Vessel pooling could halve costs of compliance with looming FuelEU regulation

The looming FuelEU Maritime regulation will pose significant challenges and extra costs for the shipping industry, and ways to mitigate this won’t come cheap.  

The regulation, coming into force on 1 January, sets targets for the greenhouse gas (GHG) intensity of the energy used on a ship, with targets getting stricter every five years.

The GHG intensity requirement applies to 100% of energy used on voyages and port calls within the EU, and 50% of voyages in and out.  

To become compliant, companies will need to either pay a FuelEU penalty or take action to bring the GHG intensity within FuelEU limits.  

According to data from Hamburg-based maritime technology firm OceanScore, the shipping sector will rack up FuelEU penalties of €1.35bn ($1.5bn) in 2025. 

It noted that vessels will be hit with a penalty of €2,400 per tonne of VLSFO-equivalent [very-low-sulphur fuel oil] for failing to meet the initial 2% reduction target, relative to a 2020 baseline for average well-to-wake GHG intensity. 

OceanScore MD Albrecht Grell warned: “As with the EU ETS, it is the container segment that will bear the brunt of FuelEU costs, accounting for 29% of gross penalties, followed by ro-pax on 14% and tankers and bulkers each on 13%.” 

And co-founder and MD of maritime carbon solutions software platform zero44 Friederike Hesse added: “With targets getting stricter every five years and additional sub targets entering into force in later years, these costs will rapidly increase.” 

Mr Grell urged: “It is critical for shipping companies to determine a baseline for expected FuelEU costs to secure proper planning and budgeting processes to compare different mitigation options, as well as to decide what to do with outstanding compliance balances. 

“This will require, to a higher degree than the EU ETS, a corporate strategy to determine how to reduce the compliance balance/deficit, how to commercialise a surplus and deal with deficits that remain.” 

But while costs associated with FuelEu Maritime targets are set to pack a punch, efforts to reduce GHG intensity and evade penalties “will come at their own costs”, due to “a significant amount of workload and therefore administrative costs”, warned Ms Hesse. 

Mitigation tactics include increasing the share of more expensive biofuels in the fuel mix, or pooling with another company’s vessels.  

And, according to Oceanscore, “pooling of vessels can roughly halve the gross burden for the industry”.

This is because, while penalties will arise for vessels using conventional fuels, surpluses of some €669m will be generated by vessels with significantly lower carbon intensity, mainly fuelled by LNG and LPG. 

“Taking into account this estimated compliance surplus, the net cost of FuelEU penalties for shipping from 2025 would be €680m, which indicates that pooling vessels can roughly halve the gross burden for the industry,” said Mr Grell.  

“It is therefore incumbent on shipowners to define their strategies, not only towards fuel choices and the use of onshore power, but also towards handling of residual compliance balances, such as pooling, banking and borrowing of balances, to mitigate the financial impact of FuelEU.  

“However, pooling will also come at a cost, while banking and borrowing will incur interest costs and only push liabilities into the future.” 

The FuelEU Maritime regulation doesn’t come into force until 1 January, but responsible parties must prepare and submit a monitoring plan to the verifier before 31 August.