The FuelEU Maritime initiative represents a pivotal step in the European Union’s ongoing efforts to mitigate climate change and reduce GHG emissions by at least 55% by 2030. This article provides a short-form analysis of the initiative, its regulatory framework, the mechanisms for compliance, and the broader implications for the maritime industry, reports UK P&I Club.
Reducing GHG Intensity
The FuelEU Maritime initiative introduces a series of regulatory measures aimed at reducing the GHG intensity of fuels used by ships operating in EU waters.
It applies to ships over 5,000 GT making port calls in EU/EEA Member States, regardless of their flag state. The regulations cover various types of voyages, ensuring that the majority of shipping activities related to the EU are subject to these new GHG intensity limits.
Implemented will occur in phases, with progressively stricter GHG intensity limits set for 2025, 2030, 2035, 2040, 2045, and 2050.
The baseline GHG intensity is 91.16 grams of CO2 equivalent per megajoule (gCO2eq/MJ), representing the average GHG intensity of maritime fuels in 2020. From this baseline, the required reductions are as follows:
- 2025: A 2% reduction from the 2020 level, resulting in a GHG intensity limit of 89.34 gCO2eq/MJ.
- 2030: A 6% reduction, resulting in a GHG intensity limit of 85.69 gCO2eq/MJ.
- 2035: A 14.5% reduction, resulting in a GHG intensity limit of 77.94 gCO2eq/MJ.
- 2040: A 31% reduction, resulting in a GHG intensity limit of 62.30 gCO2eq/MJ.
- 2045: A 62% reduction, resulting in a GHG intensity limit of 34.64 gCO2eq/MJ.
- 2050: An 80% reduction, resulting in a GHG intensity limit of 18.23 gCO2eq/MJ.
How Will It Be Applied?
Voyages between EU/EEA ports and ships at berth in EU-EEA ports: 100% of the fuel used on these voyages will be subject to GHG intensity limits.
Voyages between an EU/EEA port and a non-EU/EEA port: 50% of the fuel used will be covered by the regulations.
Fuel used while the ship is at berth in EU/EEA ports: 100% of the fuel used is subject to GHG intensity limits.
Certain container transshipment ports are excluded from being considered a “port of call” under FuelEU Maritime regulations. This exception applies to ports that meet specific criteria:
Location Criteria: The port must be located outside the EU but within 300 nautical miles of an EU/EEA Member State port.
Transshipment Share Criteria: The port must have a transshipment share (measured in Twenty-Foot Equivalent Units or TEU) exceeding 65% of the total container traffic at that port during the most recent 12-month period for which data is available.
Voyages that precede and follow excluded ports will be treated as consecutive voyages under the FuelEU Maritime regulations.
Who has primary responsibility for compliance?
The primary responsibility for compliance with the FuelEU Maritime regulations will be with the holder of the ISM Document of Compliance. This could be the shipowner or another entity that has assumed responsibility for the operation of the ship, such as a ship management company or bareboat charterer.
Each company is required to be registered with an Administering State of an EU/EEA Member State, and this registration is likely to be consistent across EU-ETS, EU-MRV, and FuelEU Maritime systems. There is expected to be more clarity regarding these requirements shortly.
How will ships submit their emissions data?
Each ship subject to the FuelEU Maritime regulations must develop and submit a FuelEU Monitoring Plan. This plan outlines the procedures for monitoring fuel use, calculating energy consumption, and determining GHG emissions. The plan must be submitted via the THETIS-MRV system, which is linked to the FuelEU Database, before 31 August 2024.
The MRV system ensures that ship operators accurately monitor their fuel consumption, energy use, and GHG emissions and that this data is reported and verified to ensure compliance with the regulations.
When are ships required to start collecting fuel use and emissions data?
Once their monitoring plan is in place, ship operators must begin collecting data on their fuel use and emissions starting in January 2025. This data will then be assembled into an annual FuelEU Report, which must be submitted by 31 January the following year.
The report will be subject to verification by an independent verifier, who will review the data and ensure that it complies with the regulatory requirements. This report will be verified and recorded in the FuelEU database by 31 March 2026. During this period, companies can also record any banking, borrowing, or pooling actions (see below) related to the GHG intensity limits in the FuelEU database by 30 April 2026.
What are some other methods?
To provide flexibility in meeting the GHG intensity limits, FuelEU Maritime allows three key mechanisms: banking, borrowing, and pooling, These mechanisms will allow ship operators to manage their compliance obligations more effectively and reduce the risk of non-compliance.
The concept of a ‘Compliance Balance’ is central to these mechanisms. It represents the difference between the GHG intensity limit of the year and the actual GHG intensity of the ship, multiplied by the energy used on board. The Compliance Balance is a quantitative measure of a ship’s over-compliance (surplus) or under-compliance (deficit) with the GHG intensity limit. This balance determines whether a ship can bank surplus units, needs to borrow from future compliance, or must engage in pooling.
Banking: If a ship’s GHG intensity is below the required limit in any given year, the surplus can be banked and carried forward to the following year, allowing operators to build a reserve of compliance units and offering flexibility in managing emissions over time. This compliance surplus, generated when a ship’s GHG intensity is lower than the regulatory limit, can be used to offset potential exceedances in future years. If, in a subsequent year, the ship’s GHG intensity exceeds the limit, the previously banked compliance balance can be applied to meet the current year’s requirements, enabling ship operators to manage fluctuations in GHG performance and achieve long-term compliance without facing immediate penalties.
Borrowing: If a ship exceeds the GHG intensity limit in a given year, the operator can borrow up to 2% of the following year’s compliance units to cover the deficit, with the borrowed amount needing to be repaid with an additional 10% penalty in the subsequent year. This mechanism provides flexibility, allowing ships to remain compliant even when they temporarily exceed limits. However, 1.1 times the borrowed units will be added to the next year’s GHG intensity requirement, ensuring overall compliance by necessitating greater reductions. The borrowing is capped at 2% of the GHG intensity limit for the year, calculated based on the ship’s energy consumption, and cannot be used for two consecutive years, promoting consistent year-on-year compliance improvements.
Pooling: Ship operators can pool the compliance units of multiple vessels within a fleet, allowing them to offset the higher GHG intensity of older or less efficient ships with surpluses generated by newer, more efficient ones, thereby optimising their compliance strategy across vessels. The pooling mechanism enables a shipping company to manage compliance deficits within a group of ships by using surplus compliance from other ships with lower GHG intensity, thus balancing GHG emissions across the fleet and ensuring overall compliance with regulatory limits. However, pooling can only occur within one organised pool at a time. Additionally, ships that have used the borrowing mechanism cannot participate in a pool, in order to prevent double-counting of compliance efforts. This strategic flexibility helps companies optimise their overall GHG compliance by leveraging the strengths of different ships.
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Source: UK P&I Club
