The introduction of the FuelEU Regulation brings significant complexities to ship management and operations, particularly concerning the handling of FuelEU credits and penalties. This discussion explores the key issues and potential strategies for managing these new challenges effectively.
Challenges in Realizing Fuel EU Credits
The value of a FuelEU credit value is not immediately realizable upon issuance. The notional value can be calculated right away, but actual recovery often takes longer, with payments potentially delayed until the pool is confirmed in the following calendar year. This delay could make it challenging to persuade owners and charterers to pay the face value of a credit before it is fully realized. Factors influencing the actual value include transaction costs, supply and demand, and vessel characteristics.
Redelivery Scenarios: Credits and Deficits
When a vessel is re-delivered by a charterer, it may have either a FuelEU credit or deficit. The handling of these scenarios requires careful consideration. If a credit exists, there is a question of whether charterers can compel owners to pay the credit value upon re-delivery, despite the potential delay in realization and the possibility of a lower actual amount. Conversely, if a deficit is present, determining whether the penalty should be paid by charterers at re-delivery or deferred until the actual payment date poses a challenge. An escrow arrangement could be a viable solution to secure the involved parties.
Implications of Subsequent Charterparties
Decisions made regarding FuelEU credit pooling and deficit management could impact future charter parties. Owners allowing charterers to direct how a vessel’s credits or penalties are handled post-redelivery may limit their ability to offer similar terms to subsequent charterers within the same calendar year. Additionally, vessels facing penalties for consecutive years will incur increasing penalty rates, potentially making them less attractive in the market. This situation highlights the importance of choosing charterers that can maintain low GHG-intensity operations.
The FuelEU Regulation introduces numerous considerations for charter parties, and while upcoming BIMCO clauses may address some issues, parties will need to tailor their agreements to their specific circumstances. The industry is likely to develop standard practices over time to navigate these complexities more smoothly.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe
Source: Gard
