Understanding Compliance Under Fuel EU Maritime

The Fuel EU Maritime Regulation, effective from January 1, 2025, mandates that vessels over 5,000 gross tonnage reduce their greenhouse gas (GHG) emissions progressively. Compliance is monitored through a detailed reporting system, requiring shipowners to submit a monitoring plan by August 31, 2024.

Compliance Mechanisms: Shipowners who do not meet the target GHG intensity for the period defined in Fuel EU maritime regulation can choose between two primary compliance strategies: paying penalties for non-compliance or utilizing flexibility mechanisms like banking, borrowing and pooling.

The penalty system imposes significant financial consequences for exceeding GHG intensity limits, calculated based on the deficit multiplied by energy use. Penalties can escalate with repeated non-compliance, reaching €2,400 per tonne of energy equivalent to the usage of VLSFO (Very Low Sulphur Fuel Oil).

Pooling Mechanism: Alternatively, the pooling mechanism allows multiple vessels to collectively manage their GHG compliance. Ships that exceed their targets can compensate for those that fall short by pooling their compliance balances. This collaborative approach not only mitigates financial risks but also promotes the adoption of renewable fuels across the fleet.

Pooling enables the shipowners to pool the emissions of several vessels and allows those with a surplus of compliance to offset the deficits of others. Aggregation of emissions enables shipowners to deal better with uncertainties related to the availability of fuels, particularly renewable fuels. Flexibility would ensure that vessels could comply even in situations where the supplies of biofuels are fluctuating.

The pooling mechanism provides a strategic pathway for shipowners to gradually transition their fleets to greener technologies without immediate pressure to comply fully with stringent regulations. This flexibility allows for a more manageable adaptation to new fuel sources and technologies over time.

It also involved vessels belonging to different companies; in this sense, it facilitates cooperation among different fleets by putting the resources from different operators into use to maximise efficiency.

Case for a vessel having a negative compliance balance

Vessels having negative compliance balance and pools can have compliance strategies through the use of low-carbon green fuels, but there are several factors to be considered:

• Are the vessels fitted and ready to operate on biofuels or RFNBOs (Renewable fuels with non-biological origin)?
• Are these fuels available at commercially competitive prices and delivered within a reasonable timeframe?
• What is the shelf life of the biofuels or RFNBOs?

All these ultimately relate to a single concept. What will be the expense of producing the surplus compliance balance? For shipowners and charterers involved in the intricacies of FEUM Fuel regulations, pooling ensures that the fleet remains compliant without paying penalties, expensive fuel procurement or operational burdens. It provides hassle-free compliance and gives peace of mind for compliance.

The Fuel EU maritime compliance standards are easily met with minimal effort through pooling. Deficit vessels can access surplus compliance balances at prices lower than generating their own.

This will motivate the ship owners /operators to go for economies of scale with vessels already procuring subsidized biofuels or RFNBOs. Hence for short-term strategy, the pooling comes out as a simplified compliance process with no need to manage biofuel procurement, storage, or operational complexities. Early movers will have the advantage of capturing the volume for compliance purposes.

Case for a vessel having positive compliance Balance

A vessel achieves a positive compliance balance when its GHG intensity performance is better than the target set by the Fuel EU Maritime regulation for different phases 2025-2050. This can be achieved by

• Using cleaner fuels (low-carbon or alternative fuels).
• Incorporating energy efficiency measures to reduce the total penalty.
• Implementing innovative technologies that reduce CO2 emissions.

Ships with a surplus compliance balance can sell their excess CB surplus to vessels facing compliance balance deficits. This trading mechanism allows compliant shipowners to monetize their investments in low-carbon fuels, effectively compensating for the higher operational costs associated with using such fuels.

Early adopters of green technologies can find themselves at a competitive advantage as regulatory targets tighten over time. By establishing a strong compliance balance surplus now, these vessels can secure a market position that may be less accessible to later entrants.

Operating compliant vessels enhances a company’s reputation among stakeholders, including customers and investors, who are increasingly prioritizing sustainability in their business decisions. This can lead to increased business opportunities and partnerships.

Vessels with a positive compliance balance avoid penalties imposed on those failing to meet the required carbon intensity standards. Making other vessels in compliance with environmental regulations boosts the shipowner’s reputation and shows commitment to sustainability and compliance with EU regulations.

In conclusion, while penalties enforce strict compliance, flexibility mechanisms like pooling provide a strategic avenue for shipowners to meet regulatory requirements without incurring heavy fines. This dual approach aims to foster a more sustainable maritime industry within the EU’s climate objectives.

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