Choosing the right fuel: a brief guide to future prices and compliance costs
FuelEU and EU ETS compliance costs will be higher than conventional fuel prices after 2040, constituting a ‘tipping point’. This means regulatory costs - not fuel price - will determine the total cost of ownership.
Before 2040, the simplest strategy appears to blend fossil fuels with drop-in biofuels while investing in shore power and hybrid electrification. After 2040, newbuilds will need to commit to alternative fuels in addition to significant electrification. Ammonia, bio-methanol, or synthetic LNG are all viable options, depending on operational needs and fuel availability.
Use our interactive tool with 10 different fuels to compare compliance costs and find the most cost-effective option for your fleet at the bottom of this blog.
The shipping industry is at a crossroads. With the introduction of FuelEU Maritime and the expansion of the EU Emissions Trading System (EU ETS) to include the maritime industry, the cost of fuel is no longer just about the price per ton. Compliance costs are a critical factor in determining the true economic viability of marine fuels, especially when you are investing in a newbuild option. The available options seem limitless however, and the regulatory organization do not appear to make it easier for shipowners. On the contrary.
Shipowners must navigate a rapidly shifting regulatory landscape where fuel selection impacts not only operational expenses but also regulatory penalties, future asset value, and long-term competitiveness. Different fuels adhere to different costs and taxation schemes and have different emissions factors that change over time, per voyage and per ship type. It is expected that the IMO will also impose similar mechanisms globally, adding to the compliance costs and further complicating economic analyses. With all these considerations for the future, the average shipowner is left to wonder:
“Which fuel should I use in the future?”
If we knew the answer to that question, we would probably not share it as it would be worth a lot. What we can offer in this article however, are the guidelines and rules of thumb that can help you determine which fuel fits you best. Your ship, your operations, your preferences. With a number of fuel predictions and scenarios, as well as the compliance costs of FuelEU and EU ETS known, this article will set out to provide estimates on the costs for the most widely used marine fuels currently in existence, providing a complete overview of total fuel costs from now until 2050. Before we dive into the future however, let us determine the principles under which shipowners currently operate and how that will be changed.
The new cost equation: fuel price vs. compliance costs
Traditionally, shipowners focus on fuel price volatility and long-term fuel supply agreements to manage operational expenses. In many cases, not the shipowner but the charterer is footing the fuel-bill, hence the risk and the incentive to reduce fuel consumption are outside the shipowner’s hands. Compliance costs were never a part of the equation, but they have become a decisive factor and are reshaping cost structures across the industry.
Fuel choices are no longer just a matter of energy content and bunkering infrastructure; they are tied to carbon pricing mechanisms and greenhouse gas (GHG) intensity regulations, particularly EU ETS and FuelEU Maritime.
The EU Emission Trading System (ETS), which includes maritime emissions since 2024, imposes a carbon price on shipping. In parallel, FuelEU Maritime sets targets for reducing the GHG intensity of fuels, requiring shipowners to meet increasingly stringent thresholds. The combined impact means that choosing a cheaper fuel with a high emissions profile may no longer be the most cost-effective option. Fuels with lower lifecycle emissions and regulatory incentives may yield significant savings in compliance costs over time. This begs the question: which options are there and how do they compare with one another?
Fuel cost scenarios and compliance implications for 10 different marine fuels
A proper comparison of different marine fuels requires the use of HFO (or VLSFO) equivalent pricing. This method ensures that different fuels can be assessed on a normalized basis, considering fuel price and compliance costs based on an equivalent amount of energy. It means that the energy equivalent of 1 metric ton of HFO, approximately 40,500 MJ of energy, is used as a reference point. This amount of energy is converted into an amount of mass for different fuels, upon which fuel prices and compliance costs are based. For example, to generate the same amount of energy using MDO, only 0.95 metric tons is needed, while LNG would need 0.83 metric tons to match the energy equivalent of 1 metric ton of HFO. Total costs are then calculated by multiplying the amount of fuel in tons and adding the compliance costs for each fuel individually.
Even when using this standardized approach, fuel cost comparisons remain complex due to the shear amount of parameters than can be varied. These include the reporting year, fuel type, E-value (for biofuels), ship type, voyage characteristics, and mode of operation. The list goes on but among these, the two most critical factors in any cost comparison are the fuel type and reporting year for compliance cost, and the fuel price of course.
Sustainable Ships has conducted a detailed comparison and sensitivity analysis of 10 different marine fuels. This analysis examines variations in all these parameters and calculates the compliance costs associated with FuelEU Maritime and the EU ETS from 2025 to 2050. By applying HFO equivalent energy conversions, the study provides a clear breakdown of compliance costs per equivalent amount of fuel, incorporating projected regulatory penalties and fuel costs. This allows shipowners to better understand the long-term cost implications of their fuel choices under evolving regulatory frameworks. The following conclusions can be drawn from the analysis.
EU ETS - All current price models predict a rise in EU Allowance (EUA) prices to almost €500 per mT CO₂e by 2040 and beyond. At these levels, EU ETS costs could match or exceed the fuel price itself, significantly impacting total operational costs. Biofuels and RFNBOs (Renewable Fuels Non-Biological Origin) are currently treated as having zero CO₂ emissions, making them mostly exempt from ETS compliance costs. However, future revisions might include a CO₂ factor for biofuels, particularly if land-use change (ILUC) or upstream emissions become a concern.
FuelEU - current legislation indicates FuelEU compliance costs for fossil fuels will be similar to current fuel price by 2040 and beyond. All biofuels and RFNBOs do not have any FuelEU costs. By 2040, FuelEU compliance costs for fossil fuels will be as high as the fuel price itself, similar to EU ETS. Biofuels and RFNBOs do not have zero compliance costs per se, it depends on the E-value or well-to-tank emissions of a fuel, i.e. the total greenhouse gas (GHG) emissions (gCO₂ eq/MJ) associated with a fuel’s production. There is no guarantee that biofuels will remain penalty-free if lifecycle emissions accounting becomes more stringent and the bonus factor for RFNBOs currently in use will be changed from 2033 onwards.
HFO - Despite high compliance costs, HFO remains competitive compared to bio-methanol, bio-diesel, and HVO in total cost of ownership, especially until 2040. That means that paying the EU ETS and FuelEU compliance fees might still be cheaper than switching fuels or modifying ship operations. HFO use with scrubbers may remain viable as long as fuel price + compliance cost does not exceed alternative fuels, which is most likely the case until 2040.
LNG - Under current legislation, LNG faces virtually no penalties until 2040, provided methane slip is below 0.20%. Methane slip is a big risk however, as it could result in major penalties, making LNG compliance highly engine-dependent as a fuel. After 2040 bio-LNG (liquefied biomethane) can be mixed to offset compliance costs, keeping LNG ships viable long-term provided methane slip remains low.
Biofuels - Almost fully exempt from EU ETS penalties and pending E-value for FuelEU Maritime as well. Future regulation might introduce penalties for indirect emissions (land-use change, deforestation, or production emissions). A big advantage is the drop-in compatibility for existing engines for some fuels and engines, providing a significant operational advantage.
Methanol - Fossil methanol is not an option as compliance costs are higher than regular fossil fuels. Compliance costs for bio-methanol are virtually non-existent at the moment however, but the availability remains an issue in the coming years and potentially always as it competes with chemical industry as feedstock.
Hydrogen - Hydrogen in this analysis shows many similarities to methanol. Fossil hydrogen is not an option due to higher compliance costs. Bio- and e-H2 remain a long-term compliant option, but can be extremely costly and will for certain compete with chemical industry as feedstock.
Ammonia - Both green and blue ammonia result in virtually no compliance costs (assuming right fuel property conditions are met). EU ETS costs arise only due to potential N₂O emissions pending the engine settings. Another benefit is the fact that the production process is less volatile and less prone to price fluctuations compared to other fuels, making it favoured by refineries and fuel producers. This is reflected in the yearly price predictions as ammonia is one of the few fuels that actually has almost constant fuel prices over time.
The 2040 Tipping Point
Note that these results are extremely time-dependent and there is a fundamental ‘tipping point’ around 2040. That means that before this time, either limited amount of operational measures can be used to minimize costs. After this tipping point, significant fuel changes or other measures need to be taken to ensure lowest cost. The most important reason for this tipping point is the fact that FuelEU increases its targets every five years. Before 2040, the carbon intensity reduction required is 14.5%. After 2040, it is 31.0%. This step change imposes significant changes in either operations, fuel, equipment or all of these. In short, 2040 is a very important date, especially when you want to invest in a newbuild that survives after that date.
Expected and not-expected regulatory changes
It is quite clear that compliance costs now play a decisive role in fuel selection, for shipowners and charterers alike. Pending on the contract, either one must shift from a purely price-driven approach to a holistic cost analysis that factors in EU ETS liabilities and FuelEU penalties. The future remains uncertain as always however, in particular with respect to politics. Potential changes to the regulatory framework can lead to significant shifts, the most impacting ones that can be foreseen at the moment being FuelEU and EU ETS.
FuelEU
There are three aspects of FuelEU Maritime which will significantly change compliance costs in short and long term. These are the bonus factor for RFNBOs (Renewable Fuels Non-Biological Origin), the CO₂ factor for electricity and pooling benefits.
RFNBO Bonus - FuelEU currently includes a bonus factor of 2 for RFNBOs, which generates a significant benefit for shipowners. It basically results in the greenhouse gas intensity being halved, therefore providing great incentive for a shipowner to use these types of fuels. But if you intent to use them, you have to move fast - the bonus factor is expected to change or removed after 2033.
CO2 Emissions Electricity - In the current legislation, the carbon footprint of all electric power (shore power or otherwise) is taken as 0, which results in electricity being the ‘best’ option when it come to FuelEU. This will not remain in effect forever of course. When these guidelines change, it will greatly impact the penalties and benefits when using fully electric ships or shore power. At this point in time however, it is unknown to what extent.
Pooling Benefits - FuelEU Maritime allows shipowners to combine the compliance performance of multiple vessels within their fleet, offsetting underperforming ships with overperforming ones to reduce overall penalties. This mechanism is called pooling and can lower total compliance costs by optimizing a fleet’s energy mix and leveraging different low-carbon solutions. Pooling is also allowed outside a single shipowner’s fleet however, and therefore enables a shipowner to ‘sell’ its overcompliance if it so chooses. Although the market for this is still premature as FuelEU came into effect recently (with respect to this article date), it is projected that selling overcompliance can lead to significant benefits to a shipowner. When assuming a shipowner sells its overcompliance at half the penalty’s price (so another shipowner only pays half its penalty) the benefits per fuel from 2025 to 2050 can be in the orders of $800 per metric ton of HFO equivalent, as is shown in the figures below.
EU ETS
A key certainty in the EU ETS (Emissions Trading System) is the cap: designed to regulate and progressively reduce greenhouse gas emissions. This cap, which sets a limit on the total amount of emissions allowed within the system, is reduced annually at a fixed rate. This decrease is calculated using the linear reduction factor (LRF), expressed as a percentage of the total cap in 2013. The current legislation sets the LRF at 2.2% per year. However, there are proposals to increase this to 4.2% or even 5.2% in the future. The gradual reduction of the cap puts a downward pressure on the overall emissions allowed within the EU ETS framework. This downward pressure is expected to incentivize companies to adopt more environmentally friendly practices, and also leads to an increase of EUA prices. This is reflected in the fact that all future scenarios and price predictions including Maersk, Bloomberg and Enerdata show EU allowances will rise to several hundreds of euros per allowance. This is simple supply and demand: as the cap decreases, the availability of EUAs decrease, and therefore prices go up. The deeper underlying elephant in the room is “what happens when the amount of allowances are 0?”. Does this mean the maritime industry needs to be carbon neutral? Will it be illegal to emit CO₂? This remains uncertain for a long time, but should be considered as an option for shipowners who are planning to build ships that will still sail in 2040 and beyond.
Future-proofing fuel strategy: key considerations for shipowners for each fuel type
Every ship and shipowner is unique, that is certain. Based on what we now know from this analysis however, which guidelines can we provide shipowners? For each fuel, the following is to be considered.
HFO and MDO
Despite high compliance costs under both EU ETS and FuelEU Maritime, HFO and MDO remain viable for at least the next two decades due to their minimal operational disruption. While other fuels require infrastructure modifications, new fuel supply chains, or adjustments to onboard systems, HFO and MDO allow shipowners to maintain business as usual—at least for now. Many shipowners may find that simply absorbing the compliance costs is more attractive than investing in new technology. However, a potential long-term strategy is to mix these fuels with bio-based alternatives, such as hydrotreated vegetable oil (HVO) or other drop-in biofuels, to mitigate compliance costs. The key question is whether the regulatory environment will continue to allow this mix or if emissions penalties will be extended to blended fuels in the future.
LNG
LNG remains a compelling option for shipowners looking to future-proof their fleet, as it currently avoids FuelEU penalties until 2040 and allows for a transition to bio-LNG or even synthetic e-LNG in the long term. This makes LNG a solid choice for newbuilds, particularly as global LNG bunkering infrastructure continues to expand. However, the industry must remain cautious, as the regulatory framework around methane slip—the unintended release of methane during combustion—could significantly impact the fuel’s cost-effectiveness. If stricter methane slip limits are imposed or if a ship's engine has a high slippage rate, compliance costs could increase drastically. This risk makes it essential for shipowners to assess their engine technology carefully before committing to LNG.
Biofuels
The use of biofuels such as HVO and FAME presents an attractive option due to their exemption from EU ETS and FuelEU Maritime penalties. These fuels can be blended with existing fossil fuels or used as direct replacements, reducing emissions without requiring major modifications to engines or fuel storage systems. However, their long-term viability is uncertain due to potential price volatility and supply constraints. The global demand for sustainable biofuels is increasing across multiple industries, including aviation and road transport, which could drive prices higher and limit availability. Additionally, future revisions of the Renewable Energy Directive (RED) could introduce new sustainability criteria or emissions factors that alter their compliance status. To mitigate these risks, shipowners must ensure that any biofuel they procure comes with a Proof of Sustainability (PoS) from a reputable supplier.
Methanol
Methanol is frequently discussed as a future fuel for shipping, but the reality is more complex. While bio-methanol and e-methanol offer strong compliance benefits and are actively being pursued by several shipping companies, they will always compete with the chemical industry for production capacity. As a result, long-term availability remains a major concern, and costs are expected to stay high. Unlike ammonia or LNG, which are seeing growing momentum in the maritime sector, methanol's supply chain remains fragmented, making it a riskier bet for shipowners planning for post-2040 compliance. Even if a ship is methanol-capable, the real question is whether there will be enough bio-methanol on the market at a competitive price to sustain long-term operations.
Ammonia
Ammonia has a significant advantage over other fuels in that its tank-to-wake CO₂ emissions are effectively zero, making it a promising candidate for full decarbonization. However, its adoption is not without challenges. The main technical hurdles include engine modifications, safety concerns, and the risk of nitrous oxide (N₂O) emissions, which are significantly more potent as greenhouse gases than CO₂. If regulators choose to impose strict N₂O emission limits, ammonia could face unexpected compliance costs in the future. Additionally, the handling and storage of ammonia introduce serious health and safety (HSE) risks due to its toxicity and corrosive nature. While ammonia is a strong contender for future shipping fuels, especially for LNG newbuilds and LPG tankers, shipowners must remain aware of the potential regulatory and safety risks before committing to it as their primary fuel.
Hydrogen
While hydrogen is frequently discussed as the ultimate zero-emission fuel, its practical application in shipping remains extremely limited. The main challenge is storage efficiency—liquid hydrogen requires four times the storage volume of LNG for the same energy content, making it a difficult option for long-haul vessels. Additionally, hydrogen bunkering infrastructure is virtually non-existent today, and large-scale production remains costly. Although green hydrogen may become viable in the long term, particularly for short-sea shipping and ferries, deep-sea applications will likely struggle with fuel storage constraints and refueling logistics well beyond 2040. For most shipowners, hydrogen remains an experimental option rather than a near-term solution.
Electrification
Batteries and electrification are viable solutions for short-sea shipping, ferries, and port operations, where shore-based charging infrastructure can support regular operations. However, full electrification of deep-sea vessels is unlikely due to weight, energy density, and charging constraints. Even with significant advancements in battery technology, the energy density of batteries remains orders of magnitude lower than conventional fuels, making them impractical for long-haul shipping. Hybrid solutions, where batteries supplement traditional fuels, may see wider adoption, but fully electric container ships or tankers are not expected to be commercially viable at scale before 2050.
Final thoughts for shipowners - before and after 2040
Before 2040, a cost-effective and least-intrusive strategy for shipowners appears to maintain existing fossil fuel operations while blending in drop-in biofuels where possible to minimize compliance costs without major modifications. Investing in shore power and hybrid electrification is a smart move for any vessel, in particular for containerships and passenger ships. LNG remains a viable transition fuel, especially for newbuilds, as long as methane slip is controlled and bio-LNG or e-LNG can be phased in later. For shipowners placing newbuild orders, ensuring fuel flexibility through dual-fuel engines or modular storage systems provides adaptability.
After 2040, shipowners will need to commit to alternative fuels. Ammonia is a strong candidate for deep-sea shipping if safety and N₂O emissions are managed, while short-sea and regional vessels may turn to bio-methanol or expanded electrification as infrastructure improves. Hybrid propulsion and shore power will play a larger role, further reducing dependency on liquid fuels.
Model assumptions
The model used has some big flaws, granted. The biggest one is of course the fact that it is an OPEX driven and no CAPEX costs are included in the analysis. Blending of fuels is excluded in this model, thereby making it seem as if there is only a choice for a single fuel. Additionally the price assumptions and EUA projections can flip the chart and change the top 5 in an instant. In order to provide you with more control and determine your own scenario, feel free to use the interactive tool below. Contact the helpdesk if you need any further customization features.
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A modified version of the Fuel Cost Calculator was used for this analysis. This tool compares compares fuel costs, EU ETS costs, FuelEU penalty and pooling benefits if applied. This tool helps shipowners, operators, and fuel suppliers assess the economic impact of different fuel choices while considering regulatory developments, in particular FuelEU Maritime and EU ETS.
The tool allows for a scenario-based analysis, allowing you to explore predefined fuel price evolutions (Steady State, Fossil Future, Biofuels Better, and Renewable Rise) or define your own price trends. It also enables dynamic selection of a start and end year, so you can focus on specific time ranges to analyse fuel cost evolution. A report of your analysis can be printed and shared to showcase different options all the way up to C-level for strategic decision-making purposes. In short, you can use the tool for …
Operational Cost Forecast – Project fuel costs over time, incorporating EU ETS and FuelEU penalties or pooling benefits.
Regulatory Compliance Assessment – Determine the cost implications of EU ETS and FuelEU Maritime penalties and identify cost-saving strategies.
Investment Case Report – Create a structured analysis to present fuel cost scenarios and regulatory impacts to decision-makers.
Feasibility Study – Assess the financial and regulatory impact of switching to alternative fuels before making investment decisions.
Fuel Cost Benchmarking – Compare fuels on an energy-equivalent basis to understand which is most cost-effective for specific routes or operations.
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This case study analyzes 10 marine fuels using an HFO-equivalent model to determine their full lifecycle costs, including fuel prices and regulatory compliance costs, from 2025 to 2050. The results highlight a critical tipping point in 2040, driven by the FuelEU Maritime regulation increasing carbon intensity reduction targets sharply from 14.5% to 31%. This blog provides shipowners with guidance on how to navigate these evolving cost scenarios and maintain competitiveness to ensure future-proof investments.