- Shipping companies are dealing with rising costs to meet new rules for reducing carbon emissions, and penalties for not complying could increase significantly by 2030.
- OceanScore suggests that pooling resources, where ships with extra credits help those with deficits, can be a better option than paying increasing fines.
- To help make pricing more transparent and fair, OceanScore will launch its FuelEU Marketplace, which aims to improve the buying and selling of compliance credits.
According to American Journal of Transportation’s reports, shipping companies are seeking cost-effective compliance with the FuelEU Maritime rules amid rising penalties. OceanScore is providing price indications for compliance surpluses through pooling, allowing vessels that exceed targets to help those that fall short, while biofuels and LNG/LPG can also reduce compliance deficits.
Managing Penalties and Costs
OceanScore Managing Director Albrecht Grell notes, “A significant number of shipping companies we have spoken to – especially smaller ones – currently are not considering pooling but simply intend to pay the penalty. But this, as well as pushing compliance deficits into future years through borrowing that will incur interest, will prove increasingly costly in the long run.” Currently, the penalty is €2400 per tonne of VLSFOe above intensity targets, expected to rise by 10% each year of non-compliance, reaching €3360 in 2029.
FuelEU mandates progressive reductions in average well-to-wake greenhouse gas intensity, starting with 2% in 2025, increasing to 6% in 2030, and reaching 80% by 2050 from a 2020 baseline. Grell urges companies to explore biofuels and pooling options to avoid penalties, which offer “commercially attractive opportunities” for reducing deficits.
Alternative Approaches
Other strategies, like cold ironing and wind-assisted propulsion, entail higher costs and retrofitting challenges. Companies must understand market dynamics that affect surplus availability, as supply and demand influence pooling slot pricing.
FuelEU allows shipowners to use surpluses to offset internal deficits or sell to third-party vessels. By generating compliance surpluses through low-carbon fuels and pooling with underperforming vessels, companies can mitigate the higher costs of these fuels.
OceanScore has analyzed potential compliance pool prices, estimating a range of €1300 to €2300. The lower limit reflects alternative fuel costs, while the upper limit is driven by FuelEU penalties. Inside this range, prices will fluctuate based on supply and demand.
Market Balance
OceanScore identifies a compliance deficit of 560,000 tonnes of VLSFOe in Europe, partially offset by a 280,000-tonne surplus from 2022. However, it forecasts that increased biofuel adoption will soon balance the market, requiring around 650,000 tonnes to achieve equilibrium.
Grell believes this is “absolutely possible”, given shipping would need around 4% of Europe’s annual biofuel production of 16 million tonnes, and that “we can assume a balanced market sooner rather than later”. Managers are likely to prioritize vessels capable of accumulating surpluses, with some firms opting to pay penalties rather than manage compliance complexities.
The Future of Pooling Surpluses
As biofuels become more prevalent, the availability of surpluses for external pooling is expected to rise, reaching 400,000-500,000 tonnes of VLSFOe. Wider adoption of biofuels is expected to increase the availability of surpluses, which may lower prices for pooling slots. However, OceanScore predicts that prices for compliance pools will remain on the higher end of the indicated range, even with the potential for low-cost biofuel generation and a balanced compliance market.
“Everyone knows that the years 2025 to 2029 only represent a phase-in into FuelEU. Staying compliant will be much harder after 2030 with target carbon intensities being adjusted downwards and many LNG-fuelled vessels ceasing to generate surpluses then. If the prices drop too low, surplus owners will simply start to bank them,” Grell explains.
Price Alternatives and Solutions
Despite fluctuations in surplus availability and pricing, Grell believes pooling will ultimately be more economical than paying penalties or borrowing, given the projected long-term penalties
To facilitate fair pricing and liquidity in compliance markets, OceanScore will introduce its FuelEU Marketplace on September 4 during SMM, enhancing transparency under pooling agreements.
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Source: American Journal of Transportation (AJOT)
