FuelEU Explainer: Breaking Down Responsibility

Introducing the first article in a series on FuelEU Maritime Regulation from the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping (MMMCZCS). We will share the latest analysis, strategic insights, and practical tools for organizations to leverage FuelEU for achieving decarbonization goals.

FuelEU, set to take effect in January 2025, is a landmark policy aimed at driving investment in fuels and technologies that can decarbonize the maritime industry. In our first article, we focus on the pressing issue of determining the entity responsible for compliance. If in need of an overview of FuelEU, we recommend our February 2024 webinar with the European Commission.

An implementing regulation of the EU ETS clarified that the responsibility can stay with the shipowner rather than the Document of Compliance (DoC) holder. However, this has no effect on FuelEU; therefore, the responsibility for FuelEU compliance is with the DoC holder. This creates a need for companies to establish contracts that allocate the costs and benefits between the relevant parties.

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Deadlines from August 2024: FuelEU mandates progressive reduction in the annual GHG intensity of the energy used onboard a ship starting in 2025. Below are important terms and dates for regulatory compliance:

• ‘Company’ refers to the shipowner or another entity, like the manager or bareboat charterer, who takes on operational responsibility for the ship, including all duties and responsibilities, i.e., the DoC holder (see definition FuelEU, Article 3(13))
• Verifier is the accredited third party which carries out verification of voyage data under the MRV Regulation (see definition FuelEU, Article 3(27)).
• Administering State is the relevant EEA member state in charge of ensuring compliance for a specific company.
• Pre-reporting period is the year prior to the reporting period.
• Reporting period is the year during which voyage data is monitored and recorded.
• Verification period is the year after the reporting period when the key compliance activities take place.

Who is the responsible entity?

• According to an implementing Regulation to the ETS Directive ((EU) 2023/2599), the default responsible entity for EU ETS compliance was changed from the DoC holder to the registered owner. The shipowner may shift this responsibility back to the DoC holder by mandating the DoC holder accordingly if the DoC holder accepts the mandate.
• However, the responsible entity for FuelEU compliance remains the DoC holder.
• In a FuelEU pooling workshop organized by the Center in February, stakeholders highlighted that having the DoC holder be the responsible entity poses many challenges, as in many cases, the DoC holder is a technical manager with no control over fuel choice.
  

Why is the DoC holder responsible?

• The IMO defined the DoC holder as the responsible entity for compliance with the ISM Code in 1995 (Resolution A.788), in order to ensure uniformity in liability for managing safety and accidents (Nikčević-Grdinić, 2017).
• The EU Regulation implementing the ISM Code into EU law also enshrined the DoC holder as the responsible entity ((EC) No 336/2006) for a wide range of EU regulations relating to maritime safety and security.
• A uniform responsible party enables lawmakers to assign liability to a single entity.

‘The responsible entity will not change’ is the feedback from DG MOVE when asked if the Commission plans to amend the FuelEU as was done for the EU ETS. The FuelEU Regulation does not provide a legal basis for doing so like the ETS Directive did. It limits the EU Commission’s powers to change the responsible entity by an implementation regulation.

Importantly, the FuelEU Regulation does not only involve costs such as the FuelEU penalty in the event of a vessel’s under-compliance with the intensity targets, known as ‘deficit’. The Regulation also allows vessels to capture value from overachieving on the intensity target, known as ‘surplus’. They can do this in two ways:

• Banking: Vessels can bank surplus, and they can do it for an indefinite period of time because there is no statutory expiration date for surplus.

• Pooling: Vessels can share overcompliance with vessels which have deficits, including those owned by other companies, provided that the pooled vessels have a combined surplus. Pooling arrangements are not regulated by the FuelEU Regulation and are, therefore, left to the private sector.

Banking and pooling will require contracts to ensure that benefits of the surplus are assigned from the DoC holder to the appropriate entities — whether the entities are the registered owner or the charterers responsible for fuel procurement.

Next steps: What companies should be considering.

• Establish responsible reporting and verification processes for each ship which falls under the scope of FuelEU.
• If there are different responsible entities for FuelEU and EU ETS, then consider the implications of this in terms of monitoring, reporting and verification tasks, most urgently with respect to the submission of the monitoring plan.
• Investigate compliance options such as flexibility mechanisms and consider these options both on a vessel and fleet basis, while taking into account the possibility of pooling with third-party vessels.
• Review and revise charter party agreements to assign the costs and benefits of FuelEU compliance.
• Review and revise ship management contracts to align responsibility and costs.
• Consider implications for the contractual setup for commercial pools and fleet allocation.
  
  

• Getting to Zero Coalition‘s insight brief on the question of how FuelEU and voluntary systems interact
• Gorrissen Federspiel‘s newsletter giving an overview of FuelEU
• TradeWinds‘ podcast episode on FuelEU
• Safety4Sea‘s article on BIMCO announcing a subcommittee for FuelEU which will be critical to support needed contracts
• Splash247 on how Fortescue’s ammonia dual-fueled vessel is the first to be approved and tested in Singapore
• ZERO44, a Marine software company, has released an easy-to-use FuelEU calculator

Text of the FuelEU Regulation; Preparing for FuelEU Webinar; Transatlantic Testing Ground report on EU & US policy impacts

The European Maritime Safety Agency has a dedicated helpdesk for questions on EU ETS and FuelEU: fitfor55@emsa.europa.eu