The Sustainable Transport Investment Plan (STIP) as a lever to unlock maritime and aviation decarbonisation 

What is the Sustainable Transport Investment Plan (STIP)?

The Sustainable Transport Investment Plan (STIP) was announced in the Clean Industrial Deal (CID) published earlier this year, which mentioned “short and medium-term measures to prioritise support to specific renewable and low-carbon fuels for aviation and waterborne transport”. The STIP is expected to recognise the critical need for greater financing for, and de-risking of, investments into the production of renewable hydrogen solutions for shipping and aviation. This has been echoed by the Commission acknowledging that the STIP must take targeted action to overcome barriers to scaling e-SAF. 

Both synthetic fuels (or ‘e-fuels’) – produced using renewable hydrogen – and zero carbon emission technologies such as aircraft and vessels powered by renewable hydrogen fuel cells present the only credible pathways to net zero for aviation and maritime. Only a small number of maritime e-fuel projects, and no large-scale aviation e-fuel projects, have reached final investment decision (FID), despite the number of projects underway in the EU having capacity to meet the quantities mandated in ReFuelEU Aviation and FuelEU Maritime. 

An ambitious STIP that supports the growth of Europe’s renewable hydrogen fuels sector is therefore vital to both decarbonising aviation and shipping and cultivating these sectors’ long-term competitiveness in Europe. 

What should the STIP target? 

Funds allocated via the STIP will be most effective when reserved for renewable hydrogen solutions and should not be allocated to biofuels. There are a number of pathways to cut shipping and aviation emissions, with some less effective than others. 

Renewable hydrogen solutions offer a far greater market opportunity than waste-based biofuels in the medium to long term. This is due to e-fuels and hydrogen-powered aircraft costs trending downwards over time, and fewer constraints on scaling production. Between the economic and environmental opportunities green hydrogen solutions offer, the steep challenges of scaling and commercialising a nascent technology and fierce competition with incumbent fossil- and biofuels, it is this industry that must be targeted to optimise the use of funds. 

Biofuels, on the other hand, have less potential to reduce shipping and aviation lifecycle emissions than synthetic fuels, and risk impacting biodiversity. Beyond their environmental limitations, biofuels have greater technical readiness and are available today and are therefore less in need of support to boost production. Furthermore, significant projected supply constraints as demand grows means they do not offer industry economic sustainability and resilience in the long run, even if they are cost competitive today, and risk channeling funds into projects that could become stranded assets in the future. 

What instruments should the STIP include? 

The STIP should support renewable hydrogen solutions for shipping and aviation by introducing: 

1. Financing: A contracts for difference (CfD) scheme for EU-produced maritime and aviation e-fuels must be implemented and designed to address two barriers to investment: 1) the cost differential between e-fuels and conventional fuels and 2) disparity between the short contract lengths offered by offtakers and the longer ones required by producers. The STIP should include a CfD scheme backed by a market intermediary with a double-sided auctioning system, as broadly supported by prominent aviation voices. 

2. Flexibility: A limited book-and-claim system would provide the flexibility to de-risk investment into aviation e-fuel production and help kickstart the market in Europe. To ensure it achieves its purpose, this mechanism must meet the three conditions that it: 

a. Is only for e-fuels; 

b. Operates only within the EEA; 

c. Is time bound. 

Where should the money come from? 

It is understood that the STIP won’t include new revenue streams. However, it remains important that the aviation and maritime industries pay for their emissions under the polluter pays principle. 

The ETS is the main existing mechanism for making industry pay for its pollution. It currently covers all emissions from intra-EEA flights (plus the UK and Switzerland) and maritime voyages both within the EU and 50% of emissions from international maritime journeys for vessels over 5.000 gross tonnage (GT). Member States are obliged to use ETS revenues for climate action, and the Commission has specifically reinforced that 50% of its aviation revenues should fund decarbonising aviation. 

The current ETS scope is insufficient for both fairly pricing all shipping and aviation emissions to incentivise reductions and providing a revenue stream to fund decarbonisation. The EU ETS must be extended to cover:

1. Extra-EEA aviation emissions and,

2. Maritime emissions from vessels between 400 and 5.000 GT.