Biofuel

Clyde & Co on legal issues pertaining to bio bunker fuels in international shipping

Paul Collier and Benjamin Soh highlighted several key legal issues raised with the use of biofuel bunkers which should be considered by parties prior to their purchase and consumption on ships.

Published

8 months ago

May 16, 2024

Admin

International law firm Clyde & Co LLP on Tuesday (28 March) published an insight highlighting several key legal issues raised with the use of biofuel bunkers:

By Paul Collier, Partner, and Benjamin Soh, Associate, of Clyde & Co

Biofuels are poised to play an increasing role in international shipping as part of global efforts to decarbonise the sector. However, the use of biofuels raises several important legal issues which should be considered by parties prior to their purchase and consumption on ships.

Potential benefits from the use of biofuels by ships

There are two main regulatory regimes which provide significant incentives for shipowners and ship operators to shift to using biofuels.

First, the IMO introduced a target for achieving net zero greenhouse gas (“GHG”) emissions by or around 2050, as well as an interim target for reducing GHG emissions by at least 20% by 2030. As part of this initiative, shipowners are required to calculate and report their vessel’s carbon intensity annually under the Carbon Intensity Indicator (“CII”) regime and vessels will receive a CII rating ranging from A to E. Biofuels which have appropriate international certification and provide a well-to-wake GHG emissions reduction of 65% compared to marine gasoil (“MGO”)[1] may be assigned a lower carbon emission factor. This could potentially assist shipowners and ship operators with retaining or improving their vessel’s CII rating.

Secondly, the EU has taken steps to incentivise decarbonisation, as part of their target of achieving a 55% GHG emissions reduction by 2030. Starting from 1 January 2024, the EU has extended the application of the EU Emissions Trading System (“EU ETS”) to shipping. Shipping companies are now required to surrender emissions allowances for CO2 emissions on voyages to or from the EU. In addition, from 1 January 2025, FuelEU Maritime (“FuelEU”) will also be applicable, requiring significant reductions in the GHG intensity of fuel used by ships, with penalties for failing to comply with GHG intensity reduction targets. Vessels consuming biofuels which meet sustainability and GHG emissions saving requirements and are certified under the Renewable Energy Directive 2018/2001 (“RED II”), will benefit from preferable calculations of their emissions and GHG intensity, compared to the position if they continued solely consuming fossil fuel bunkers.

The CII and EU regimes, therefore, heavily incentivise the consumption of biofuels that meet applicable certification requirements.

Biofuels also offer a significant advantage compared to other forms of zero and low carbon technology, because they can operate as “drop-in” fuel (i.e. biofuels could potentially be used in conventional ship engines without any engine modifications). The use of biofuels could, therefore, allow shipowners to achieve GHG emissions reductions without expensive outlays on new ships or vessel modifications, that would otherwise be required for other forms of alternative fuel technology.

Benjamin Soh

Issues relating to sustainability, emissions savings, and certification

Whilst there are considerable potential benefits for shipowners and ship operators in using biofuels under the CII and EU regimes, they should be mindful that these potential benefits are conditional on biofuels meeting the applicable sustainability and emission reduction criteria, as well as on receiving appropriate certification. If the biofuel does not meet the applicable standards or have the appropriate certification, then, under the CII and EU regimes, the biofuels are likely to be treated as producing emissions equivalent to the fossil fuel type. This would place shipowners and ship operators opting for biofuels in no better position than if they had continued using fossil fuel bunkers.

For this reason, it is essential for parties to consider whether the contractual wording in their charterparties and in biofuel supply contracts adequately protects their position.

Where shipowners are time chartering a vessel and have agreed that time charterers may stem biofuels, shipowners should carefully consider whether their charterparty terms properly set out the specification and certification requirements for any biofuels stemmed. Here, shipowners could be exposed to the risk that their time charterers might not stem appropriately certified biofuel, such that they do not receive any preferential treatment under the CII and EU regimes as compared to the position if the vessel had consumed fossil based bunker fuel. If this were the case, shipowners could face unexpected penalties and suffer losses.

Biofuel purchasers should consider whether the supply contracts include adequate provisions to protect their position under the regulations, for example, by including warranties that the biofuel meets applicable international standards, that evidence of certification will be provided, and that Bunker Delivery Notes (“BDN”) provided by the supplier will include details of the GHG emissions for the production and use of the biofuel supplied.

More generally, biofuel purchasers and sellers should consider whether the terms of the supply contract should include a mechanism for advancing claims for losses if there is a lack of appropriate certification. Typically, most bunker supply terms and conditions contain short time bars and provisions restricting claims for consequential loss. It may be that such contractual provisions could restrict the ability of purchasers to advance claims for consequential loss which arise from a lack of certification or from non-compliance with sustainability or emissions reduction criteria.

Potential issues with biofuel quality, handling, and storage

A further point worth considering relates to the quality of biofuels and to related onboard handling and management issues.

Bunker quality issues are not uncommon when it comes to traditional fossil based marine fuels. However, the use of biofuels presents additional challenges for shipowners, ship operators and bunker suppliers, given their unique physical characteristics and the fact that many vessels will have limited experience of handling and storing them.

Particular concerns revolve around difficulties with respect to the oxidation stability and cold flow properties of biofuels, the possibility that biofuels could cause the corrosion of engine parts and clog fuel filters, and the risk that biofuels could degrade in quality whilst stored in vessel tanks.

There is currently no clear international standard setting out quality specifications for biofuel bunkers. ISO 8217, which sets out quality specifications for conventional marine fuel oil, only covers biodiesel blends containing up to 7% of fatty acid methyl ester (FAME) by volume. While the ISO continues to work on the next ISO 8217 standard, with the intention of including specifications for biofuels, national authorities are stepping in to provide temporary frameworks for quality and testing of biofuel bunkers.

Singapore has developed its own specification for marine biofuel (WA 2:2022), which incorporates additional quality parameters and testing methods seeking to address the unique physical characteristics of biofuels. Meanwhile, South Korea has announced that it will be issuing its own standard for marine biofuel this year, ahead of planned biofuel bunkering trials, with a view to fully adopting biofuel bunkering by 2025.

In the absence of a recognised international standard for biofuels, buyers may wish to consider protecting their position by requiring that fuel supplied complies with a national specification or alternatively by agreeing bespoke terms regarding the specification of the biofuel to be supplied. Furthermore, given potential issues in relation to the quality of biofuels, it would be prudent for buyers to put in place robust testing and handling procedures to mitigate the risk of bad biofuel bunkers, and to avoid potential damage to vessel engines. This may involve testing for additional parameters that are not included in table 1 or 2 of ISO 8217.

Finally, given the risk of degradation of biofuels and the short time bars for quality claims typically found in bunker supply contracts, it is recommended that prompt fuel sampling takes place and that evidence of the handling and storage of the biofuel on the vessel is retained in the event of a bunker quality dispute. From the bunker supplier perspective, if any engine problems are alleged following the consumption of biofuels, it is likely to be worth investigating whether the biofuel was properly handled and stored on board, as this could potentially be a cause of any problems experienced.

Photo credit: Clyde & Co
Published: 16 May 2024

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Dublin Bay Cruises opts for HVO bunker fuel for passenger ship “St. Bridget”

Firm launched its eco-friendly initiative by moving from fossil fuels to HVO, becoming the first domestic passenger ship operator in Ireland to adopt this sustainable practice.

Published

2 days ago

January 23, 2025

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Dublin Bay Cruises opts for HVO bunker fuel to power passenger ship “St. Bridget”

Dublin Bay Cruises on Wednesday (22 January) announced the launch of its eco-friendly initiative by moving from fossil fuels to Hydrogenated Vegetable Oil (HVO) in their existing passenger ship St. Bridget.

The company said it is now the first domestic passenger ship operator in Ireland to adopt this sustainable practice aimed at reducing environmental impact while enhancing the marine experience for visitors.

In adapting the Circular Economy Policy they have remanufactured the engines of St Bridget, making her more fuel-efficient, and dramatically reducing emissions. By doing this, instead of building from scratch, they not only reduced waste but also took a major step toward a greener future.

This change will reduce emissions by up to 90%, which will exceed the climate targets set by the EU and Ireland. This thoughtful investment underscores Dublin Bay Cruises’ commitment to environmental stewardship and sustainable tourism.

“Recently Dublin Bay Cruises faced a crucial decision—whether to invest in a larger vessel for increased passenger numbers or to reconsider our approach and focus on sustainability,” said founder and Managing Director Eugene Garrihy.

“After careful thought, we chose the latter. Our choice reflects not just a business decision, but a responsibility to the environment and the future of our coastal communities. We need to slow things down.”

Garrihy added: “We are deeply aware of the privilege and responsibility we have to operate in UNESCOs Dublin Bay Biosphere, one of the most beautiful marine environments in the world. This initiative is a reflection of our commitment to preserving Dublin Bay for future generations while still providing our customers with an unforgettable and sustainable marine experience,”

The transition includes substantial investments in reducing carbon emissions, improving energy efficiency onboard with solar panels, and incorporating green technologies into its daily operations. Dublin Bay Cruises has also partnered with Failte Ireland’s “Climate Action Programme” and with local marine conservation groups to support biodiversity and the protection of the rich marine life found in Dublin Bay.

Being the first domestic passenger ship in Ireland to take this important step is not just a milestone for Dublin Bay Cruises, but also hopefully an encouragement for others working in tourism industries to take the leap and follow suit in safeguarding Ireland’s natural heritage.

The company added St. Bridget will now continue to serve as a passenger ship for at least another decade, with far fewer emissions than before.

Photo credit: Dublin Bay Cruises
Published: 23 January, 2025

Alternative Fuels

UECC green bunker fuel investments avert FuelEU surcharges for customers

UECC said it has been able to eliminate surcharges for its customers under FuelEU Maritime as proactive adoption of green marine fuels has drastically reduced its financial exposure to the regulation.

Published

3 days ago

January 22, 2025

Admin

UECC and Titan team up on bio-LNG bunkering operations in Port of Zeebrugge

United European Car Carriers (UECC) on Monday (20 January) said it has been able to eliminate surcharges for its customers under FuelEU Maritime as proactive adoption of green fuels has drastically reduced its financial exposure to the newly implemented regulation.

Currently, switching to low-carbon biofuels is generally seen as the most effective route to achieve compliance with progressively tighter carbon intensity reduction targets and thereby avoid penalties under FEUM, which is designed to promote uptake of alternative fuel technologies towards the goal of net zero.

However, this approach will typically entail higher fuel costs for shipping companies given that biofuels - which can deliver respective reductions of 85% and 100% in well-to-wake and tank-to-wake emissions - cost between 50-150% more than conventional fossil fuels, while there is also limited feedstock supply.

An additional ‘Energy Surcharge’ levied on shippers to compensate for this price differential can be as much as 2-5% with the use of biofuel, according to UECC’s Energy & Sustainability Manager Daniel Gent.

But he said: “UECC will change absolutely nothing about its pricing structure in relation to FEUM.”

Gent explained this is largely due to the fact that UECC has already achieved significant reductions in carbon intensity by expanding the use of biofuels across its 15-vessel fleet since 2020.

It has also adopted liquefied biomethane (LBM) on its five dual and multi-fuel LNG Pure Car and Truck Carriers under the Sail for Change sustainability initiative launched last year that is supported by several major vehicle manufacturers.

“Consequently, we are already running a compliance surplus in relation to FEUM with our current energy mix and this is expected to extend into the early 2030s,” he says.

“We have previously informed our customers that their support for our investment in multi-fuel LNG vessels would insulate them against regulatory penalties and this is exactly what is happening here. This demonstrates the clear benefits of being ahead of regulation, investing in progressive technology and in the process of generating savings for our customers.”

UECC’s fleet decarbonisation effort has focused on investments in eco-friendly newbuilds - with two more multi-fuel LNG battery hybrid PCTCs currently on order - as well as piloting alternative fuels, in addition to operational efficiencies and technical measures such as waste heat recovery and hull anti-fouling.

The company has rigorous fuel selection criteria based on sustainability, technical suitability and commercial viability. Its bio-products are compliant with Renewable Energy Directive (RED) criteria and sourced from Annex 9 feedstocks in line with regulatory requirements, while all fuels used are ISCC-certified.

Through a proactive fuel procurement strategy, UECC has secured volumes of alternative fuels for the longer term through agreements with suppliers like Titan Clean Fuels for LBM and ACT Commodities for biofuels to promote green fuel bunkering infrastructure. It is also diversifying its sources of supply, such as through a recent first truck-to-ship LBM refuelling operation with Naturgy in Spain.

“LBM from certain feedstocks or including carbon capture are the ‘heavy lifters’ on our decarbonisation journey and we see huge potential in these fuels,” Gent says.

UECC is firmly on track to achieve a minimum 45% reduction in carbon intensity by 2030 to surpass the IMO target, while it is also set to exceed the required FEUM reduction of 31% by 2040 versus a 2020 baseline of 91.16 grams of CO2 equivalent per megajoule.

This means that UECC will have a sufficient compliance surplus to provide a pooling opportunity for third-party vessels under FEUM “so that all stakeholders can benefit from our investments”, according to Gent. But he says the company is not resting on its laurels and intends to make further alternative fuel investments with the aim of phasing out oil-based fossil fuels by 2040.

“As we are going ‘above and beyond’ in terms of our commitment to alternative fuels such as LBM and biofuel, we expect to have a significant compliance surplus under FEUM. With the investments we are planning in such fuels, UECC will never be in a position of needing to buy or borrow compliance units,” Gent concluded.

Photo credit: United European Car Carriers
Published: 22 January, 2025

Alternative Fuels

Nasdaq interview: CBL International Chairman shares vision for sustainable bunker fuels

In a Nasdaq Issuer Spotlight interview, Mr. Teck Lim Chia shares CBL’s mission to provide one-stop refuelling solutions across over 60 ports globally and discusses the firm’s adoption of sustainable fuels.

Published

3 days ago

January 22, 2025

Admin

CBL International Limited (CBL), the listing vehicle of Banle Group (Banle), a marine fuel logistic company in the Asia-Pacific region, on Tuesday (21 January) announced that its Chairman and CEO, Mr. Teck Lim Chia, was recently featured in an exclusive interview on Nasdaq's Amplify Spotlight programme, in which he provides a company update and his vision for CBL’s sustainable fuels.

The Nasdaq Issuer Spotlight interview series explores how industry leaders are evolving and navigating challenges in various industries.

In a discussion with host Michael Spector, Mr. Chia delves into CBL's mission to provide comprehensive one-stop refuelling solutions across over 60 ports globally, with a strong commitment to sustainability.

He highlights the company's significant growth since its founding in 2015, including its public listing on Nasdaq in 2023, and its expansion into new markets such as Europe, Africa, in addition to Asia Pacific.

Mr. Chia also discusses the company's adoption of sustainable fuels like B24 biofuel, which led to a nearly 96% increase in its biofuel sales in 1H2024, aligning with global decarbonisation efforts.

Mr. Teck Lim Chia, Chairman and CEO of CBL International Limited, said: “It is a great honor to be featured on Nasdaq’s Amplify Issuer Spotlight. This opportunity underscores the remarkable growth and the significant strides CBL has made in the global bunkering industry.”

“As we continue to expand our footprint across new markets, our commitment to sustainability remains at the core of our operations. We are excited about the future of the bunkering industry and our role in driving the transition to more sustainable fuels, contributing to the global decarbonisation efforts.”

“At CBL, we are dedicated to providing safe, reliable, and environmentally responsible refuelling solutions, and this platform further enhances our mission towards a greener future.”

The full interview is now available through the image below: