Choosing the right fuel: a brief guide to future prices and compliance costs
FuelEU and EU ETS compliance costs will be higher than current fuel prices after 2040, constituting a ‘tipping point’. This means regulatory costs - not fuel price - will determine the total cost of ownership then.
Before 2040, the simplest strategy with the lowest impact in operations 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. This analysis shows non-fossil LNG and ammonia have the lowest total costs of ownership ($1k - $1.5k mT equivalent), but biofuels and non-fossil methanol are close runner ups ($1.5k - $2k).
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.
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Navigating a complex seascape
The shipping industry is at a crossroads. With the introduction of FuelEU Maritime and the expansion of the EU Emissions Trading System (EU ETS) into the maritime industry, the cost of fuel is no longer just about the price per ton. Compliance costs are now a critical factor in determining the true economic viability of marine fuels, especially when you need to determine the economic viability of a refit, newbuild or lifetime extension. The available fuel options seem limitless, and regulators do not appear to make it easier for shipowners. On the contrary.
Shipowners must navigate a rapidly changing seascape where fuel selection impacts operational expenses and 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 additional taxation measures, adding another layer of complexity. With all these considerations for the future, the average shipowner is left to wonder:
“Which fuel should I use in the future?”
As the answer to this question differs per ship and shipowner, we cannot readily provide a single answer to that question in this article. What we can provide however, are the guidelines and rules of thumb that help you determine which fuel fits you best. In other words, this article provides you with the tools to determine a complete cost overview from now until 2050, for the ten most widely used marine fuels. 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. Energy content, fuel availability and bunkering infrastructure are key. Compliance costs are an afterthought, as in many cases the charterer is footing the fuel-bill, leaving the risk and the incentive to reduce fuel consumption outside the shipowner’s hands. Not anymore.
Carbon pricing and GHG intensity regulations - most notably EU ETS and FuelEU Maritime - are reshaping industry cost structures.
The EU Emission Trading System (ETS), which includes maritime emissions since 2024, imposes a carbon price on shipping per metric ton of CO₂ emitted. In parallel, FuelEU Maritime sets targets for reducing the GHG intensity of fuels, requiring shipowners to meet increasingly stringent thresholds every five years. 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. What it means is that the energy equivalent of 1 metric ton of HFO, approximately 40,500 MJ of energy, is used as a reference point for all other fuels. This amount of energy is converted into an amount of mass for a different fuel, upon which that fuel price and compliance costs are based.
For example, to generate 40,500 MJ 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 of ownership 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 of the engine. This list is neither comprehensive not complete, but the two most critical factors in any cost comparison are the fuel type and reporting year when it comes to compliance cost. On top of that, the individual fuel price is added to arrive at the total cost.
Sustainable Ships has conducted a detailed comparison and sensitivity analysis of 10 different marine fuels. This analysis examines variations in all the aforementioned 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 analysis 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 and sources 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. Biofuels and RFNBOs used in this analysis do not have any FuelEU penalties, but this depends on the specific biofuel batch and does not have to be the case. 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. What can be guaranteed with the current legislation however, is that by 2040, FuelEU penalties for fossil fuels will be as high as the fuel current price itself, similar to EU ETS.
HFO - Despite high compliance costs, HFO remains competitive compared to bio-methanol, bio-diesel, and HVO in total cost of ownership 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 thus 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 low (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 and FuelEU penalties, pending the E-value of the batch. Future regulation might introduce penalties for indirect emissions (land-use change, deforestation, or production emissions) but this is unknown as of yet. A big advantage for some biofuels is the drop-in compatibility for existing engines, providing a significant operational advantage and flexibility.
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. Is can be seen clearly with the yearly compliance cost for LNG, there is a fundamental ‘tipping point’ around 2040, caused primarily because of FuelEU Maritime. Before this date, the required carbon intensity reduction is ‘limited’ to 14.5%, which can generally be achieved with a limited amount of operational measures or changes. After the 2040 however, a 31% carbon intensity reduction is required, which requires significant operational measures or even fuel changes to ensure lowest costs are achieved.
The tipping point therefore constitutes a ‘before and after’ date that impacts newbuild versus lifetime-extension decisions mostly. Ships that are expected to sail (well beyond) 2040 have to be made ready for alternative fuels, or the ship design needs to be flexible to include a major refit over the course of its life. As this tipping point is heavily depended on FuelEU and EUA prices, it is important to understand potential regulatory changes that impact the costs before guidelines for future use can be provided.
Potential regulatory changes
The future remains uncertain, particularly when it comes to politics. It is a sad reality that potential changes to the regulatory framework can lead to tremendous shifts in total costs, led by the whims of politicians who might not have a clue about the reality of the shipping industry. This fact of life can not be predicted, but it can be mitigated. Especially when reading the FuelEU Maritime and EU ETS regulations closely, one can deduct upcoming changes and mechanisms that will impact costs the most.
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 for RFNBOs 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 completely after 2033. This has already been included for this analysis to provide a more conservative estimate.
CO₂ Emissions Electricity - In the current legislation, the carbon footprint of all electric power consumed by the ship (shore power or otherwise) is 0, which results in electricity being the ‘best’ option when it come to FuelEU. It literally has a carbon intensity of 0 according to the regulation. 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 when and how they will change.
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, and enables a shipowner to ‘sell’ its overcompliance to third parties if it so chooses. Although the market for this is still premature as FuelEU came into effect recently with respect to the date of publishing this article, 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 (another shipowner only pays half the penalty instead of the full penalty) the benefits per fuel from 2025 to 2050 can be in the orders of $800 per metric ton of HFO equivalent.
EU ETS
A key certainty in the EU Emissions Trading System is the ‘cap’. Inherent in the design and aimed to regulate and progressively reduce greenhouse gas emissions. The cap sets a limit on the total amount of emissions allowed within the system and is reduced annually at a fixed rate. This decrease is called the linear reduction factor (LRF), expressed as a percentage of the total cap in 2013.
Following the 2023 revision of the ETS Directive, the EU ETS cap is set to bring emissions down by 62% by 2030 compared to 2005 levels. To achieve this, the reduction factor has been increased to 4.3% per year over the period 2024-2027 and to 4.4% per year from 2028. Two cap reductions (rebasing) have also been scheduled before 2030 – by 90 million allowances in 2024 and by 27 million allowances in 2026. The key take-away here is that the total amount of allowances provided per year will be 0 around 2038.
The gradual reduction of the cap puts a downward pressure on the overall emissions allowed within the EU ETS framework. This pressure is expected to incentivize companies to adopt more environmentally friendly practices, as it leads to an increase of EUA prices. The predictions from Maersk, Bloomberg and Enerdata all reflect this fact: they expect EU allowances to be almost €500 per EUA. It 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 not if, but when the total amount of allowances in the system will be 0. There is no answering that question as it is still too far to tell, but ships sailing after 2040 might be facing a reality where EU allowances are extremely expensive, or not available at all.
Future-proofing fuel strategy: key considerations for each fuel type
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. Considering every ship, shipowner and voyage is unique, it is somewhat useless to provide guidelines from that perspective. However, with the results provided in this article, guidelines per fuel type are provided that serve as rules of thumb for the use of these fuels in the future.
HFO and MDO
Despite high compliance costs under both EU ETS and FuelEU Maritime, HFO and MDO will probably remain economically viable in the next 15 years 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 with the current regulatory framework. Many shipowners may find that simply absorbing the compliance costs, or pooling with other ships that have overcompliance is more attractive than investing in new fuels or technology. Additionally, fossil fuels can be mixed with bio-based alternatives, such as hydrotreated vegetable oil (HVO) or other drop-in biofuels, to mitigate compliance costs. After 2040 however, different strategies to achieve the lowest costs will have to be used.
LNG
LNG remains a compelling option for shipowners looking to future-proof their fleet, as it avoids FuelEU penalties until 2040 provided methane slip is low. Additionally the use of LNG 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. The shipowner must remain cautious however, 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 increase dramatically and the use of LNG can become more expensive than HFO or MDO. Using dual fuel technology mitigates this risks, at the expensive of potentially having an LNG installation that is not used. It is essential for shipowners to assess their options 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 under the current regulatory framework. Additionally 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. Their long-term viability is uncertain however 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 or are favoured by fuel suppliers, 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. Additionally fuel suppliers and chemical industry typically favours ammonia as it is easier to make: it does not require any carbon as nitrogen can be readily taken from the air. The use of ammonia on board is not without challenges however. 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 chemical 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. A key challenge is storage efficiency. Liquid hydrogen has a volumetric energy density of ~10 MJ/L, while LNG has a volumetric energy density of ~20.8 MJ/L. Liquid hydrogen thus requires twice the storage volume of LNG for the same energy content, excluding the additional insulation requirements which might require an additional 44% volume. When accounting for insulation, minimum fill levels, and practical storage limitations, LH2 tanks may need to be up to four times larger than LNG tanks to meet the same operational energy demand, making it a difficult option for long-haul vessels and more challenging than methanol or ammonia. Additionally, hydrogen bunkering infrastructure is virtually non-existent today, and large-scale production remains costly. Although green hydrogen may become viable in the very, very long term, particularly for short-sea shipping and ferries, deep-sea applications will likely struggle with fuel storage constraints and refuelling 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 in their current form 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 currently existing long-haul ships. Hybrid solutions, where batteries supplement traditional fuels, will see wide-spread adoption, as this technology can supplement all other existing fuels whilst ensuring lowest possible compliance cost. In other words, any fuel and all ship types are generally benefitted with hybridization, electrification or shore power solutions.
Final thoughts for shipowners - before and after 2040
Before 2040, a cost-effective and least-intrusive strategy for shipowners that want to minimize compliance costs without major operational impact appears to maintain using fossil fuels while blending drop-in biofuels where needed. Investing in shore power and hybrid electrification is always a smart move for any vessel, in particular for containerships and passenger ships as these will be required to have shore power by 2030 as per FuelEU Maritime. LNG remains a viable 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 for other fuels if needed.
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, especially for LNG ships or chemical tankers. 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 model. No CAPEX costs for refits or engine modifications are included in the analysis. Blending of fuels is also excluded, thereby making it seem as if there is only a choice for a single fuel, which is absolutely not the case. Additionally the fuel 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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