-specific cap-and-invest program that allows Pennsylvania to determine its own cap on carbon and invest directly. The latest action reported on PACER is the recommendation of House Bill 2275 and Senate Bill 1191, to the Pennsylvania House Consumer Protection, Technology and Utilities Committee, and the Senate’s Environmental Resources and Energy Committee, respectively. PACER could be revisited in future legislative sessions.

The Way Forward: RGGI Program Review Underway

The RGGI states are currently conducting a Program Review to examine the results and design of their CO2 budget trading programs, and to consider updates to the Model Rule and their individual state programs. The RGGI states completed the First Program Review in February 2013 and completed the Second Program Review in December 2017, resulting in the 2017 Model Rule.

In September 2021, the RGGI states initiated a Third Program Review to consider further updates to their programs. To support the Third Program Review, the states aim to conduct technical analysis and consider key design elements.

In September 2024, RGGI released a Program Review Update and asked for public comments through October 23, 2024. Of the many responses, some of the key entities that submitted comments include: International Emissions Trading Association, Constellation, Environmental Defense Fund, RGGI Associates Coalition. Suggestions found within these comments include increasing RGGI’s Emissions Containment Reserve (ECR) and the Cost Containment Reserve (CCR); setting an interim target for 2030 in addition to the current zero-by-2040 trajectory; and implementation of the program review rules as soon as possible.

According to RGGI’s Program Review Update, member states are expected to release an updated Model Rule sometime in the fall/winter of 2024-25, followed by public meetings to review. States may release further Model Rule updates into Spring 2025.

Meanwhile, RGGI’s Allowance Auction 66 will be held on December 4. Volatility in the program’s membership roster appears to be reflected in allowance auction settlement prices in 2024, which have ranged from $16.00/short ton (st) in the first quarter auction to over $25.00/st in the third quarter auction, as stakeholders digest each development in both Virginia and Pennsylvania’s statuses within the program, and the progress of the latest program review.

Results for the final RGGI allowance auction of 2024 will be posted on December 6.

In the 1970s, President Richard Nixon faced an extensive energy crisis as fuel demand largely outpaced supply. This was the greatest energy challenge at the time, one in which the president tried to strike a balance between environmental and energy needs as well as national security goals (i.e., decreasing U.S. dependence on foreign oil). Nixon initiated several actions to not only improve environmental quality but also to spur research and development in alternative energy sources, specifically for power generation (i.e., wind turbines and solar). This sent a signal to private industry, encouraging capital investments that would expand domestic supplies of clean energy while letting consumers know that the cost of environmental protection would be reflected in retail prices.¹ The energy crisis of the 1970s was, in effect, the beginning of the United States’ transition away from fossil fuel-based energy toward renewable sources of energy.

The oil shortage also drove interest in biofuels, but federal policies would not come to fruition until the early 2000s. In 2007, President George W. Bush expressed concern about U.S. dependence on foreign oil and called on the nation to reduce gasoline usage by 20% by 2017.² The U.S. was again asked to participate in an energy transition, trying to strike a balance  between environmental and energy needs.

One way Bush proposed to maintain this balance was by enacting the Renewable Fuel Standard (RFS), a program that required large volumes of renewable fuels (i.e., ethanol and cellulosic biofuels) to be blended into the nation’s transportation fuels. This policy paved the way for the healthy biofuels market we see today and reduced greenhouse gas (GHG) emissions in the transportation sector.

And here we are again, in the midst of another energy transition, now moving towards low-carbon and zero-emission fuels – and with a second Donald J. Trump administration on the horizon, there is more speculation than ever surrounding the state of renewable fuels. Yet biofuels have garnered strong bipartisan support, with pledges from Republicans who consistently win big in farm-strong states that produce biofuels feedstocks like corn and soybeans, and Democrats who have pushed for lower carbon emissions coast to coast. The private sector is stepping up to signal the economic and environmental importance of renewable fuels. For instance, Veterans for Renewable Fuels (VRF) sent a letter to Vice President-elect JD Vance pointing out that one out of six ethanol industry workers is a veteran and underscoring its stance that “homegrown, low-cost, environmentally friendly” renewable fuels belong in America’s energy future.³

The popular RFS program will most likely be untouched under a second Trump administration,  continuing to help the U.S. reduce tailpipe emissions and increasing the biofuels industry’s share of the liquid fuels market. Under the RFS, regulated entities must meet a certain Renewable Volume Obligation (RVO) that is based on a percentage of their gasoline and diesel production and imports. These entities must either blend conventional biofuels (i.e., fuels made from corn and grain sorghum) and/or advanced biofuels (i.e., cellulosic feedstocks) or purchase Renewable Identification Numbers (RINs) from obligated parties that exceed their RVO requirements. The current RVO targets are set to expire in 2025, so the new administration will be responsible for setting targets for 2026 and beyond.

The incoming administration’s failure to address climate change at the federal level could be a catalyst for states to implement their own policies, such as clean fuels standards that reduce GHG emissions by decreasing the carbon intensity (CI) of transportation fuels. CI is calculated by measuring carbon emissions over a fuel’s complete life cycle. Fuels with CI scores below a mandated benchmark generate credits, which can be purchased by entities whose fuels have a high CI score.

The longest-running state program is California’s Low Carbon Fuel Standard (LCFS), which has displaced 320 million metric tons of carbon dioxide (CO2) since it was implemented in 2011.⁴ That is the equivalent of GHG emissions from 76,160,582 gasoline-powered cars driven for one year in the state.⁵ Recently, the California Air Resources Board (CARB), the agency governing the LCFS program, approved updates that aim to reduce the CI of California’s transportation fuels by 30% by 2030 and by 90% by 2045. Key amendments also include:

• Accelerating the CI targets for 2025 to 2030 by almost 9% annually. The new average CI target for 2030 is 69.40 gCO2e/MJ compared to the prior average CI of 79.55 gCO2e/MJ. 
• A 20% threshold on using biodiesel made from soybean oil, canola oil and sunflower oil to generate credits.
• Phasing out credits for methane captured at dairy farms over a 30-year period and eliminating credits for biofuels derived from palm oils. 
• Retiring credits at a rate of four times the difference in the producer’s CI score and the producer’s verified operational CI score, effective in the 2025 compliance year. 
• Credits for infrastructure to fuel zero-emission light-, medium- and heavy-duty vehicles. 

Oregon and Washington state have followed in California’s footsteps and implemented their own clean fuels standards, in 2016 and 2023, respectively. As these states use California’s program as a guide (or for lessons learned), they have proposed updates to their programs that are as follows:

• The Department of Environmental Quality’s (DEQ), the governing body of Oregon’s Clean Fuels Program (CFP), proposed amendments are mainly administrative but specifically focus on updating the Oregon Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (OR-GREET) model, calculations of GHG emissions, addressing issues associated with fuel pathway applications and approval requirements, and adjusting requirements for credits awarded to carbon capture and storage (CCS) projects, such that a reserve account will be created for any CCS projects that leak CO2 in the future. DEQ hosted a public hearing on November 19th to review public comments, and based on the input, could revise the proposal before sending the larger package to the DEQ’s Board for final approval in early January. The proposed amendments would most likely go into effect in 2026. 

• The Department of Ecology (Ecology), which governs Washington state’s program, has released proposed updates to the Clean Fuel Standard that would mandate third-party verification and allow for shared charging and refueling stations to qualify for credits. The next phase in Ecology’s rulemaking will most likely take place in Spring 2025.

New Mexico is also creating a clean fuels program that will likely draw on language from California, Oregon and Washington’s programs. New Mexico’s Clean Transportation Fuel Standard is scheduled to launch by July 1, 2026. There are rumors that Minnesota will introduce a bill to establish a clean fuels standard when its legislature convenes in January.

Irrespective of significant changes to the federal RFS program, the states are sending clear, long-term signals to the biofuels industry to make investments in production and technologies. As Nixon stated in 1971, 

“I am confident that the various elements of our society will be able to work together to meet our clean energy needs. And I am confident that we can therefore continue to know the blessing of both a high-energy civilization and a beautiful and healthy environment.”⁶ 

Join me next time as we explore ethanol-15 (E15), sustainable aviation fuel (SAF) and carbon capture and storage, among other technological advancements in the biofuels industry.

¹ https://www.presidency.ucsb.edu/documents/special-message-the-congress-energy-resources
² https://georgewbush-whitehouse.archives.gov/stateoftheunion/2007/initiatives/energy.html
³ https://d35t1syewk4d42.cloudfront.net/file/2896/VRF%20Letter%20to%20VPE%20Vance.pdf
⁴ https://ww2.arb.ca.gov/our-work/programs/low-carbon-fuel-standard/about
⁵ The EPA’s Greenhouse Gas Equivalencies Calculator is available at https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator#results
⁶ https://www.presidency.ucsb.edu/documents/special-message-the-congress-energy-resources

As the maritime industry braces for the expansion of the European Union’s Emissions Trading System (EU ETS), financial considerations are at the forefront of strategic planning. The inclusion of maritime transport in this ambitious carbon pricing mechanism is set to impose significant costs on shipping companies. Understanding these financial implications is critical for navigating this new regulatory landscape. Read on for an exploration of the financial burden posed by the EU ETS, the impact of carbon pricing and market volatility, and the strategies companies can adopt to manage these costs effectively.

The Financial Burden of EU ETS on Maritime Industry

The expansion of the EU ETS to include maritime transport, effective from January 2024, introduces a new layer of financial responsibility for the industry. Shipping companies are now required to purchase emissions allowances to cover their carbon output, significantly increasing operational costs. The need to comply with this stringent regulatory framework, coupled with the inherent volatility of the carbon market, presents a complex financial challenge for maritime operators.

The cost of compliance is not limited to the purchase of carbon allowances. Shipping companies must also account for the administrative burden of monitoring, reporting, and verifying their emissions, as well as the potential fines for non-compliance. As the system phases in, with full compliance required by 2026, these financial obligations will only intensify.

Carbon Pricing and Market Volatility: Navigating the Financial Waters

The EU ETS operates on a “cap-and-trade” principle, where the cap on emissions is progressively reduced, creating a market for emissions allowances. The price of these allowances, known as European Union Allowances (EUAs), is subject to significant volatility, driven by a range of factors including energy prices, industrial activity, and geopolitical events.

For instance, in 2023, the EUA market experienced considerable fluctuations. The price of EUAs reached a record high of over €101 per metric ton in February 2023, only to drop to €50 per metric ton the following year. Such volatility can drastically affect the cost of compliance for shipping companies, making it difficult to predict and manage expenses.

Moreover, the cost of allowances is influenced by broader market dynamics, such as natural gas prices. As gas prices rise, coal-fired power plants become more economically viable, increasing demand for EUAs and driving up their price. This interconnection between energy markets and carbon pricing adds another layer of complexity for maritime operators.

As the maritime sector is integrated into the EU ETS, shipping companies must navigate these volatile markets, with carbon compliance costs potentially consuming a significant portion of their operational budgets. For example, in 2024, the cost of compliance for heavy fuel oil emissions on EU jurisdictional voyages ranged from €63 to €93 per metric ton of fuel. These costs are expected to rise sharply, potentially reaching €300 per metric ton by 2026.

Cost Management Strategies: Navigating Compliance Costs

Given the financial pressures of EU ETS compliance, shipping companies are exploring various strategies to manage their carbon costs. These strategies include embedding carbon costs into freight rates, banking credits, and optimizing operational efficiency.

1. Embedding Carbon Costs into Freight Rates: Some shipping companies are choosing to pass on the cost of carbon compliance to their customers by incorporating it into freight rates. However, this approach can be challenging due to the variability of shipping operations, such as route deviations and port delays, which can affect the accuracy of cost projections.
2. Banking Credits: Another strategy is to bank EUAs when prices are low and use them when prices are higher or when the company’s emissions increase. While this offers flexibility, it also exposes companies to the risk of market volatility, as the future price of allowances is unpredictable.
3. Operational Optimization: Companies are also focusing on improving fuel efficiency and reducing emissions through operational changes, such as optimizing routes, reducing speeds, and investing in energy-efficient technologies. These measures not only reduce the need for allowances but also enhance overall cost efficiency.
4. Innovative Pricing Solutions: To address the challenges of cost management, OPIS (Oil Price Information Service) has introduced the Europe Marine Cap-at-the-Port index. This index provides daily price transparency for carbon compliance costs, allowing shipping companies to better predict and manage their expenses. By closely tracking EUA market activity, the index offers a reliable reference point for pricing carbon obligations on a per-voyage basis.

Strategic Financial Planning is Key

The financial implications of the EU ETS on the maritime industry are profound, and the costs of compliance will only grow as the system fully phases in by 2026. To mitigate the impact of these costs, shipping companies must adopt strategic financial planning, incorporating a mix of cost management strategies that balance immediate operational needs with long-term sustainability goals.

Staying agile and informed is essential for navigating the complexities of the carbon market and ensuring that compliance costs do not undermine profitability. By leveraging innovative pricing solutions and adopting a proactive approach to emissions management, maritime operators can turn this regulatory challenge into an opportunity for financial and environmental leadership.

To gain deeper insights into the financial impacts of EU ETS compliance and explore strategies to manage these costs effectively, download our comprehensive whitepaper. It provides detailed analysis and practical guidance to help you navigate the financial challenges of decarbonizing maritime transport.