A major round of regulatory frameworks is on the horizon. There is a clear and strong push toward reducing and ultimately eliminating greenhouse gas (GHG) emissions, as prioritized by the IMO and EU.
The EU Emissions Trading System (ETS) directive came into force in 2024 and the FuelEU Maritime initiative will take effect in January 2025, marking the start of a new era for the industry. Both regulations will be implemented in stages, with the EU ETS initially covering 40% of emissions in 2024, expanding to 70% by 2025, and reaching full coverage in 2026. The FuelEU Maritime rules will require vessels to meet increasingly stringent GHG intensity standards every five years.
These changes, along with other frameworks such as the Carbon Intensity Indicator (CII), will significantly affect the industry. They will not just strongly encourage but actually require the uptake of alternative fuels and guide the industry toward the EU and IMO targets of achieving net zero emissions by 2050.
Under the EU ETS, vessels must pay for their emissions. Each vessel’s emissions will be reported through the EU’s MRV system and tracked annually, and shipowners will need to settle these obligations by purchasing European Union Allowances (EUAs). Shipowners are ultimately responsible for ensuring a fleet’s compliance, and non-compliance will result in fines of €100 (US$105) per metric ton of unpaid EUA, in addition to the price of the outstanding EUAs.
In parallel, the FuelEU Maritime initiative, effective January, 1 2025, introduces more technical requirements. It mandates that each vessel meets specific GHG intensity reductions, which can only be achieved through the use of alternative fuels: biofuels, LNG or sustainable forms of methanol and ammonia. Non-compliance will result in fines much higher than those incurred from the EU ETS, with a penalty of €2,400 (US$2,531) per metric ton VLFSO energy equivalent.
FuelEU Maritime requires more complex calculations than EU ETS because it uses a well-to-wake rather than tank-to-wake approach. This means that not only combustion emissions but also the lifecycle emissions of the fuels, from production to distribution, are considered. Companies must evaluate the GHG intensity of different fuels, which becomes even more challenging when blending multiple fuel types. This added complexity necessitates a more detailed analysis.
The path to compliance can vary greatly depending on the organization’s size and how vessels are managed. As alternative fuels become more prevalent, changes in bunkering practices will be necessary. Fuel availability, potential delays and operational complications will also influence compliance. Shipping companies must build certified and reliable supplier networks while securing future fuel sources. Compliance will also hinge on factors like disciplined data management, a thorough understanding of emissions, and efficient operations, all of which call for digital platforms to manage bunkering data effectively.
Shipowners increasingly turn to digital platforms such as Fuelink to improve decision making, increase efficiency and reduce costs. AI-powered simulations can support EU ETS compliance and inventory management of EUAs. By uploading voyage schedules and calculating ETS costs instantaneously, owners, operators and charterers can simulate EUAs at different prices before buying through the Fuelink platform at the optimum time, automatically keeping a record of all those purchased in a standalone inventory system.
The platform can also calculate the GHG intensity of each voyage in accordance with the FuelEU Maritime framework. It provides emissions reports for every vessel and determines which vessels are compliant and have a deficit. The platform then enables internal or external pooling, enabling users to access sufficient credits to achieve compliance.
Companies that fail to adapt to these new EU and international (IMO) regulations will face significant challenges. Both regulatory systems are designed to work in tandem, aiming to lower emissions by taxing them directly or penalizing the failure to adopt alternative fuels. Compliance will become critical to avoid hefty fines and protect a company’s reputation and standing in the industry.
