January 2 ------ The shipping industry is standing on the cusp of a major transformation with FuelEU Maritime now in force, compelling maritime stakeholders to meet the European Union’s (EU) decarbonization goals and pushing for ‘significant’ emissions reductions while making green fuels more accessible. Its impact is expected to ripple across the global shipping sector and chart a steady course toward a ‘truly’ sustainable future.
FuelEU: Inception years
Fuel EU Maritime was introduced as part of the European Commission’s “Fit for 55” package in 2021 and is considered the cornerstone of the Union’s efforts to decarbonize the shipping industry which is responsible for nearly 3% of global greenhouse gas (GHG) emissions. The regulation is also part of the EU’s broader strategy, the so-called EU Green Deal—a set of policy initiatives by the European Commission approved in 2020 to make the EU climate-neutral in 2050.
The regulation was envisioned as a ‘clear’ framework with the aim of cutting down on these emissions via mandatory requirements for ships over 5,000 gross tonnage calling at EU ports, regardless of the vessel’s flag. At its core, FuelEU Maritime mandates a progressive reduction in the GHG intensity of energy used on board ships, with specific targets set for the coming decades: at least a 2% reduction by 2024, increasing to 6% by 2030, and reaching at least 80% by 2050.
The final rules for the regulation were adopted just recently and, now, aside from the emission reduction provisions, it also includes:
• special incentives for renewable fuels of non-biological origin (RFNBO) with high decarbonization potential;
• an exclusion of fossil fuels from the regulation’s certification process;
• an obligation for passenger ships and containers to use on-shore power supply for all electricity needs while moored in major EU ports;
• a voluntary pooling mechanism, under which ships will be allowed to pool their compliance balance with one or more other ships;
• temporary exceptions for outermost regions, small islands, and areas reliant on connectivity;
• revenues from penalties to fund maritime decarbonization projects, with enhanced transparency.
Regulation convergence: FuelEU meets EU ETS
Greenhouse gas emissions from the maritime sector were integrated into the EU Emissions Trading Scheme (EU ETS), a market-based system designed to put a price on CO2 emissions, around two years ago. Specifically, at the end of 2022, a preliminary agreement was greenlit by the EU’s top three institutions leading to several ‘milestones’ such as the inclusion of methane, nitrous oxide (N2O) as well as CO2 emissions into the trading scheme. This came just one year after the EU proposed a revision of the EU ETS to include the shipping industry within the new framework.
Once the industry fell within the scope of the scheme, regulatory bodies and organizations agreed on a gradual introduction of obligations for shipping companies to surrender allowances, namely 40% for verified emissions from 2024, 70% for 2025, and 100% for 2026. It is believed that the EU ETS and FuelE Maritime create a ‘unique’ synergy. While FuelEU Maritime sets specific targets for GHG intensity reductions in fuels used by ships, the EU ETS directly prices carbon emissions, making high-emission fuels financially less viable. Working hand-in-hand, the two regulations address both the supply and demand sides of the decarbonization equation.
What is more, FuelEU Maritime also imposed penalties for non-compliance, with hopes it would set up a ‘level playing field’ for sustainable solutions across the shipping industry.
Cutting costs, not corners: The compliance question
In light of the now-enacted regulation, compliance was, indeed, on the list of issues to keep an eye on for the entire maritime industry.
At the start of December 2024, the Norwegian classification society DNV published a white paper called “FuelEU Maritime – Requirements, compliance strategies, and commercial impacts”. The paper offered insights into the strategies to reduce FuelEU Maritime compliance expenses and avoid major penalties. The analysis showed, among other things, that using LNG and bio-LNG would be the least costly compliance strategy as it provides a lower well-to-wake GHG intensity than required during the first decade of the period compared to marine gas oil (MGO)-fueled vessels.
Another insight from the analysis highlighted that energy-efficiency measures could ‘substantially’ lower the costs associated with fuel, EU ETS, and FuelEU compliance. This is projected to lead to reduced overall expenses in the ‘pay-the-penalty’ and ‘blend in bio-MGO’ strategies. Nonetheless, DNV stressed that these measures alone cannot serve as a standalone solution. To this end, among DNV’s recommendations for shipowners found in the white paper are:
• preparing the organization and fleet for FuelEU Maritime and identifying the most optimal compliance strategy;
• considering the long-term fuel offtake agreements to ensure access to low GHG intensity fuels and the energy-efficiency measures to cut fuel and compliance costs;
• including provisions for FuelEU Maritime in contractual terms and ensuring access to verified emissions data.
A dip further: Mending the cost gap
The gradual tightening of limits within the FuelEU regulation was designed to encourage a ‘smoother’ adoption of cleaner fuels such as biofuels, hydrogen, ammonia, and e-fuels while phasing out reliance on traditional fossil fuels like heavy fuel oil.
However, closing the cost gap between green and conventional fuels has been another burning issue for both the maritime industry and regulatory bodies for a while. In part, mending the gap was hoped to be achieved through EU ETS. Namely, FuelEU Maritime’s progressive reduction targets could pave the way for the demand for low-carbon fuels. In parallel, the EU ETS is anticipated to drive market-based incentives for using these cleaner alternatives by penalizing CO2-intensive energy sources. This convergence may be critical for tackling the cost disparity between fossil fuels and green alternatives
According to Finland’s technology giant Wärtsilä, FuelEU Maritime and EU ETS working in tandem could reach cost parity with fossil fuels as early as 2035 with the help of decisive emissions policies such as carbon taxes and emissions limits.
Shedding more light on the matter, Roger Holm, President of Wärtsilä Marine & Executive Vice President at Wärtsilä Corporation, said that achieving net zero in shipping by 2050 required “all the tools in the toolbox”, including sustainable fuels. “As an industry, we must focus on coordinating action across policymakers, industry and individual operators to bring about the broad system change required to quickly and affordably produce a mix of sustainable fuels. Policy in Europe is showing just how impactful action at the international level can be, closing the cost gap between fossil- and low-carbon fuels for the first time,” he said.
Source: offshore-energy.biz
Comments