- FuelEU is a transformative EU regulation requiring shipping companies to reduce GHG intensity in fuels by 80% by 2050.
- Scenarios using biodiesel and bioLNG demonstrate how fleets can achieve compliance through incremental transitions or pooling mechanisms.
- Over-compliance can generate surplus credits, creating a secondary market for trading and offering potential revenue opportunities for shipping companies.
FuelEU introduces ambitious regulations aimed at decarbonizing European shipping by progressively reducing the greenhouse gas (GHG) intensity of fuels used by vessels. This regulation encourages the adoption of renewable and low-carbon fuels and creates financial opportunities for those exceeding compliance requirements. Through two hypothetical scenarios, using biodiesel and bioLNG, Ryan Bax explores strategies for fleets to navigate these challenges and maximize potential returns, reports LR.
Understanding FuelEU and Its Implications
FuelEU mandates a gradual reduction in GHG intensity, with a target of 80% by 2050 for ships over 5,000 GT. Non-compliance incurs steep penalties, making “business as usual” unsustainable.
Companies must assess their fuel choices and operational strategies to comply with these measures effectively.
The Costs of Non-Compliance
For ships continuing with conventional fuels like HFO/MGO, penalties could reach millions of euros annually.
For example, a fleet of five ships running without intervention could face penalties rising from €5.6m in 2030 to €7.2m by 2034.
Scenario 1: Adopting Biodiesel
By gradually increasing the proportion of biodiesel in the fuel mix—3% by 2025, 8% by 2030, and 19% by 2035—a fleet of five ships can achieve compliance.
Although compliance surplus remains modest (in the tens of tons), this strategy ensures adherence to regulations using existing infrastructure.
Scenario 2: Transitioning to BioLNG
A more effective strategy involves one ship in a fleet using LNG and bioLNG, with the bioLNG proportion increasing to 95% by 2035.
The surplus compliance generated by this single ship can offset deficits for multiple others in the fleet, covering up to 17 ships annually from 2025 to 2029.
Exploring Market Opportunities
FuelEU incentivizes over-compliance by enabling the sale of surplus compliance credits, potentially generating substantial revenue.
For instance, saving 7,500 tons of CO2 equivalents annually at a market price of €500 per ton could yield significant financial returns.
The Role of RFNBOs and Future Fuels
Beyond 2035, transitioning to advanced fuels like eLNG (an RFNBO) could further reduce GHG intensity.
However, uncertainties surrounding supply, pricing, and production volumes of RFNBOs complicate long-term projections.
Strategic Takeaways for Shipping Companies
FuelEU promotes a strategic shift in fleet operations, encouraging a mix of greener fuels and market-driven over-compliance strategies.
Shipping companies must weigh costs, compliance benefits, and potential revenues when planning their transition pathways.
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Source: LR
