Shipping, and in particular shipowners, may feel that the past couple of years have been overwhelming in terms of adapting to new decarbonization regulations. 2023 saw the introduction of the Energy Efficiency eXisting ship Index (EEXI) and the Carbon Intensity Index (CII). 2024 has seen the extension of the EU Emissions Trading System (EU ETS) to shipping. And 2025 will see the start of FuelEU Maritime.
Progressive Reduction
The vessel’s GHG intensity is measured in grams of CO2 equivalent per MJ of energy, expressed as CO2e/MJ. The unit of CO2e is used because it covers methane and nitrous oxide, as well as CO2 itself. Since January 2024, all these GHGs have had to be reported under the EU’s Monitoring Reporting Verification (MRV) system.
The baseline GHG intensity is 91.16gCO2e/MJ. This is the average GHG intensity of the energy used by vessels in 2020, as reported under the EU MRV system. This figure largely reflects the GHG intensity of HFO and MDO, which accounted for the vast majority of energy used by vessels in 2020. From 2025 vessels must operate using less GHG intense energy sources. The initially required reduction is 2% in 2025, equating to a GHG intensity of 89.34 gCO2e/MJ. From 2030 this rises to a 6% reduction (85.69gCO2e/MJ), subsequently increasing every five years and reaching an 80% reduction (18.23gCO2e/MJ) in 2050, as compared to the 2020 baseline.
Scope and Timetable
Similar to the EU ETS, FuelEU Maritime applies to commercial vessels of 5,000GT and above that transport goods or passengers. Intra-European voyages will count 100%, whereas voyages to/from ports of call in Europe will count 50%. There are exceptions, such as some passenger ferry voyages. Currently, the EU Commission’s position is that responsibility for compliance will fall on the entity responsible for the vessel’s ISM obligations, which differs from the EU ETS where it can be either the shipowner or any other organization that has agreed to be responsible for the ISM obligations.
Recording of the relevant data commences from 1 January 2025. Reporting of the data takes place in the following calendar year: by 31 March the company’s verifier must upload the data to the FuelEU Database; on 1 May the company must pay any compliance penalty; and the verifier issues the FuelEU Document of Compliance by 30 June.
Solutions For Compliance
How can shipping companies comply with FuelEU Maritime? In the long term, it will primarily be through the use of RFNBOs. To further incentivize this take-up, the energy used from RFNBOs will count twice for the vessel’s calculated attained GHG intensity. But in the near term the availability of RFNBOs and the number of ships capable of burning them is limited, so other methods will be needed:
- The most likely solution is biofuels, which can be blended with conventional fuels to sufficiently reduce GHG intensity, but only if the biofuel is produced using non-food or feed crop. The bunker supplier will be required to provide a Sustainability Annex to the Bunker Delivery Note (BDN), providing the fuel carbon intensities and the required date for the calculation of fuel emissions for the FuelEU obligations.
- Another solution that is gaining momentum is wind-assisted propulsion systems (WAPS). If fitted or retrofitted, the shipping company is entitled to a ‘Wind Reward Factor’, which is applied to reduce the overall GHG intensity of the energy used. No other energy efficiency technologies such as heat-recovery systems or air lubrication receive a similar reward factor.
Getting Prepared
What can shipowners do to prepare for the introduction of FuelEU Maritime? Aside from the 31 August 2024 deadline for the submission of a FuelEU Monitoring Plan, shipowners and charterers would be well-advised to ensure that their charter parties contain the necessary provisions to enable future compliance with the mandated GHG intensity reductions. These reductions cannot be achieved by revised operational practices, such as slow steaming, but instead require the use of lower GHG intensity conventional fuels, qualifying biofuels, RFNBOs, or the retrofitting of WAPS equipment. This will require consultation with classification societies for advice on the appropriate steps to take to ensure compliance.
Generally, standard form time charter parties do not entitle a shipowner to mandate that the charterer bunkers qualifying biofuel or RFNBOs; any retrofitting of equipment will result in off-hire and additional capital cost to the shipowner without any commensurate increase in hire or other revenue for reduced consumption. Steps are being taken to resolve this. A BIMCO Sub-Committee is developing FuelEU Maritime and Biofuels Clauses, on which Gard has a representative. Owners and charterers will doubtless also develop their bespoke clauses. We will continue to monitor developments and clarifications of the regulations, the industry response to them, and provide further updates.
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Source: Gard
