Can loyalty point redemption be set up to apply to shipping? And if so, to just shipping charges?
Loyalty points can be redeemed as a "discount" or as "payment". At Settings/Edit Site Options/Customer Loyalty, the "Apply Loyalty As" field allows you to choose at which point in an order's discount structure a loyalty redemption applies.
The Discount option applies a redemption after the Order Subtotal but before Sales Tax, much like Customer, Coupon, and Order Discounts.
The Payment option applies the redemption at the very end of the order, after Sales Tax and Shipping, thus effectively making it a payment, much like a Gift Certificate or Gift Card.
So, while loyalty points redeemed as payment will apply to shipping as well as products, they cannot be set up to apply only to shipping.