Decarbonising Maritime Transport: Exploring the Impact of FuelEU Maritime on the Shipping Industry
Camilla Søgaard Hudson and Johannes Grove Nielsen, both partners at Bech-Bruun Law Firm in Copenhagen, examine EU Regulation 2023/1805 on the use of renewable and low-carbon fuels in maritime transport (“FuelEU Maritime”), which introduces new regulatory decarbonisation measures for vessels. FuelEU Maritime, which will come into force on 1 January 2025, aims to increase the use of renewable and low-carbon fuels in maritime transport across the EU along with the use of alternative energy sources while in port.
Regulatory Obligations
FuelEU Maritime lays down two principal regulatory obligations:
- a limit on the greenhouse gas (GHG) intensity of energy used on board by a ship arriving at, staying within or departing from ports under the jurisdiction of a member state; and
- an obligation to use an onshore power supply (OPS) or zero-emission technology in ports under the jurisdiction of a member state for container ships and passenger ships from 1 January 2030.
Ships will also be obligated to hold a FuelEU document of compliance to evidence the ship’s compliance with FuelEU Maritime.
It is further the ambition of FuelEU Maritime to create regulatory certainty for the propagation of renewable and low-carbon fuels and sustainable technologies and avoid distortions in the internal market.
Ships and Energy Expenditures Covered
FuelEU Maritime will take effect on all ships, regardless of flag, of above 5,000 gross tonnages, transporting either passengers or cargo for commercial purposes.
Exempted from FuelEU Maritime are warships, naval auxiliaries, fish-catching or fish-processing ships, wooden ships of a primitive build, ships not propelled by mechanical means, or ships owned or operated by a government and used only for non-commercial purposes.
For the ships covered, FuelEU Maritime aims to regulate the following energy expenditures:
- 100% of the energy used during a ship’s stay within a port of call under the jurisdiction of a member state;
- 100% of the energy used on voyages from a port of call under the jurisdiction of a member state to a port of call under the jurisdiction of an EU member state;
- 50% of the energy used on voyages arriving at or departing from a port of call located in an outermost region (as defined under Art. 349 of the TFEU) under the jurisdiction of a member state; and
- 50% of the energy used on voyages arriving at or departing from a port of call under the jurisdiction of a member state, whereas the previous or the next port of call is under the jurisdiction of a third country.
Reduction of GHG Intensity and Obligations to Use OPS While in Port
For the regulated ships and energy expenditures, FuelEU Maritime sets out a limitation of the yearly average greenhouse gas intensity of the energy used on board a ship during a reporting period (1 January to 31 December).
This limit is based on a reference value of 91.16 grams of CO₂ equivalent per megajoule (MJ), which will be reduced by the following percentages over time:
- 2% from 1 January 2025;
- 6% from 1 January 2030;
- 14.5 % from 1 January 2035;
- 31% from 1 January 2040;
- 62% from 1 January 2045; and
- 80% from 1 January 2050.
If renewable fuels of non-biologic origin are used, a reward for such usage is granted towards the limitation amounts. From January 2031, sub-targets for the use of fuels of non-biologic origin will also come into force.
FuelEU Maritime also requires the use of onshore power supply or alternative zero-emission technologies in ports for containerships and passenger ships from 1 January 2030.
A FuelEU Maritime penalty will be imposed in case of unjustified compliance deficits, with cumulating penalties for concurrently reported deficits. Member states have also been delegated authority to implement sanctions for the infringement of FuelEU Maritime.
Banking, Borrowing and Pooling Mechanism
If a ship is below its greenhouse gas intensity limit for a given reporting year, a ship will be rewarded a compliance surplus. This surplus may be subtracted from the following reporting period. On this basis, a ship may exceed the greenhouse gas intensity limits for a given reporting period by taking advantage of the compliance surplus received from the foregoing reporting year.
In case of compliance deficits, the company may borrow and advance a compliance surplus of the corresponding amount from the following reporting period, taking into consideration that this cannot be done for two consecutive reporting periods.
The compliance balances of fleets of two or more ships may also be pooled for compliance purposes under FuelEU Maritime. This allows for the use of the “over-performance” of one ship to compensate for the “under-performance” of other ships, provided that the total pooled compliance is positive.
If the total pool compliance balance of the individual participating ships results in a compliance surplus, the banking principle applies. However, a ship participating in compliance pooling may not borrow from next year’s compliance target.
Who is Responsible?
The entity responsible for compliance with FuelEU Maritime is the ISM company. This may cause issues in cases where the entity taking over the operational control of the ship is not the ISM company, such as when a ship is time chartered and the ISM company is not in charge of the operational decisions affecting the GHG intensity of the energy used.
In such cases, it is expected that the responsible entity will seek compensation from the entity responsible for purchasing the fuel or for making operational decisions that affect the GHG intensity of the energy used by the ship.
BIMCO is reported to be developing clauses which undertake to ensure a contractual distribution of obligations in light of FuelEU Maritime and its distribution of responsibility.
Bech-Bruun’s Green Shipping team has considerable experience in the shipping industry and green shipping regulations and is keeping a close eye on regulatory green shipping regimes imposed by the IMO and the EU.
Bech-Bruun
