What is the FuelEU Regulation?
The European Union (EU) wish to incentivise the use of renewable and low-carbon fuels on ships to reduce greenhouse gas emissions (CO2, CH4 and N2O). This draft Regulation forms a substantive part of the EU’s Fit for 55 package. The final negotiations have taken place and a draft text has been finalised but has still to be published. This provides some information on what is expected to be in that final text.
How does FuelEU work?
To incentivise the use of renewable and zero carbon fuels on ships over 5000 GT the EU will set targets that reduce the greenhouse gas intensity of energy used on ships, based on 2020 reference levels. The graph below provides the reduction required at 5-year intervals until 2050, against the 2020 reference value.
The greenhouse gas intensity is a measure of the CO2 equivalent emissions per quantum of energy used on board. This will be measured based on reported fuel consumption, from EU MRV, and the emission factors of the fuels used on a well-to-wake basis.
There will be a financial penalty for each quantum of energy used above the reference value.
In addition, to incentivise zero-emission port stays, passenger ships and container ships will be required to connect to onshore power supplies at major EU ports from 2030 and all EU ports with onshore power supplies from 2035. This will not be the case for very short stays (<2 hours) or if the ship uses zero-emission technology whilst at berth. Any port contraventions will also be subject to financial penalties.
How is the greenhouse gas emission factor of the fuel determined?
Different fuels are assigned different emission factors based on their greenhouse gas intensity.
There are several ways to calculate the greenhouse gas emission factors of fuels. Biofuels and biogas not produced from food or feed crops and renewable fuels of non-biological origin (RFNBO's) can be determined using the methodologies set out in Directive (EU) 2018/2001 (Renewal Energy Directive (RED II)).
If they don't comply, they will be considered as having the least favourable fossil fuel equivalent emission factors. Data provided on the above fuels must be verified by a scheme that is recognised by the Commission in accordance with Article 30(5) and (6) of Directive (EU) 2018/2001. Companies may use values other than the default values for the tank-to-wake emission factors provided that the actual values are certified by means of laboratory testing or direct emissions measurements.
Methods for determining the greenhouse gas emission factors of other fuels are provided in Annex I to the draft Fuel EU Regulation.
Use of RFNBO's
In order to stimulate demand for certain types of fuels, an additional reward factor has been included in the calculation of the GHG intensity of energy used on board. This reward factor encourages the use of renewable fuels of non-biological origin (RFNBO) by helping to compensate for their anticipated higher purchase price resulting from greater production costs compared to conventional fuels. After a period of voluntary encouragement through rewarding emission factors, a mandatory minimum proportion of RFNBO use will be introduced if this reward factor has not led to a noticeable increase in RFNBO uptake within the overall fuel mix.
Use of RFNBOs between 1 January 2025- 31 December 2034 will be incentivised with a reward factor of 2x included in the calculation of the GHG intensity of energy used on board. If RFNBO use equates to less than 1% of the overall fuel mix during 2031, then a new requirement will be introduced from 2034 so that they make up a minimum 2% of use. An equivalence clause may also be included so that ships can reach the 2% sub-quote, if applicable, by showing use of equivalent non-RFNBO fuels with a similar or higher potential to decarbonise.
RFNBO's , otherwise known as e-fuels, are expected to include e-diesel, e-methanol, e-LNG, e-hydrogen, e-ammonia, e-LPG and e-dimethyl ether (DME). RFNBO's are those synthetic fuels produced from renewable electricity and carbon captured directly from the air.
What do ship owners need to do?
FuelEU will enter force from 1 January 2025. Ship owners need to prepare to use fuels for their ships which produce fewer greenhouse gas emissions.
Ships entering EEA ports from non-EEA ports / EU outermost regions or vice-versa will have 50% of the energy used in that voyage subject to the Regulation, whilst intra-EEA voyages will have all the energy used in those voyages subject to the Regulation. All energy used at berth in the EEA will be subject to the Regulation.
FuelEU Regulation - The timetable for compliance
The shipping company is responsible for ensuring compliance with the requirements of the FuelEU regulation. As per regulation EU 2015/757 (MRV), the ‘company’ means the shipowner or any other organisation or person, such as the manager or the bareboat charterer, which has assumed the responsibility for the operation of the ship from the shipowner.