FuelEU Maritime is coming and is already applying pressure on shipping to clean up its greenhouse gas emissions.
Shipowners and operators are on the cusp of a key documentation deadline as Brussels’ new law gradually tightens caps on the carbon intensity of shipping fuels from January.
And though it comes with less fanfare than the European Union’s move to include shipping in its Emissions Trading System (ETS) at the start of this year, this is the real deal.
By all accounts, FuelEU will have a much greater impact on the decision-making of shipowners, and it is already leading to decision-making that the trading regime was not costly enough to spur.
After all, shipping’s entry into the ETS has been somewhat anticlimactic.
It was important because, for the first time, shipping had to start paying a price for its greenhouse gas emissions, not to mention compliance costs, and it created new avenues of funding for green technologies.
But in my reporting on emissions regulations, environmental groups, shipowners and operators have all told me that the price of carbon allowances under the trading system is just too insignificant to meaningfully change the behaviour of shipping.
“We haven’t seen a change in behaviour from owners and/or charterers as a result of EU ETS,” Trafigura head of wet freight Andrea Olivi recently said of the emissions trading rules.
That is not the case for FuelEU, which has more meaningful penalties that will provide more impetus for ships that call in Europe’s ports to take some action and incentives that allow owners of cleaner ships to capitalise on their investments.
The FuelEU Maritime law has the following carbon intensity limits for the energy used by shipping:
- 2% by 2025
- 6% by 2030
- 14.5% by 2035
- 31% by 2040
- 62% by 2045
- 80% by 2050
He told me that FuelEU played a big role in the move by Trafigura, a major trader and charterer that also has an owned fleet, to order four ammonia-fuelled gas carriers.
Olivi said in an interview for an upcoming episode of TradeWinds’ Green Seas podcast that the company believes FuelEU will have a “very positive effect” on lower-carbon fuel uptake.
He said that will be a boost for biofuels, an area in which Trafigura is putting its money where its mouth is through its TFG Marine bunker joint venture with two John Fredriksen-backed companies — Frontline and Golden Ocean Group.
FuelEU’s penalties for non-compliance are no mere sledgehammer, and their nuances combine with incentives.
Olivi highlighted that the legislation operates like a feebate system — a combination of fee and rebate — that allows shipping companies to apply penalties towards the purchase of lower-carbon fuels.
And the legislation’s pooling mechanism provides incentives for forward-thinking shipowners who invest in green fuels and green technologies to share their emissions savings with vessels that would not otherwise comply with the legislation. And by share, I mean sell.
Deadline is here
At the end of August, ship managers are required to submit emissions monitoring plans to comply with FuelEU.
It is far from a perfect regulation.
The EU started on a more ambitious footing than the International Maritime Organization, with some calling for tougher carbon-intensity targets from Brussels.
But it is important to note that the IMO still lacks the policy mechanisms to push shipping towards its targets in 2030, 2040 and ultimately 2050, when it is aiming for an industry with a net zero greenhouse gas footprint.
Brussels has policies, and FuelEU is making a difference.
And the law does not operate in a vacuum but in tandem with the EU’s emissions trading regime, which is still being phased in and is likely to see higher carbon costs in the years ahead.
As the IMO continues to debate how to create new global rules to make its ambitious targets a reality, Brussels has created a real-life proving ground of how it can be done — though time will tell how truly impactful FuelEU will be.
