After "EU-ETS" comes "FuelEU MARITIME"

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The FuelEU Maritime regulation will soon come into force in the EU. In this newsletter we will provide an overview of the requirements of the regulation and possible measures to fulfil these requirements.

 

In a nutshell: The FuelEU Maritime regulation will soon come into force in the EU with the aim of increasing the use of renewable and low-carbon fuels in European shipping and reducing greenhouse gas emissions from shipping by 80 per cent by 2050. In this newsletter we will provide an overview of the requirements of the regulation and possible measures to fulfil these requirements.

From 31 August 2024 shipping companies in the European Union will need to comply with 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 - the so-called FuelEU Maritime regulation. The aim of the regulation is to increase the use of renewable and low-carbon fuels in European shipping. In order to come closer to the required net-zero emissions of the "Fit for 55" package and the EU Green Deal, greenhouse gas emissions of shipping are to be gradually reduced by 80 per cent by 2050. Renewable hydrogen and its derivatives, ammonia, synthetic methane and methanol and synthetic diesel will play a greater role in European shipping in the future.

The FuelEU Maritime regulation affects all ships over 5,000 GRT that call at ports in the European Union or the European Economic Area, with a few exceptions and regardless of their flag. It requires the use of low-emission fuels and renewable energies as well as the implementation of energy efficiency measures. In addition to the regulations of the European Emissions Trading Scheme, the regulation obliges shipping companies to monitor the fuel consumption and emissions of their ships and their compliance with the FuelEU Maritime regulation, to have the data verified by recognised organisations and to report to the relevant authorities.

Shipping companies whose ships are subject to the FuelEU Maritime regulation should submit a monitoring plan, the "FuelEU Monitoring Plan", for each of their ships to the competent authorities by 31 August 2024. For ships that are subject to the FuelEU Maritime regulation for the first time after 31 August 2024, the monitoring plans should be submitted no later than two months after the ship in question has called at a port of a member state of the European Union or the European Economic Area for the first time. Shipping companies are obliged to regularly review their monitoring plans and improve them if necessary to comply with the FuelEU Maritime regulation.

The greenhouse gas emissions of all fuels are assessed on the basis of a life cycle analysis, known as the "well-to-wake approach". This assessment takes into account the greenhouse gases carbon dioxide and methane as well as nitrous oxide (laughing gas or N2O). In principle, all fuels are permitted, but the use of renewable fuels of non-biological origin (RFNBO) are to be particularly promoted. In addition, the use of shore-side electricity will be mandatory for container and passenger ships in European Union harbours from 2030.

Ships calling ports of member states of the European Union or the European Economic Area are subject to port state control inspections. Each member state must ensure that every ship in a port on its territory is inspected and that the ship's compliance with the FuelEU Maritime regulation is verified. Evidence about such inspection(s) must be carried on board.

Breaches by shipowners of the FuelEU Maritime regulation will be fined. The fine is EUR 60 per gigajoule of non-compliant fuel consumed. This corresponds to EUR 2,400 per ton of VLFSO. In order to avoid double sanctioning of shipping companies in the event of non-compliance by the inspecting port state and the member state in which the shipping company is based, the respective national administrative authority in the country in which the shipping company is registered is responsible for issuing the sanctions and penalties.

Penalties are to be used exclusively for decarbonisation projects within the shipping industry, such as the development of technologies for renewable fuels, the improvement of port infrastructure for alternative fuels or the promotion of corresponding research and development projects.

Shipping will compete with other industries for the resources of fuels compliant with the new regulations. As resources are limited, ship owners should enter into contractual agreements with charterers, ship managers and fuel suppliers that include compensation provisions if they do not use compliant fuels or do not provide them as agreed.

The FuelEU Maritime regulation stipulates that two or more ships, even if they are owned by different shipping companies, can form an accounting pool and draw up an overall compliance balance for the pooled ships. The aim of such a pool is to balance compliant and non-compliant ships. The internal and commercial regulations of such a pool are to be drawn up autonomously by the pool.

If a ship is compliant within a reporting period, the shipping company can have the difference between the actual emission value of the ship and the regulatory threshold value credited for the following reporting period. If the actual emission values exceed the threshold values, the shipping company can use a quota of up to two per cent from the following reporting period to exceed the threshold values, known as 'banking and borrowing'.

The regulation is likely to result in high pressure to transform. We recommend shipping should use the time remaining to take the necessary measures as follows:

-    Evaluation of the fleet in service

-    Procurement of low-emission fuels

-    Fulfilment of reporting obligations

-    Adjustment of the balance sheet

-    Preparation of shore power connections

-    Adjustment of charter, management and fuel supply contracts 

-    Development of compliance strategies such as the pooling of conformity balances of several ships
 

If you have any questions, please get in touch with your contact person at EHLERMANN RINDFLEISCH GADOW or with Maje Tode or Sven Deters.