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Correspondents

17 Sept 2024

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With the FuelEU Maritime Regulation (the "Regulation") coming into force in 2025, the below article sets out some of the key details that our Members should be aware of. The law surrounding maritime emissions is a rapidly evolving area and we encourage all our Members to be proactive in their steps to ensure compliance.

Recap

  • New EU Regulation, part of the EU’s strategy for reducing greenhouse gas (GHG) emissions.
  • Implementation will occur 1 January  2025.
  • The effects will be felt by ship owners and the wider maritime industry.
  • An understanding of this Regulation will be paramount.

Introduction – What is FuelEU Maritime?

The FuelEU Maritime Regulation complements the existing EU ETS[1]. It aims to reduce the overall intensity of GHG emissions created by the shipping sector over time. It is one component of the EU’s target to lower net emissions by at least 55% by 2030 and achieving climate neutrality by 2050.

This Regulation introduces a zero-emission requirement at berth (not just the operational navigation of vessels). Mandating the use of Onshore Power Supply (OPS) or alternative zero-emission technologies in ports by passenger vessels and containerships is expected to lower the air pollution emissions in ports, thereby allowing for a cleaner area in the often densely populated areas that surround them.

Application – What vessels will be affected and from when?

This Regulation will come into effect from 1 January 2025 and will have considerable ramifications for the shipping sector.

It will also apply to all vessels above 5,000GT that transport either passengers or cargo for commercial purposes and operate within the European Economic Area (EEA). This is regardless of their flag.[2]

The Regulation does, however, list several vessel types that will be exempt, including warships, naval auxiliaries, fish-catching or fish-processing vessels, wooden vessels of a primitive build, vessels not propelled by mechanical means, or vessels owned or operated by a government which are only used for non-commercial purposes. [3]

Requirements

The Regulation has two primary requirements:

1.      The Reduction of greenhouse Gas Intensity

The Regulation will require the affected vessels to reduce their GHG emissions per unit of energy consumed over time. The GHG intensity reduction targets are specified for different years, ensuring a gradual reduction in emissions. The GHG limits shall be calculated by reducing the reference value of 91.16 grams of carbon dioxide (CO2) equivalent per megajoule by 2% from 1 January 2025 down to 80% from 1 January 2050.[4]

Vessels are encouraged to use renewable and low-carbon fuels, such as advanced biofuels, e-fuels, hydrogen, and ammonia[5]. The Regulation outlines specific criteria for what constitutes as renewable low-carbon fuels. It also highlights incentives for vessels that use these alternative fuels, potentially offering more lenient GHG intensity targets or other regulatory benefits[6].

It should be noted that FuelEU applies to ‘Well-to-Wake’ emissions rather than ‘Tank-to-Wake’ which is the case for EU-ETS[7]. ‘Well-to-Wake’ emissions refers to the entire lifecycle of the fuel, including extraction, production, and transportation, not just emissions from burning fuel on board which is the case for ‘Tank-to-Wake’.

Application of the Regulation shall differ depending on the type of voyage, as follows below[8]:

  • 100% of energy used during a vessel’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 a member state.

  • 50% of the energy used on voyages arriving at or departing from a port of call located in an outermost region under the jurisdiction of a member state.

  • 50% the energy used on voyages arriving at or departing from a port of call under the jurisdiction of a member state, where the previous or the next port of call is under the jurisdiction of a third country.

GHG emissions are not solely defined as the release of CO2 but also includes the release of methane (CH4) and nitrous oxide (N2O) into the atmosphere.[9]

2.      The Use of Onshore Power Supply

Passenger vessels and containerships that fall within the eligibility criteria will be required to use OPS. Ports will also be encouraged to provide the necessary infrastructure to support OPS, aligning with the Regulation’s goals.

Under the Monitor, Report and Verify (MRV) regulation, shipping companies must report their emissions through THETIS MRV (maintained by the European Maritime Safety Agency (EMSA). Ship operators must MRV their GHG emissions, fuel consumption, and energy efficiency. This data must be reported annually to ensure compliance with the Regulation. From 2025, the application of this Regulation will be expanded to include offshore vessels above 5,000GT, as well as offshore vessels and general cargo vessels below 5,000GT but not below 400GT.

Under FuelEU a similar electronic database is set to be implemented to make sure that compliance with the Regulation is followed. This database is set to build on and be an ‘improved’ version of THETIS MRV.[10]

Companies must submit a monitoring plan for each of their vessels, indicating their chosen method from the list outlined in the Regulation for monitoring and reporting the amount, type and emission factor of energy used on board, along with other relevant information. The Regulation also details the documentation that must be included in the monitoring plan. [11]

Ship operators must also check regularly, and at least annually, whether a ship’s monitoring plan reflects the nature and function of the vessel and whether any of the data it contains can be improved, corrected or updated. The Regulation lists situations where the monitoring plan must be modified without undue delay.[12]

If the ship operator fails to comply with the requirements under the Regulation and vessels do not meet GHG intensity targets, there will be associated and enforced penalties. These penalties may include fines, detention, or restrictions on port access for non-compliant vessels.[13]

It should be noted that the Regulation does provide for a voluntary pooling mechanism. Under this scheme, vessels will be allowed to pool their compliance balance with one or more vessels. Thus, it will be the pool that has to meet the GHG intensity limits on average. This will allow for a level of flexibility in achieving overall emissions reductions.[14]

The Regulation includes provisions for periodic reviews by 31 December 2027 and every five years thereafter to adjust the targets and requirements. This aims to ensure the Regulation remains aligned with technological advancements and the EU’s broader climate goals.[15]

The responsible entity for compliance with the FuelEU Regulation will be the owner or the DoC (Document of Compliance) holder. The DoC holder will also be responsible for reporting emissions and other voyage data under the EU’s MRV regime that will underpin FuelEU (as previously mentioned). This evidently leaves it open to potential complications in a time charter context when the charterer is responsible for the bunkering, and as a result the emissions of the vessel.[16]


Conclusion and a commentary on the overall effects of this regulation

Overall, implementation of the FuelEU Regulation will have significant ramifications for the shipping sector as well as the wider maritime insurance industry. Acting as a critical component of the EU’s strategy to achieve climate neutrality by 2050, it is paving the way for a progressively stricter GHG emission view regarding vessels and the market as a whole.

The Regulation encourages the use of renewable and low-carbon fuels and mandates the increased adoption of OPS usage at ports. It also outlines a detailed plan with robust monitoring, reporting and verification requirements, along with effective penalties for non-compliance. These strict standards encapsulate the EU’s aim to significantly reduce the maritime sector’s carbon footprint, fostering innovation and ensuring sustainable maritime operation within the EU.

The two key takeaways to bear in mind are:

(i) this Regulation is coming, and the maritime industry will have to think and plan accordingly; and (ii) the Regulation has left enough room and flexibility in its construction for change, and ship owners and insurers alike will have to consistently pay attention.

Members can also view the Club’s air emissions page on the website for further information.

 

[1] ‘Emissions Trading System (ETS) in shipping’, 15 December 2022, Shipownersclub.com, Emissions Trading System (ETS) in shipping | Shipowners (shipownersclub.com)

[2] ‘Regulation (EU) 2023/1805 of the European Parliament and of the Council of 13 September 2023 on the use of renewable and low-carbon fuels in maritime transport, and amending Directive 2009/16/EC’, 13/07/2023, PE 26 2023 INIT, Council of the European Union, Regulation - 2023/1805 - EN - EUR-Lex (europa.eu), [Chapter 1 Article 2]

[3] Ibid [Chapter 1 Article 2]

[4] Ibid  [Chapter 2 Article 4]

[5] ‘Alternative Low Emission Fuel for the Maritime Industry’, 17 August 2022, Shipownersclub.com, Alternative Low Emission Fuel for the Maritime Industry | Shipowners (shipownersclub.com)

[6] Ibid [Main body Paragraph 26]

[7] ‘Emissions Trading System (ETS) in shipping’, 15 December 2022, Shipownersclub.com, Emissions Trading System (ETS) in shipping | Shipowners (shipownersclub.com)

[8] ‘Regulation (EU) 2023/1805 of the European Parliament and of the Council of 13 September 2023 on the use of renewable and low-carbon fuels in maritime transport, and amending Directive 2009/16/EC’, 13/07/2023, PE 26 2023 INIT, Council of the European Union, Regulation - 2023/1805 - EN - EUR-Lex (europa.eu), [Chapter 1 Article 2]

[9] Ibid [Chapter 1 Article 2]

[10] Ibid [Main body Paragraph 55]

[11] Ibid [Chapter 3 Article 8]

[12] ‘Regulation (EU) 2023/1805 of the European Parliament and of the Council of 13 September 2023 on the use of renewable and low-carbon fuels in maritime transport, and amending Directive 2009/16/EC’, 13/07/2023, PE 26 2023 INIT, Council of the European Union, Regulation - 2023/1805 - EN - EUR-Lex (europa.eu), [Chapter 3 Article 9]

[13] Ibid [Chapter 3 Article 23 & 25]

[14] Ibid [Chapter 3 Article 21]]

[15] Ibid [Chapter 3 Article 30]

[16] Ibid, [Main body Paragraph 20]

 

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