Europe’s carbon market could soon start paying shipowners to switch fuels, but the support on offer is far from equal. In July, the European Commission proposed a revision of the European Union’s Emissions Trading System (EU ETS) that would reserve up to 110 million allowances between 2028 and 2040 for a new Sustainable Maritime Alternative Propulsion (SMAP) mechanism, which is meant to cover part of the price gap between fossil marine fuels and sustainable alternatives. Rystad Energy’s analysis shows that, combined with the EU ETS itself and the FuelEU Maritime regulation, the proposal would reshape the cost ranking of marine fuels in Europe. BioLNG and renewable e-fuels stand to gain the most, while biodiesel made from used cooking oil (UCO) and animal fats – one of today's most widely used marine biofuels – is left out.
The timing matters. From 2026, shipping companies surrender ETS allowances for 100% of their verified emissions in scope, now including methane and nitrous oxide, while FuelEU Maritime requires a steadily tightening cut in the greenhouse-gas intensity of energy used on board. Both regimes rest on the sustainability rules of the EU’s revised Renewable Energy Directive (RED III). For shipowners, charterers and fuel suppliers, the question is which fuel pathway the combined rules reward.
SMAP would cover 55% of the remaining price gap to fossil fuel for biogas and advanced biofuels, and 90% for renewable fuels of non-biological origin (RFNBOs) such as e-ammonia and e-methanol, with 10 additional percentage points where the feedstock is sourced in the EU. Because support scales with the size of the gap, the most expensive fuels receive the most per tonne, and EU-made e-ammonia could see its entire remaining premium covered (Figure 1). Support is halved on voyages into or out of the EU, and fuels generally must be produced in the EU or in a country with a linked carbon market.
Stacked together, the three instruments push several alternative fuels below the cost of very low sulfur fuel oil (VLSFO) on intra-EU voyages. At 3Q26 prices, bioLNG costs more than twice as much as VLSFO before any incentives, yet it ends up at about half the cost of VLSFO once FuelEU credits and the proposed subsidy are counted. Most of that advantage comes from FuelEU Maritime, and bioLNG would already undercut VLSFO without SMAP. Because bioLNG is a drop-in fuel for liquefied natural gas (LNG) engines, this strengthens the business case for LNG dual-fuel ships trading in Europe. RFNBOs receive the most generous treatment of all and, on paper, EU-produced e-ammonia could become the cheapest fuel on intra-EU routes, although very few ships can burn ammonia today and EU production remains small.
The clearest losers are liquid biofuels made from waste oils and fats. UCO and category 1 and 2 animal fats meet every EU sustainability test and earn full credit under both the ETS and FuelEU Maritime, but SMAP supports only advanced biofuels made from feedstocks listed in Annex IX Part A of RED III. Biogas, by contrast, appears eligible regardless of feedstock. The exclusion matters because of how Europe’s biodiesel industry is built. By 2030, crops and waste lipids such as UCO and other waste fats and oils are expected to account for about 96% of the region’s biodiesel and renewable diesel production capacity, leaving only around 2% clearly eligible for support (Figure 2). Aviation’s sustainable fuel mandate is drawing on the same waste lipids, meaning shipping is unlikely to secure much eligible liquid biofuel.
Even for eligible fuels, SMAP is more likely to steer early movers than to drive large volumes. The budget is fixed at around $900 million per year if spread evenly, and claims are cut pro rata when oversubscribed, so owners learn the support per tonne only after the year ends. For bioLNG, mass balance rules also limit supply to bunkers from grid-connected liquefaction in the EU.
The proposal still faces negotiation with the European Parliament and European Council, and the final rules could narrow eligibility or curb overcompensation. Nonetheless, the direction for shipowners is clear: in European trades, fuels that perform well under the ETS, FuelEU Maritime and SMAP together are likely to win. Owners with LNG dual-fuel tonnage and early movers in e-fuels stand to benefit most, while those relying on waste-oil biodiesel should prepare for a widening cost gap.
Rystad Energy clients can access the full analysis on Rystad Energy's Client Portal.
