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FuelEU maritime regulation: Synergies with existing legal frameworks and advancement of alternative maritime solutions

Photo: Adobestock Smoke from ship funnel
Law firm Squire Patton Boggs explores the international impact of the new EU maritime regulations related to fuel and emissions.

Introduction

The EU recently adopted the Fuel EU Maritime EU Regulation, aimed at promoting alternative maritime fuels in the shipping sector. The new rules will have an impact in EU waters but also for voyages originating from or destined to waters outside the EU boundaries – hence, it is presumed to have a significant international impact. This is particularly important considering that, internationally, despite various conventions addressing marine pollution, such as the 1982 United Nations Convention on the Law of the Sea (UNCLOS) and the 2000 HNS Protocol, the enforcement mechanisms within international law often lack effectiveness. In contrast, the EU appears to be ahead in terms of enforceability, as demonstrated by the inclusion of penalties and sanctions in the Fuel EU Maritime Regulation for non-compliance with its provisions. Companies failing to comply risk heavy penalties, which escalate with continued non-compliance.

Although the efficacy of the new EU regulatory framework remains to be seen, this could trigger a response from other international partners should the EU's system yield the anticipated results, in terms of more effective efforts to limit maritime fuel pollution, also by promoting alternative maritime fuels.

In this phase, as the new EU provisions are about to take effect, it is crucial to firstly gain a comprehensive understanding of the new norms, particularly focusing on:

  • the main resulting obligations for shipping companies
  • the interaction within the EU shipping emissions regulatory framework
  • how the law effectively promotes the diffusion of alternative maritime fuels from a regulatory standpoint.

The Legal Framework Introduced by Regulation (EU) 2023/1805

Regulation (EU) 2023/1805, known as the FuelEU Maritime Regulation, was published on September 22, 2023, in the EU Official Journal and came into force on October 12, 2023.

It establishes uniform rules that include:

  1. A yearly limit on the greenhouse gas (GHG) intensity of energy used on board ships within its scope. GHG emissions, for this regulation, include carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). Energy used on board refers to the energy, expressed in megajoules (MJ), used for propulsion and operating onboard equipment, calculated from a well-to-wake perspective, encompassing extraction, cultivation, production, transportation of the fuel, and onboard usage.
  2. A requirement to use on-shore power supply (OPS) or zero-emission technology in ports under the jurisdiction of an EU Member State.

This legal framework applies to:

  • 100% of the energy used during calls at EU ports and voyages between two EU ports (intra-EU),
  • 50% of the energy used on voyages between an EU port and a non-EU port (extra-EU).

The regulation applies to commercial vessels over 5,000 gross tonnage (GT) used for cargo or passenger transport, regardless of the flag.

The main objective of the Regulation is to increase the use of renewable and low-carbon fuels in maritime transport within the EU. The regulation sets progressive fuel requirements to reduce the GHG intensity of onboard energy, starting with a 2% reduction in 2025 and reaching 80% by 2050, based on a baseline of 91.16 g CO2/eMJ from 2020 data collected under the Monitoring, Reporting, and Verification Regulation (EU) 2015/757.

The reduction obligations will come into force on January 1, 2025. However, shipping companies are required to submit monitoring plans, containing detailed information as outlined in Article 8(3) of Regulation (EU) 2023/1805, by August 31, 2024.

Monitoring and Reporting Obligations

The FuelEU Maritime Regulation establishes a comprehensive reporting mechanism for monitoring activities conducted by shipping companies (or other obligated entities). This mechanism involves the use of templates currently being adopted by the European Commission, which is developing an implementing regulation to create a model for emissions monitoring plans. Shipping companies (or other designated entities) will need to submit these monitoring plans for each vessel to verifiers.

The monitoring plans must detail:

  • The chosen method from Annex I of the regulation
  • The type and emission factor of energy used on board
  • Other relevant information

The required documentation for these monitoring plans is specified in Article 8(3)(1), letters a-p, of the regulation.

Starting January 1, 2025, shipping companies (or other designated entities) must report the information outlined in Article 15(1), letters a to h. By January 31, 2026, and annually thereafter, they must submit individual ships' FuelEU reports. By June of the following year (e.g., June 2026 for the 2025 reporting period), companies must have the FuelEU Document of Compliance on board. This document, issued by the verifier after reviewing the submitted information, certifies that the ship complies with the regulation, has no compliance deficit, and respects the obligations set by Article 24.

Interaction with Other Legal Frameworks (ETS and MRV)

  • EU Emission Trading Scheme (ETS)

The FuelEU Maritime Regulation interacts with the EU Emission Trading Scheme (ETS) directive (Directive 2003/87/EC as amended by Directive (EU) 2023/959), recently extended to the shipping sector. Both aim to reduce greenhouse gas (GHG) emissions but employ different methods and impose distinct obligations. The FuelEU Maritime Regulation focuses on reducing emissions, while the ETS taxes emissions by requiring the surrender of allowances beyond a certain threshold, incentivizing companies to lower emissions to save costs. Compliance with the FuelEU Maritime Regulation can help companies reduce their emissions and thus the number of allowances they need to surrender under the ETS, effectively lowering their GHG-related costs. Despite their complementary nature, the two frameworks do not have interconnected obligations like those between the MRV regulation and the ETS.

The FuelEU Maritime Regulation and the ETS also differ in defining the entities responsible for compliance. Under the FuelEU Regulation, the entity responsible is always the Document of Compliance (DoC) holder, regardless of whether this is the registered owner, a bareboat charterer, or a third-party technical manager. Conversely, the ETS defaults the responsibility for surrendering allowances to the registered owner, although this can be delegated to a bareboat charterer or a third-party technical manager if the shipowner provides a document clearly mandating this delegation to the administering authority (Article 1(2) of Commission Implementing Regulation (EU) 2023/2599).

Substantially, the key difference lies in the scope and timing of emissions covered. Initially, the EU ETS will encompass only CO2 emissions, with plans to incorporate methane (CH4) and nitrous oxide (N2O) emissions starting in 2026, focusing solely on emissions directly generated from fuel combustion and usage aboard vessels (Tank-to-Wake basis). Conversely, FuelEU Maritime will comprehensively include all three greenhouse gases from the outset, covering emissions across the entire lifecycle of fuel production and consumption (Well-to-Wake basis).

  • Interaction with MRV Regulation

The FuelEU Maritime Regulation and the MRV Regulation (EU 2015/757) both address emission reporting. To prevent duplication and ensure consistency, the EU Commission, as stated in recital 50 of the FuelEU Maritime Regulation, is expected to examine the compatibility of the two frameworks. Where necessary, the Commission will prepare a legislative proposal to amend either the FuelEU Maritime Regulation or the MRV Regulation. This could include uniform templates or other measures to harmonize the reporting activities of the two systems.

How the FuelEU Maritime Regulation Encourages the Uptake of Renewable Fuels

The primary objective of the FuelEU Maritime Regulation is to promote the use of low-carbon maritime fuels, particularly Renewable Fuels of Non-Biological Origin (RFNBO). These synthetic fuels are produced from renewable electricity and carbon captured directly from the air (e.g., e-diesel, e-methanol, e-LNG). According to Directive 2018/2001, Article 2(2)(36), RFNBOs are "liquid or gaseous fuels used in the transport sector other than biofuels or biogas, with energy content derived from renewable sources other than biomass." The regulation stipulates that RFNBOs are eligible for incentive measures under this framework, unlike crop-based fuels, which are not considered sustainable and do not qualify for these incentives.

To encourage the use of RFNBOs, the regulation introduces specific incentive measures:

  1. GHG Intensity Multiplier: From January 1, 2025, to December 31, 2033, a multiplier of ‘2’ will be applied to the calculation of the greenhouse gas (GHG) intensity of energy used on board a ship when using RFNBOs. This means that energy from RFNBOs will count twice for achieving the annual reduction in GHG intensity as required by Article 4(2). However, this multiplier does not apply if the ship fails to meet the GHG emissions savings threshold set out in Article 25(2) of Directive (EU) 2018/2001.
  2. Market Share Subtarget: To further incentivize RFNBO use, the regulation mandates a subtarget if the market share of RFNBOs is below 1% for the reporting period of 2031. Starting January 1, 2034, ships must use RFNBOs for at least 2% of their yearly onboard energy, provided certain conditions are met. An "exit clause" is available, allowing exemption from this sub target if the European Commission reports insufficient production capacity, availability, uneven geographical distribution, or excessively high prices of RFNBOs.

These measures aim to significantly boost the market for alternative maritime fuels, especially Renewable Fuels of Non-Biological Origin (RFNBO), promoting their use by shipping companies, which is expected to increase their production. However, it is too early to assess whether the objective will actually be achieved.

Conclusions

Shipping companies are reminded to prepare their monitoring plans by August 2024 and to closely follow the development of secondary legislation expected in the coming weeks, following the conclusion of a public consultation in late April. It is advised that they begin acquainting themselves with the templates and the broader regulatory framework promptly.

Regarding the regulation's overarching goals, the aspect of incentive measures for RFNBOs stands out as particularly intriguing in terms of its potential impact on the adoption of alternative fuels in the maritime sector. However, questions arise about whether these measures are adequate and whether the presence of an "exit clause" in Article 5(5) might impede the achievement of these objectives.

Finally, it will be worth seeing if the regulatory framework introduced by the EU can inspire international partners and trigger enforcement mechanisms at the international or national level regarding maritime pollution, specifically in promoting alternative maritime fuels.

TAGS: Regulation