As the FuelEU Maritime regulation looms, shipping companies face rising penalties for falling short of carbon intensity reduction targets and stakeholders weigh up the lowest cost of compliance.
The regulation, coming into force on 1 January 2025, sets targets for the greenhouse gas (GHG) intensity of the energy used on a ship, with targets getting stricter every five years.
The GHG intensity requirement applies to all energy used on voyages and port calls within the EU, and 50% of voyages in and out.
To be compliant, companies will need to either pay a FuelEU penalty, or take action to bring the GHG intensity within FuelEU limits, which can be achieved by burning biofuels or LNG/ LPG. Another way is pooling, where vessels that overachieve on intensity targets can compensate for underperforming vessels.
However, Hamburg-based maritime intelligence company OceanScore MD Albrecht Grell said: “A significant number of shipping companies we have spoken to, especially smaller ones, are not considering pooling, but simply intend to pay the penalty.
“But this, as well as pushing compliance deficits into future years, through borrowing that will incur interest, will prove increasingly costly,” he warned.
The current penalty of €2,400 per tonne of VLSFOe (very-low sulphur fuel oil) over intensity targets will rise some 10% each year of non-compliance, to reach €3,360 in 2029 for continued non-compliance, according to Oceanscore.
Mr Grell urged companies to explore biofuels and pooling as “commercially attractive opportunities to reduce deficits”, rather than simply paying penalties.
“Companies need to understand the complex market variables driving the availability of surpluses, with supply and demand determining the price of pooling slots,” he advised.
As well as allowing shipowners to use compliance surpluses to offset deficits within their own fleets, FuelEU’s pooling mechanism, allows them to monetise them by sharing with third-party vessels – “a commercially sound option”, said Mr Grell, whichccould even compensate for the significantly higher costs of compliant fuels.
But Friederike Hesse, co-founder and MD of maritime carbon solutions software platform zero44, said that the most economic tactic would vary for companies. Factors would include : trading pattern (how much EU-exposure do you have?) and the resulting compliance deficit or surplus; availability of sustainable fuel options; and the price of those fuels compared with traditional fuels, compared to the penalty and agreements with owners, charterers and managers.
But she added: “Many of these factors change through the year… So optimising FuelEU will be a continuous effort, you should track all the compliance options you have and find an optimal path for each compliance and charter period.”