Europe likes to think of itself as the regulatory superpower of the energy transition, but it isn’t really. In shipping, however, it behaves like one. The combination of FuelEU Maritime, the EU ETS extension to maritime transport, and AFIR and CBAM spillovers, combined with state-aid discipline, has created one of the most demanding decarbonisation frameworks in the world. Yet behind the policy architecture sits an uncomfortable reality. Europe’s maritime decarbonization efforts lack the capital needed to decarbonize its fleets and shipyards. Capital is clearly not flowing at the scale, speed, or structure needed. The result is a widening funding gap that threatens to turn regulatory ambition into industrial contraction.

The problem is not a lack of climate targets or technological options. Shipowners know what is needed. The list is, however, extensive and very capital-intensive, from newbuilds capable of running on LNG, methanol, ammonia, and eventually hydrogen, to deep retrofits for existing tonnage. At the same time, there is a call for digital efficiency upgrades, alongside investments in shipyards to handle new fuels, materials, and safety regimes. The problem is that Europe has built a decarbonisation regime without a matching financing regime.

Current EU funding frameworks are not only too small, but also too fragmented and restrictive. Many of the investments that matter most either fall outside eligibility criteria or fail to meet the risk-return thresholds imposed by public instruments. To address this, EU instruments could be adapted to include larger, more flexible funding pools or blended finance options that support full-scale deployment. As a result, politically mandated projects would become financially viable, aligning funding more closely with industry needs.

This contradiction is becoming visible across the European maritime ecosystem as seen by small and mid-sized shipowners, who are facing balance sheets that cannot absorb fuel risk, technology uncertainty, and regulatory escalation simultaneously. European banks, constrained by prudential rules and climate stress tests, increasingly retreat to the sidelines unless public guarantees are explicit and substantial.

Europe’s response so far has been gradual or step-by-step. The European Union has at present mobilized parts of the Innovation Fund, the Connecting Europe Facility, Horizon Europe, and national recovery plans. At the same time, the European Investment Bank has decided to expand its green lending. Still, the overall approach needs criticism, as none of these tools resembles a coherent maritime transition finance system. It is more like an old-fashioned patchwork. The total shows clearly that it is poorly aligned with the asset cycles of ships and shipyards.

The first fundamental flaw in it all is the scale: it should acknowledge that hundreds of billions of euros-specifically, will be needed over the next 20 years to decarbonize Europe’s commercial fleet. This amount will never be covered by public funding, and it shouldn’t be. Still, as always, especially in the current financial markets, public capital is a catalyst for more, but at present it takes the form of a symbolic gesture. With grant sizes hovering around tens of millions, knowing that vessel replacement programs require billions, any potential leverage effect is already thrown out of the window. At present, capital is waiting for clarity that never seems to arrive.

Eligibility is the second flaw, as many EU instruments are designed for innovation rather than deployment. To the surprise of most people, EU instruments favor first-of-a-kind technologies, pilot projects, or narrowly defined emissions reductions rather than full-scale applicability. Looking at the needs of shipping decarbonisation, it is clear to most participants that the bulk of decarbonisation will come from second- and third-generation adoption. Europe’s shipping sector is looking for standardized low-emission designs, serial production, and industrial scaling, as they will not only deliver value for money but will also be available in a very short time, without hitting margins too hard. To unlock investments in these technologies, policymakers should consider targeted incentives, risk-sharing mechanisms, or dedicated funding streams that recognize their importance for large-scale impact.

The last flaw to look at is risk allocation. Europe’s approach is very lopsided overall, as it has effectively placed fuel, regulatory, and residual value risks on private actors, yet doesn’t offer broad protection in return. A shipowner ordering a new ship today must already make assumptions about fuel availability, fuel price spreads, carbon costs, port infrastructure, and compliance rules over a 20-25-year period. Given the current dramatic changes and volatility in European regulations and related factors, the risk for financials is very high. The current situation will push private finance to avoid shouldering that uncertainty, at least unless there are public guarantees or long-term policy-backed revenue mechanisms. Brussels has been reluctant to provide either at scale.

Brussels must recognize that treating maritime decarbonization as a strategic industrial transition, rather than isolated projects, is essential to inspire confidence and foster coordinated action among policymakers and industry stakeholders.

The first step to take is to set up a fleet renewal plan worthy of the name. It should no longer be a collection of ad hoc grants, but a structured program. The latter’s focus should be to explicitly support the withdrawal of obsolete vessels and replace them with low- and zero-emission tonnage. It should also be realized that scrapping support may be politically sensitive; however, it is economically unavoidable. Capital will hesitate to fund newbuilds, if old, inefficient vessels remain in service. The old vessels are currently undermining the competitiveness of newbuilds, due to their legacy tonnage. Europe should be willing to set up a regulated exit mechanism.

To make this as effective as possible, the plan should include not only deep-sea shipping but also short-sea shipping, inland navigation, fisheries, and aquaculture. This will be necessary, as the latter sectors have smaller vessels and narrower margins, limiting decarbonisation options. Until now, these smaller vessels have been rhetorically included in EU strategies but structurally almost excluded from finance. Recognizing this removes a current strategic mistake. There is a clear need to address short-sea and regional shipping as the backbone of Europe’s internal market, as they can also serve as a critical testbed for new fuels and propulsion systems.

It will also be necessary to create dedicated financing pipelines that blend EU funds, national budgets, and public guarantees into a single, bankable structure. The latter will not target new money but will align existing pools. All fund options, from Innovation Fund revenues from the EU ETS, national green funds, and EIB lending, should be pushed or bundled together to form standardized instruments, which will be able to de-risk private capital at the asset level. By giving European-wide guarantees on residual value, fuel cost differentials, and regulatory compliance, a situation will be created that would do more to unlock investment than another round of competitive grants.

The main logic to set in place is clear: if Europe is willing to mandate decarbonization, it needs to underwrite part of the transition risk. By setting up public guarantees, they will crowd in private finance, as they lower capital costs, extend tenors, and make projects financeable for institutional investors. Until this is recognized and set up, the shipping sector will be in a limbo of “regulatory certainty but financial paralysis.”

To speed things up and to support the total, Europe should treat shipyards as transition infrastructure, not just commercial suppliers. All European strategies entail that their shipbuilding and repair yards will deliver fuel-ready designs, advanced materials, digital systems, and safety upgrades for alternative fuels. The latter is to be done while competing with heavily subsidized Asian rivals. Until now, however, yard modernization, workforce reskilling, and tooling upgrades are still, or are very often, excluded from maritime funding schemes. Europe should understand right now that without competitive yards; fleet renewal will migrate elsewhere. The latter will not only export emissions but also industrial capacity. It feels at present that, without change, Europe is still going to support and strengthen China or other Asian yards, while trying to increase its autonomy. This is not going to work.

All these factors will need to be considered for a credible European financing strategy. It will need to entail shipyard-specific transition windows, co-funded investments in production lines, testing facilities, and workforce training. The total will also have to be explicitly tied to low-emission vessel output. There is a clear need for an industrial policy in the service of climate goals.

This approach will already face major criticism, especially from parties arguing that the continent cannot afford this ambition. My answer is that, realistically, Europe cannot afford to be absent; it is time to act. Without it, decarbonization will slow, European operators will lose competitiveness and capital, and newbuilds will flow to other geographies. At the same time, Europe’s maritime industrial base, including shipyards, equipment suppliers, and service firms, will erode, handing control to external actors.

Being slightly contrary, it is very ironic to see that Europe already has the ingredients for success. While it already has regulatory clarity, technological capability, and capital abundance, there is still no coherence. The real target for closing the maritime decarbonisation funding gap is to build better financial architecture. This can be supported by revising funding rules to reflect industrial realities and by embracing fleet renewal as a policy tool. Overall, it should establish blended finance pipelines to rationalize private investment.

For all readers, this article is not a conclusion; it is a starting point. Market participants, EU policymakers, and sector specialists will need to engage in in-depth analysis and establish the following: a new design of scrappage mechanisms, recalibrating guarantees, aligning ETS revenues with maritime needs, and defining the role of national governments alongside that of the EU. Still, current developments and needs have pointed the way: Europe can either align its money with its mandates, or its maritime transition will stall.