On July 14, 2021, the European Commission presented the Fit for 55 package, which aims to enable a 55% reduction in emissions by 2030 and reach climate neutrality by 2050. With maritime transport accounting for 13.5% of EU transport emissions, decarbonising the shipping sector is a crucial element of the package. As such, the formal adoption of a new EU maritime regulation in July 2023 marks a significant milestone in pursuit of this goal.
What is the New EU Maritime Regulation?
The new EU maritime regulation, known as FuelEU – aims to gradually decrease the greenhouse gas (GHG) intensity of fuels used in maritime transport over time, with a target of 80% reduction by 2050. The regulation will focus on containerships and passenger vessels, as EU data indicates that these types of vessels produce the highest emissions during berth periods. Specifically, it applies to vessels above 5,000 gross tonnes, with some exceptions such as naval vessels, fishing vessels, and other specific vessel types.
The initiative mandates two primary requirements for vessels that call at EU ports. Firstly, relevant vessels must reduce the GHG intensity of the energy used on board according to the following timeline:
- A reduction of -2% from 1 January 2025;
- A reduction of -6% from 1 January 2030;
- A reduction of -13% from 1 January 2035;
- A reduction of -26% from 1 January 2040;
- A reduction of -59% from 1 January 2045;
- A reduction of -75% from 1 January 2050.
Secondly, vessels must connect to an onshore power supply for their electrical needs while moored at the quayside, unless they use another zero-emission technology.
Implementation and Enforcement
The responsible entity designated for compliance is the shipowner or any other organisation or individual, such as the manager or bareboat charterer, who assumes responsibility from the shipowner. The shipowner is responsible for monitoring and reporting comprehensive data for each vessel, covering fuel usage both at sea and during berthing.
By August 31, 2024, companies must submit monitoring plans to confirm their chosen method for monitoring and reporting emissions. Independent and competent legal entities verify the reported data, calculating the vessel’s annual average GHG intensity and compliance balance. Once the requirements are fulfilled without any deficiencies, the verifier issues a FuelEU document of compliance, which will be checked during routine vessel inspections at ports.
Shipowners have the option to carry forward compliance surpluses from one reporting period to the next for the same vessel. In certain circumstances, projected future surpluses can be used to cover deficits in a reporting period. Shipowners can also combine the performances of various vessels in their fleet, allowing the overperformance of one vessel to compensate for the underperformance of another. These practices aim to provide flexibility in the implementation of this regulation.
A penalty system, known as the FuelEU penalty, will be imposed on vessels that fail to comply with the annual GHG limits. The penalties will be determined based on the quantity and cost of renewable fuel that should have been used to meet the established requirements. Only upon payment of penalties will a FuelEU document of compliance be issued. Failure to present a valid document for two or more consecutive periods after enforcement can result in an expulsion order issued by the member state’s port authority. This order requires all other member states to deny entry to the vessel in their ports. For vessels flagged by member states, flag detention can be ordered until the obligations are fulfilled. The funds generated from FuelEU penalty payments will be used to promote the adoption of renewable and low-carbon fuels in the maritime sector.
Note that the FuelEU Maritime regulation will operate alongside other systems and directives such as the EU Emissions Trading System (ETS), the Energy Taxation directive and the Revision of the Directive on the deployment of alternative fuels infrastructure 2014/94/EU (or the CPT Directive). The ETS operates as a “cap and trade” system, imposing a restriction on the emission rights for specific pollutants within a defined geographical area. Companies are then able to trade emissions allowances within this area. Further, the Energy Taxation directive will impose taxes on marine fuel sold in the European Economic Area (EEA) for intra-EEA voyages, with a 10-year transition period of rising tax rates. The Revision of the Directive on the deployment of alternative fuels infrastructure aims to ensure that ships have access to clean electricity and LNG refueling across the EU through coordinated national policies and infrastructure upgrades.
Opportunities and Challenges
While the variety of initiatives mentioned collectively represent a significant step towards decarbonising maritime transport in Europe, the inclusion of maritime emissions in the ETS from 2023 onwards and the two aforementioned directives will increase financial burdens for ship operators and customers due to the increased taxes and compliance expenses.
However, these potetnial financial burdens could provide strong economic incentives to drive technological innovation in emissions reduction. The need to meet mandatory GHG intensity targets is expected to stimulate investment in alternative fuels, energy-efficient ship propulsion systems, and other emission reduction technologies. By potentially passing on compliance costs to ship operators and customers, these regulations can create demand for lower-carbon solutions. This could help foster competitive markets for innovative, cost-effective technologies that support decarbonisation goals. Technologies developed in response to regulation could spur further advances over time, continually lowering emissions in the shipping industry. Productively managing the financial pressures of regulation may encourage progress toward making marine transport cleaner and more energy efficient through market forces alone.
While these regulations aim to stimulate investments in low-carbon solutions, their effective implementation faces significant challenges. For example, member states face the complex task of addressing fuel substitution issues. Facilitating the development and deployment of new fuels necessitates establishing appropriate distribution infrastructure, providing dedicated incentives for non-biological renewable fuels and allowing flexibility in adopting various market solutions. Consequently, decarbonisation in the maritime sector demands substantial investment across multiple areas.
The technical feasibility and practicality of achieving decarbonisation within the proposed timescales remains uncertain due to doubts regarding the availability and maturity of necessary technologies, as well as the practical implementation of decarbonization measures. The regulation acknowledges the need for “rapid action and the establishment of a clear and predictable long-term regulatory framework that facilitates planning and investment from all stakeholders concerned.”
The EU Council’s adoption of the FuelEU Maritime regulation is a significant step forward in achieving maritime decarbonisation, setting a precedent for other jurisdictions to follow by enacting similar laws that promote sustainable practices in key industries. However, challenges concerning fuel standards, availability, and costs may pose obstacles to its effective implementation. Overcoming these challenges will require collaborative efforts and innovative solutions from all stakeholders in the EU maritime sector. It will be intriguing to observe how these challenges are addressed once the regulation takes effect.