EU ETS

Fuel EU – Achieving compliance; banking, borrowing, pooling and paying

Reed Smith lawyers look at how a ship can achieve compliance and obtain the important FuelEU document of compliance as well as the consequences of not complying.

Published

10 months ago

June 14, 2024

Admin

Global law firm Reed Smith on Friday (7 June) published ‘FuelEU – Achieving compliance; banking, borrowing, pooling and paying’ looking at how a ship can achieve compliance and obtain the important FuelEU document of compliance as well as the consequences of not complying.

Authored by Antonia Panayides and Alexander Drury

While the shipping industry is still coming to terms with the EU Emissions Trading Scheme (EU ETS) the next decarbonisation initiative, FuelEU Maritime (FuelEU), is rapidly sailing into view.

FuelEU is part of the EU’s Fit for 55 Package and aims to support decarbonisation in the shipping industry by setting and gradually reducing, emission targets from journeys to/from EEA ports. The scheme targets the greenhouse gas intensity of energy used on a vessel. This is largely determined by the fuel used, with the Regulation rewarding cleaner fuels.

FuelEU enters into force from 1 January 2025 but monitoring plans for vessels already calling at EEA ports must be submitted by 31 August 2024.

What is the compliance process?

To comply, a ship must not exceed its set emission target, expressed as greenhouse gas emissions per megajoule of energy used on board. If a ship is at, or under, the target stipulated by the EU, it will receive a FuelEU document of compliance. However, if a ship is over the emissions limit, it can still achieve compliance through a few different mechanisms and receive a FuelEU document of compliance.

Paying the price

On 1 June of the verification period, a company’s administering State shall ensure that any ships with a compliance deficit, i.e. those that are over polluted during the year, are issued with a FuelEU penalty.

If the penalty is paid by 30 June, the ship will receive a FuelEU document of compliance. If a ship has a compliance deficit for consecutive reporting periods, an uplift multiplier is applied to the penalty.

Using the bank

Where a ship has a compliance surplus, and therefore does better than the EU’s target, the company may ‘bank’ the unused emissions for the next reporting period. The decision to bank is subject to the appointed verifier’s approval and must be made before a FuelEU document of compliance is issued. The banked surplus can be used to achieve compliance the next year.

Borrowing from the future

A ship with a compliance deficit may borrow a proportion of the next year’s emission allowance to help it achieve compliance. However, this borrowed allowance and a premium is deducted from the following reporting period, making it even harder to achieve compliance that year. A ship cannot borrow in two consecutive years.

Pooling

Finally, a ship can enter a pool. This is not to be confused with a commercial pool. A pool for the purposes of compliance with FuelEU is a voluntary mechanism allowing ships to share their compliance surplus/deficit – as long as the pool’s total emissions result in a compliance surplus. Pools can consist of ships from different companies, but every company must approve the pool composition and allowance distribution across the pool.

The compliance is then assessed across the entire pool rather than looking at individual ships. This allows a cleaner ship to share any compliance surplus with more polluting ships.

Verifiers will confirm a ship’s emissions by 31 March and companies then have until 30 April to finalise their pooling arrangements, which the verifier must also confirm.

Consequences of non-compliance

A FuelEU document of compliance allows a ship to trade in EEA ports for 18 months, or until the next FuelEU document of compliance is issued. However, Member States must lay down rules on sanctions for non-compliance. If a ship has no FuelEU document of compliance for two consecutive years, it could be detained or expelled from EEA ports.

Photo credit: Thanasis Papazacharias from Pixabay
Published: 14 June 2024

Port & Regulatory

DNV: GHG regulatory outlook for 2025 – Major actions and deadlines

DNV shares key deadlines and activities in 2025 related to key regulations for greenhouse gas emissions such as EU MRV, IMO DCS, EU ETS and FuelEU Maritime.

Published

1 month ago

February 12, 2025

Admin

Classification society DNV recently shared a summary of key deadlines and activities in 2025 related to key regulations for greenhouse gas (GHG) emissions.

The following is an excerpt from the news update:

Decarbonization is a top priority for ship owners. While the EU MRV and IMO DCS have become routine, new regulations such as the EU ETS and FuelEU Maritime present uncharted territory for many. Below is a summary of the key regulations and required actions for 2025:

EU MRV

To comply with EU MRV requirements, ship managers must ensure accurate emissions data and promptly submit their reports for verification by an accredited verifier. Once verified, managers are required to submit the reports to the THETIS-MRV system.

Deadlines in 2025:

Submission (to verifier, DNV): 21 February (in which case DNV guarantees verification before the deadline)
Verification: 31 March

EU ETS Company Emissions Report

The EU Emissions Trading System (EU ETS) Company Emissions Report is a crucial part of the compliance process for companies regulated under the EU ETS. This data is based on EU MRV emissions data for 2024. Some key points:

To create the EU ETS Company Emissions Report, all vessel emissions reports need to be verified and submitted to THETIS (this must be done prior to the submission of the EU ETS Company Emissions Report). Companies are also required to submit a report of their company emissions for the previous calendar year.

Companies are also required to surrender their EU ETS Allowances equivalent to their verified emissions.

The verification process shall ensure the accuracy and reliability of the reported data. Accredited verifiers, such as DNV, will check the emissions reports to confirm their correctness.

Deadlines in 2025:

Submission of the verified Company Emissions Report: 31 March 2025. This deadline is for both ship and company emissions. Early submission is recommended.
Surrender of the due EU ETS Allowances (from the Maritime Operator Holding Account (MOHA) holder in the EU ETS Union Registry): 30 September 2025.

Important note: DNV will provide EU ETS Company Emissions Report verification, and we will shortly follow up with more information in the My Services portal on Veracity on how to order the verification and how to upload the documents to THETIS-MRV.

FuelEU Maritime

Vessels trading in the EU/EEA* already have an approved FuelEU Maritime Monitoring Plan on board (deadline: 1 January 2025). There are no further deadlines for 2025, but DNV strongly encourages every affected company to take immediate action:

Establish a strategy to minimize the cost of compliance.
Review and update the commercial contracts between the technical manager/ISM company and ship owner – trusted data are crucial to manage financials and commercial management.
Ensure the implementation of clear terms in commercial charter contracts that define the specific roles and responsibilities of all parties in compliance with the FuelEU Maritime regulations.
For vessel pooling, it is important to note that if the legal declaration of pooling is made the year following the reporting period, most commercial decisions will need to be finalized during the 2025 charter negotiations.

Deadline in 2025:

Continuous reporting and data verification for the EU MRV throughout 2025

*Note: The EEA EFTA countries Iceland, Norway and Lichtenstein are not yet part of the FuelEU Maritime due to delays in the process; implementation is expected shortly.

Partial FuelEU Emissions Report

The partial FuelEU Emissions Report is required when there is a change of company managing a ship (see Appendix in the pdf for more information). It should be noted that both the EU MRV and IMO DCS have specific requirements regarding changes of company. These requirements are detailed in the FAQ sections of the references listed below. DNV will offer partial FuelEU Emissions Reports from the end of Q1 2025 (THETIS functionalities are still under development).

IMO DCS Fuel Oil Consumption Report (FOCR)

The aggregated DCS data form the basis for the Carbon Intensity Indicator (CII) rating and the SEEMP Part III. Data quality and an efficient, digital system are key.

Deadline in 2025:

Verified FOCR reporting: 31 May 2025

Note: DNV’s full summary of key deadlines and activities in 2025 related to key regulations can be found here.

Photo credit: william william on Unsplash
Published: 12 February, 2025

Alternative Fuels

ENGINE on Fuel Switch Snapshot: LNG crosses $1,000/mt with EU regs

With EUA and FuelEU Maritime costs for voyages between two EU ports added, bunkering LNG in Rotterdam will now cost over $1,000/mt on ships powered by Otto medium speed engines.

Published

2 months ago

February 4, 2025

Admin

ENGINE on Fuel Switch Snapshot: LNG crosses $1,000/mt with EU regs

Once a week, bunker intelligence platform ENGINE will publish a snapshot of alternative and conventional bunker fuel prices in the world’s two biggest bunkering hubs. The following is the latest snapshot:

LNG can cost $1,000/mt with EU regulations added
B100 premium over VLSFO rises

Rotterdam’s VLSFO-equivalent LNG price has surged $41/mt higher in the past week.

This sharp increase has further widened its premiums over conventional fuels. Its premium over VLSFO has gone up by $36/mt to $242/mt, and over LSMGO by $52/mt to $146/mt.

With EU Allowance (EUA) and FuelEU Maritime costs for voyages between two EU ports added, bunkering LNG in Rotterdam will now cost over $1,000/mt on ships powered by Otto medium speed (Otto MS) engines. This engine type has the highest default methane slip (3.1%) in the FuelEU regulation.

ENGINE on Fuel Switch Snapshot: LNG crosses $1,000/mt with EU regs

Few shipowners have a direct choice between liquefied biomethane (LBM) and B100, as these fuels typically serve different vessel types and operational needs. But for dual-fuel shipowners bunkering in Rotterdam with that choice, LBM's cost advantage over B100 has increased when additional EU regulation costs are factored in.

For ships with Otto MS engines, LBM’s discount to B100 has widened to $25/mt when accounting for EU ETS compliance costs and FuelEU pooling benefits. This is an $11/mt increase from a week ago.

Liquid fuels

Rotterdam's VLSFO-equivalent B100 price has surged by $60/mt in the past week, increasing its premium over VLSFO by $51/mt to $626/mt.

PRIMA Markets has assessed the Dutch HBE rebate for B100 in Rotterdam to $357/mt, a modest $7/mt decline in a week of slow activity, PRIMA said.

“The market for HBE tickets flattened on Friday in what market participants called a quiet market, with some even suggesting they were 'bored', both for 2024 and 2025,” PRIMA said.

The theoretical FuelEU pooling value we assume for B100 has increased by $9/mt on the week, to $562/mt. When factoring in estimated EU ETS and FuelEU compliance benefits for voyages between two EU ports, the real cost of bunkering B100 is $722/mt. That is a $52/mt gain on the week.

Meanwhile, Rotterdam’s VLSFO price has countered a $21/mt ($2.83/bbl) drop in front-month Brent futures by gaining $5/mt over the past week. Singapore's VLSFO price has fallen by $6/mt.

Liquid gases

Rotterdam’s LNG price has rallied for another week. Its $41/mt weekly gain has mainly been driven by concerns over colder weather and low wind power output in Europe.

LNG’s sharp rise has also driven up the price of LBM, which is typically priced at a premium over fossil LNG.

When factoring in compliance costs and pooling benefits, the total cost of bunkering LBM can be as low as $562/mt when it is consumed in a diesel slow speed (diesel SS) engine with low methane slip (0.2%) between two EU ports. That is $275/mt less than fossil LNG consumed in the same diesel SS engine.

Meanwhile, Singapore’s VLSFO-equivalent LNG price has been rather steady, shedding $2/mt in the past week.

By Konica Bhatt

Photo credit and source: ENGINE
Published: 4 February, 2025

Events

OceanScore to launch combined EU ETS and FuelEU solution in Singapore

Albrecht Grell, Managing Director, and Leo Grayson, Head of Commercial, APAC, will explain how the Compliance Manager can help businesses thrive under the latest regulations.

Published

3 months ago

January 8, 2025

Admin

OceanScore Managing Director Albrecht Grell

Hamburg-based technology platform OceanScore will introduce the Compliance Manager, its new solution that will help effectively manage FuelEU Maritime Regulation and EU Emissions Trading System (EU ETS) on one platform, in Singapore.

Albrecht Grell, Managing Director, and Leo Grayson, Head of Commercial, APAC, will discuss the FuelEU regulation in depth, what it means for Asian players, and best practices and strategies for efficient compliance.

The event will be held from 3 to 5pm (Singapore time) on 23 January. The venue of the event will be at OceanScore Singapore, c/o Blue Net Chartering Asia Pte. Ltd., 20 Cecil Street, PLUS, #24-02.

Note: Registration for the event can be completed here.

Photo credit: OceanScore
Published: 8 January, 2025