Italian subsidy scheme seeks to reduce shipping sector’s fossil fuel usage

Posted: 20/04/2023

On 11 November 2022, the European Commission approved the direct subsidy scheme designed by the Italian government to support shipping companies interested in renewing their fleets. This direct subsidy scheme, with an available fund of €500 million, is set out in Decree No 290, of the 21 September 2022, from the Italian Ministry of Infrastructure and Transport (Decree 290/22).

The essential objective of the scheme is to mitigate the environmental impact of ships' propulsion systems, and thus to encourage the shipping industry to drastically reduce the use of fossil fuels.

The European Commission's positive decision is based on three fundamental aspects:

• the need to support the reduction of harmful emissions in the maritime transport sector;
• the incentive effect for the beneficiaries, given that the necessary investments for fleet renewal could not be made without public support; and
• the limited impact of the aid within the European Union. Moreover, the support in question is considered necessary and appropriate for Italy to comply with the environmental objectives set by the European Union.

Therefore, the Italian state aid is considered compatible with EU principles because it is essential to meet the environmental objectives set out in the European Green Deal and the ‘Fit for 55’ package and because, in addition, the beneficiaries of the aid scheme are selected on the basis of an open, non-discriminatory, and transparent procedure.

What are the guiding principles of the Italian decree for fleet renewal?

Firstly, it should be noted that the €500 million fund is distributed equally between new constructions, and modifications or conversions of vessels, and provided that they incorporate propulsion systems with reduced environmental impact. Warships, fishing vessels, pleasure craft, floating structures and cruise ships are excluded from the subsidy.

In order to qualify for the subsidy[1], projects had to comply with a number of administrative, economic (for eligible shipping companies) and technical requirements, which are detailed in Decree 290/22 and other related provisions.

The following basic requirements are highlighted here:

• the vessels (new constructions, modifications or conversions) must operate on Italian national territory, via maritime links involving an Italian port and with traffic to European or Mediterranean ports, or operating within the Italian port area[2];
• during the five years following receipt of the subsidy, the vessels must be operated by shipping companies with a permanent establishment in Italy;
• the subsidy may be granted to all types of metal-hulled vessels provided that their gross tonnage (GT) is equal to or greater than 100 tonnes; and
• the contracts (building, conversion/modification) have to be signed before 30 June 2023.

The amounts granted are intended to subsidise the construction of new metal-hulled vessels (up to 30% of the contract amount) equipped with a reduced environmental impact propulsion system type; in the remaining cases (modification or conversion), only the costs relating to the incorporation of the reduced environmental impact propulsion systems will be subsidised. It is important to note that the new constructions to be subsidised may be undertaken in any member state of the European Union.

According to data provided by the publication Shipping Italy, obtained from the Italian Ministry of Infrastructure and Transport, of the initially planned fund approved by the European Commission (€500 million), the sum of eligible projects, including new constructions[3] and ship conversion/modification works, has reached a figure of around €165,000,000,000.

All in all, this scheme entails a considerable disbursement which will have an impact on the modernisation of the large Italian fleet, and which will enable the reduction of polluting emissions and promote the environmental sustainability of shipping in the Mediterranean Sea.

This article was originally published in Revista de Ingenería Naval, and has been translated from Spanish into English.

[1] Projects had to be submitted by the end of 2022.

[2] For newly built ships, given their role as a link between national ports, priority has been given to passenger ships, including passenger plus ro-ro cargo vessels.

[3] About 20 new constructions.

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