As the maritime industry sails forward into an era of stringent environmental regulations, the European Union stands at the helm, steering with two groundbreaking frameworks: FuelEU Maritime and the EU Emissions Trading System (ETS) MRV (Monitoring, Reporting, and Verification). These regulations represent the EU’s intensified efforts to curtail greenhouse gas emissions from maritime transport. Let’s embark on a journey to understand these regulations and their implications for the maritime sector.
The FuelEU Maritime regulation, set to be implemented on January 1, 2025, applies to all commercial ships above 5,000 GT calling at EU ports. Its focus is on promoting the use of renewable and low-carbon fuels.
On the other hand, the EU MRV has been in effect since January 1, 2018, and applies to CO2 emissions from ships above 5000 GT operating in EU waters. The EU ETS for shipping started on January 1, 2024, and will extend to offshore ships above 5000 GT (and general cargo ships 400-5000 GT)* vessels from January 1, 2027.
FuelEU Maritime considers CO2, CH4 (methane), and N2O (nitrous oxide) emissions on a Well-to-Wake basis, using the values from the Fourth Assessment Report (AR4) i.e. CO2 as 1, CH4 as 25 and N2O as 298.**
In contrast, the EU ETS MRV focuses solely on CO2 emissions on a Tank-to-Wake basis, including CH4 and N2O in reporting from 2024 and in the EU ETS from 2026, using the values from the Fifth Assessment Report (AR5) i.e. CO2 as 1, CH4 as 28 and N2O as 265.**
FuelEU Maritime is designed to promote the adoption of renewable and alternative fuels with specific emission reduction targets.
Conversely, the EU ETS MRV operates as a cap-and-trade system, requiring shipping companies to purchase and surrender emission allowances.
FuelEU Maritime requires reporting on fuel type and quantity, emissions, and cargo carried, emphasizing the entire fuel lifecycle.
The EU ETS MRV, however, requires detailed CO2 emissions reporting for voyages, verified by accredited bodies. The first reports are due by March 31, 2025, for emissions in 2024.
FuelEU Maritime includes mechanisms for “pooling”, “banking” and “borrowing” to offset emissions deficits with over-performing vessels. The penalty rate is fixed at € 2400 CO2 equivalent per tonne VLSFO.
The price of EUA’s is dependent on the market dynamics. EU ETS MRV imposes fines for non-compliance in surrendering allowances, with specific penalties for failing to cover emissions. The cost of non-compliance for unpaid EUAs is € 100 per tonne CO2.
FuelEU Maritime has a gradual implementation plan, with GHG intensity reduction starting in 2025 and targets for emissions reduction set at every 5-year interval.
The EU ETS MRV begins applying to maritime emissions from 2024, with a phased compliance approach (40% in 2024, 70% in 2025, and 100% by 2026).
For EU ETS , Worldscale will incorporate costs associated with the EU ETS exposure into its flat rate calculations starting January 1, 2025.
However for Fuel EU , Worldscale is currently not considering making any allowances for any costs incurred relating to the FuelEU Maritime Regulation.
This would essentially imply that commercial settlement basis Actual Emissions and Lumpsum will continue as preferred medium for both Regulations between Charterers, Owners and other entities of the maritime commercial value chain.
EU ETS clauses were introduced by BIMCO for TC and Spot voyages which paved the way for further refinement in Emission clauses , while for Fuel EU such clauses for GHG compliance with penalty settlement will mark an another important milestone before commercial settlement can be agreed upon from 1st Jan 2025.
FuelEU Maritime permits ships with ice classes IC, IB, IA, IA Super, or their equivalents to exclude additional energy consumption resulting from navigating ice conditions until December 31, 2034. Additionally, ships with ice classes IA or IA Super, or their equivalents, are allowed to exclude the extra energy consumption due to their technical characteristics.
The EU ETS MRV allows shipping companies to surrender 5% fewer allowances than their verified emissions for ice-class ships classified as IA, IA Super, or their equivalents until December 31, 2030.
FuelEU Maritime fosters innovation and lessens fossil fuel dependence to achieve net-zero emissions by 2050.
The EU ETS MRV integrates maritime transport into the EU emissions trading system, creating a market-driven approach to emissions reduction. By placing a financial cost on emissions, it incentivizes shipping companies to adopt cleaner technologies and practices, aligning with the EU’s climate targets.
Both FuelEU Maritime and the EU ETS MRV are pivotal to the EU’s climate strategy, targeting sustainable maritime fuel use and carbon intensity reduction. Together, these regulations aim to guide the maritime industry towards a greener future.
As we navigate these regulatory waters, it’s clear that the journey towards a sustainable maritime industry is well underway. The course has been charted, and the destination is in sight. It’s up to us, the maritime community, to stay the course and sail towards a greener future.
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