Synergies with the existing legal framework

Entry

The EU recently adopted the EU Marine Fuels Regulation, which aims to promote alternative marine fuels in the shipping sector. The new rules will affect EU waters, but also on cruises departing from or heading to waters outside the EU – and are therefore expected to have a significant international impact. This is particularly important given that internationally, despite various marine pollution conventions such as the 1982 United Nations Convention on the Law of the Sea (UNCLOS) and the 2000 HNS Protocol, enforcement mechanisms of international law often are not effective. On the other hand, the EU appears to be leading the way in terms of enforceability, as evidenced by the inclusion of penalties and sanctions in the EU Maritime Fuel Regulation for non-compliance with its provisions. Companies that do not comply risk severe penalties, which become more severe with continued non-compliance.

While the effectiveness of the new EU regulatory framework remains to be tested, it could trigger a response from other international partners if the EU regime delivers the desired results in terms of more effective efforts to reduce marine fuel pollution, including by promoting alternative marine fuels.

At this stage, with new EU rules about to enter into force, it is extremely important to first obtain a comprehensive understanding of the new standards, with particular emphasis on:

the main resulting obligations of shipping companies
interaction within the EU regulatory framework for shipping emissions
how the law effectively promotes the spread of alternative marine fuels from a regulatory perspective.

The legal framework introduced by Regulation (EU) 2023/1805

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

Establishes uniform rules which include:

Annual cap on the greenhouse gas (GHG) emission intensity of energy used on board ships within its scope. For the purposes of this Regulation, greenhouse gas emissions include carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O). Onboard energy refers to the energy in megajoules (MJ) used to power and operate onboard equipment, calculated from an end-to-end perspective covering mining, cultivation, production, fuel transportation and onboard use.
Requirement to use shore power (OPS) or zero-emission technology in ports under the jurisdiction of an EU Member State.

This legal framework applies to:

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

The regulation applies to merchant ships of more than 5,000 gross tonnes (GT) used for cargo or passenger transport, regardless of flag.

The main purpose of the regulation is increase the use of renewable and low-emission fuels in maritime transport in the EU. The regulations specify progressive fuel demand reducing the greenhouse gas intensity of on-board energy, starting from a reduction of 2% in 2025 and reaching 80% by 2050, based on a baseline of 91.16 g CO2/eMJ from 2020 data collected under Monitoring, Reporting and Verification Regulation (EU) 2015/757.

The reduction obligations will enter into force on January 1, 2025. However, forwarding companies are obliged to submit monitoring planscontaining the detailed information specified in Article 8 section 3 of Regulation (EU) 2023/1805, until August 31, 2024.

Monitoring and reporting obligations

The FuelEU Maritime Regulation establishes a comprehensive reporting mechanism for the monitoring activities of shipping companies (or other obliged entities). This mechanism involves the use of templates currently adopted by the European Commission, which is developing, among others, implementing regulation aimed at creating a model for emissions monitoring plans. Shipping companies (or other designated entities) will have to submit these monitoring plans for each vessel to the verifiers.

Monitoring plans must detail:

Selected method from Annex I of the regulation
Type and emission factor of energy used on board
Other relevant information

The required documentation for these monitoring plans is specified in Art. 8 section 3 point 1 letter ap of the regulation.

From 1 January 2025, shipping companies (or other designated entities) must provide the information specified in Article 15 section 1 letters a–h. By January 31, 2026, and annually thereafter, they must submit individual vessel FuelEU reports. By June of the following year (e.g. June 2026 for the 2025 reporting period), companies must have the FuelEU Compliance Document with them. This document, issued by the verifier after reviewing the information submitted, certifies that the vessel complies with the requirements of the Regulation, has no compliance deficiencies and fulfills the obligations set out in Article 24.

Interaction with other legal frameworks (ETS and MRV)

The EU Emissions Trading System (ETS)

The FuelEU Maritime Regulation interacts with the EU Emissions 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 they use different methods and impose separate obligations. The FuelEU maritime regulation focuses on reducing emissions, while the ETS taxes emissions by requiring allowances to be surrendered above a certain threshold, encouraging companies to cut emissions to save costs. Compliance with the FuelEU maritime regulation can help companies reduce their emissions and therefore the number of allowances they have to surrender under the ETS, effectively reducing the costs associated with greenhouse gas emissions. Despite their complementary nature, these two frameworks do not have interconnected responsibilities such as those between the MRV Regulation and the ETS.

FuelEU and ETS maritime regulation they also differ in defining entities responsible for compliance. Under the FuelEU Regulation, the responsible entity is always the holder of the Document of Compliance (DoC), whether this is the registered owner, the bareboat charterer or the external technical manager. Conversely, the ECJ is not responsible for the delegation of powers to the registered owner, although this may be delegated to the bareboat charterer or to an external technical manager if the shipowner presents to the administering authority a document expressly authorizing the delegation (Article 1(2) of the Commission Implementing Regulation (EU) 2023/2599).

Basically, the main difference is the scope and time of the emissions covered. Initially, the EU ETS will only cover CO2 emissions, with plans to cover methane (CH4) and nitrous oxide (N2O) emissions from 2026, focusing exclusively on emissions generated directly from fuel combustion and its use on board ships (based on Tank-to-Wake). On the other hand, FuelEU Maritime will comprehensively address all three greenhouse gases from the outset, covering emissions over the entire life cycle of production and fuel consumption (Well-to-Wake database).

Interaction with the MRV regulation

Both the FuelEU Maritime Transport Regulation and the MRV Regulation (EU 2015/757) concern emissions reporting. To prevent duplication and ensure consistency, the European Commission, as stated in recital 50 of the FuelEU Maritime Regulation, is expected to examine the compatibility of both frameworks. If necessary, the Commission will prepare a legislative proposal to amend the FuelEU Maritime Regulation or the Scheme and Verification Regulation. This could include uniform templates or other measures to harmonize reporting activities in both systems.

How the EU Maritime Fuel Regulation encourages the use of renewable fuels

The primary purpose of the FuelEU maritime regulation is: promote the use of low-emission marine fuels, in particular 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). Pursuant to Directive 2018/2001, Art. 2 section 2 point 36, RFNBO 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”. This regulation provides RFNBOs are eligible for incentives within this framework, unlike fuels of plant originthat are not considered sustainable and are not eligible for these incentives.

To encourage the use of RFNBO, the regulation introduces specific incentives:

Greenhouse gas intensity multiplier: From 1 January 2025 to 31 December 2033, a multiplier of “2” will be used to calculate the greenhouse gas (GHG) emission intensity of energy consumed on board a ship when using an RFNBO. This means that energy obtained from RFNBO will be counted twice to achieve the annual reduction in greenhouse gas emission intensity as required by Art. 4 section 2. However, this multiplier shall not apply if the ship does not meet the greenhouse gas emission savings threshold set out in Article 25 section 2 of Directive (EU) 2018/2001.
Market share sub-goal: To further encourage the use of RFNBO, the regulation sets an interim target if the RFNBO market share is lower than 1% in the 2031 reporting period. From January 1, 2034, ships will have to use RFNBO to generate at least 2% of their annual energy on board, 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 RFNBO prices.

These actions aim to significantly stimulate the market for alternative shipping fuels, in particular renewable fuels of non-biological origin (RFNBO), promoting their use by shipping companies in order to increase their production. However, it is too early to assess whether the goal will actually be achieved.

Conclusions

Shipping companies are reminded to prepare monitoring plans by August 2024 and to closely follow the development of secondary legislation expected in the coming weeks, following the conclusion of the public consultation at the end of April. They are advised to start familiarizing themselves with the templates and the wider regulatory framework immediately.

In terms of the overarching objectives of the Regulation, the incentives aspect of 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 as to whether these measures are appropriate and whether the presence of an “exit clause” in Art. 5 section 5 may make it difficult to achieve these goals.

Finally, it is worth examining whether the regulatory framework put in place by the EU can inspire international partners and trigger enforcement mechanisms at international or national level regarding marine pollution, in particular in promoting alternative marine fuels.