FuelEU Maritime came into effect on Jan. 1, 2025. It is part of the European Union’s Fit for 55 package and applies to commercial vessels of 5000GT (gross tonnage) and over used for the transport of cargo or passengers and calling at EU ports.
Vessels are required to achieve a greenhouse gas (GHG) intensity of energy below a particular level. That level reduces over time and by 2050 the reduction target is 80% compared to 2020 reference levels.
GHG intensity of energy obligations
“FuelEU is designed to reduce the energy intensity of fuel used by ships and to drive the uptake of alternative fuels,” says Helen Barden, Director – External Affairs, NorthStandard, an insurer providing Protection and Indemnity (P&I) coverage.
She adds, “For vessels that do not meet the GHG intensity of energy obligations, there are options for borrowing compliance from future years, pooling the vessel with better-performing vessel(s) or paying a penalty. For container and passenger ships there are requirements to connect to shore power from 2030.”
Ship’s energy intensity
FuelEU Maritime measures a ship’s energy intensity over a full reporting year on a well-to-wake basis
FuelEU Maritime measures a ship’s energy intensity over a full reporting year on a well-to-wake basis. Well-to-wake therefore includes emissions from well (i.e., production) to tank (i.e., on the ship) plus tank-to-wake (i.e., it propels the ship).
Assessing the energy intensity on a well-to-wake basis, rather than simply tank-to-wake, provides a better reflection of the emissions created during the lifecycle of a marine fuel.
Wind-assisted propulsion systems
“There are many energy efficiency technologies on the market, such as improving the efficiency of hull coatings, or making changes to the bulbous bow or propeller, but these go to improving the energy efficiency and are not included in the calculation to improve the energy intensity of the fuel used,” says Helen Barden.
However, wind-assisted propulsion systems receive a Wind Reward Factor in the regulation, which means this technology does impact the vessel’s GHG intensity rating. Of course, zero or near zero fuels and renewable fuels of non-biological origin also go to the GHG intensity rating.
Compliance of FuelEU
The compliance of FuelEU rests with the DOC holder under the ISM code
While the compliance of FuelEU rests with the Document of Compliance (DOC) holder under the International Safety Management (ISM) code, which may well be the ship manager rather than the registered owner, the ship manager will in reality want to pass the liability for compliance on to the ship owner, says Barden.
The ship owner (and indeed possibly together with the charterer depending on the length of the charter party and nature of the commercial relationship) will need to produce a strategy for compliance with FuelEU Maritime given there are different options for compliance available, she says.
Lower energy intensity fuels and energy sources
Helen Barden says payment of the penalty should be the last resort. “Not only is this likely to be the most expensive option, but it also comes with implications for future years in the form of a multiplication factor,” she states.
Helen Barden adds, “Whether pooling, using lower energy intensity fuels and energy sources, or borrowing compliance from future years as part of a strategy will depend on many variables and, therefore, a compliance strategy should be given considered thought. This will also impact on the terms of any contracts.”
Respect of GHG energy intensity
Financial penalties apply to any company that does not meet its compliance obligations
There are pooling platforms on the market now, such as Bettersea, which is currently offered to NorthStandard members at a preferential rate. Financial penalties apply to any company that does not meet its compliance obligations in respect of GHG energy intensity.
Failing to comply for two or more consecutive years will see the penalty factor multiplied, while failure to present a FuelEU Maritime certificate of compliance for two or more consecutive reporting periods could result in a ship being banned from EU ports.
Vessel’s compliance balance
If a vessel exceeds the compliance requirements and so has a positive compliance balance for a reporting period, this “surplus” can either be pooled or can be banked for compliance in future years.
Parties will need to consider whether charterers will get the full benefit of compliance pooling, banking or borrowing, and how this will work where the charter party does not cover the full reporting year. A vessel’s compliance balance may not be included in more than one pool in the same reporting period, but the vessel may be switched to a different pool in a different reporting period.
Responsibility for FuelEU compliance rests
The ultimate responsibility for FuelEU compliance rests with the ISM company
The ultimate responsibility for FuelEU compliance rests with the ISM company (i.e., the Document of Compliance holder under the ISM Code) and, therefore, careful consideration must be given to the contractual implications of FuelEU Maritime.
The Baltic and International Maritime Council (BIMCO) has produced a FuelEU Maritime Clause for Time Charter Parties and a Clause for ship management agreements, too, to help support owners, charterers, and ship managers in this regard. However, these clauses cannot just be inserted without consideration.
As mentioned earlier, things like the compliance strategy should be thought through as this will impact the wording used in the clause, says Barden.
Advice on the BIMCO clause
“The BIMCO clauses are certainly a helpful starting point, but ship managers, ship owners and charterers must consider the terms carefully and, if necessary, make amendments,” says Helen Barden.
She adds, “We have been assisting a number of our members with advice on the BIMCO clause in their particular circumstances, and indeed non-industry clauses that have also been proposed.”
