Argus Media: EU–IMO overlap could incentivise biofuel demand

The EU and the International Maritime Organization’s (IMO) dual efforts to cut shipping emissions could lead to stacked fines and higher fuel costs for ships visiting EU ports, but it could also sharpen incentives to use biodiesel blends.

11 June 2025

The EU’s FuelEU Maritime and emissions trading system (ETS) is already in force within EU territory, while the IMO’s global greenhouse gas (GHG) penalty system takes effect in 2028 and applies to EU waters, among other regions. Without coordination, ships operating in and out of EU waters that exceed both sets of limits could pay under both systems.

FuelEU targets vessel pools, while IMO rules will be applied on an individual vessel basis. Both cover lifecycle GHG emissions, but IMO’s thresholds are stricter (see chart). FuelEU penalties are currently €2,400/t of VLSFO energy equivalent ($2,708/t in May). From 2028, IMO penalties will range from $100/t CO₂ e for breaching the direct GHG limit to $380/t for surpassing the base threshold. On top of this, the EU ETS will require shipowners to pay for 100pc of CO₂ emissions from combustion in EU waters starting in 2026.

In May 2025, Rotterdam high-sulphur fuel oil (HSFO) averaged $415/t and ETS carbon credits averaged $79/t. Since VLSFO emits 3.114t of CO₂ per tonne burned, ETS alone would add $246/t for 100pc CO₂ charge. If a vessel also breaches FuelEU and IMO limits, it would face another $71/t and $82/t, respectively, bringing the total penalty burden to $399/t and the effective HSFO price to $814/t in 2028 (see chart). A comparable ship operating only in Asia would pay $497/t, factoring in IMO penalties alone.

In May,northwest Europe B30 biodiesel — a used cooking oil methyl ester and very low-sulphur fuel oil blend — averaged $790/t. Considering a $173/t CO₂ EU ETS emissions cost that covers 100pc of emissions from combustion, and $25/t IMO overcompliance credit in 2028, the B30 price would be $938/t, a premium to HSFO. But by 2030, the combined effect of IMO and EU penalties plus overcompliance credits would flip B30 to a discount for EU-bound ships. Outside EU waters, IMO alone would not tip the balance.

The overlapping rules are likely to prompt shipowners to concentrate low-carbon fuel use in EU waters, shifting the bulk of global shipping emissions reductions to the North Sea, Baltic Sea, Mediterranean, and northeast Atlantic, leaving the Pacific, Indian, Arctic, and western Atlantic regions with less progress.

“The [European] Commission will assess the new global measure to see how it interacts with current EU maritime-related regulations, maintaining environmental integrity while avoiding significant double burden”, it said in a statement in April. The EU has two and a half years until 2028 to make a decision.

By Stefka Wechsler

Photo credit and source: Argus Media
Published: 11 June, 2025