FuelEU Explainer: Fuel Certification Essentials

This is the fourth article of our 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.

Subscribe to our newsletter "Countdown to FuelEU" here.

Explore previous articles and understand the basics of the regulation on our FuelEU page.

Uncertainty around certification of renewable and low-carbon fuels can compel early adopters to hold back investments. Here, we provide key concepts related to fuel certification for FuelEU compliance to increase understanding of the topic and drive adoption of alternative fuels. While this newsletter doesn’t have all the answers to this complex issue, it can be a useful starting point for anyone who wishes to ramp up their use of renewable and low-carbon fuels.

For most shipping companies, compliance with FuelEU will involve the use of sustainable alternatives to fossil fuels. Article 10 of FuelEU states that renewable and low-carbon fuels must be certified according to the EU Renewable Energy Directive (RED), or they risk having the same emission factor as the ‘least favorable fossil fuel pathway’ (Annex II FuelEU). For example, e-ammonia derived from hydrogen produced via electrolysis can achieve emissions reductions of up to 97% compared to heavy fuel oil if it is certified as a renewable fuel of non-biological origin (RFNBO). However, if it fails to be certified, the fuel would be classified the same as fossil-based ammonia with a GHG intensity 30% higher than heavy fuel oil.

Low-carbon fuels such as blue fuels can be certified in accordance with the Gas Directive, which is still being finalized.

First adopted in 2009, RED directs Member States to achieve sector-specific targets for the share of renewable energy consumed. The targets create a compliance market, thereby incentivizing the production and sale of renewable fuel in the EU. As the market for renewable fuels developed, so did a system of fuel certification.

To be able to sell in the RED-compliance market, every company trading material in the fuel supply chain must possess certification and prove through annual audits that the materials they are trading meet the sustainability and GHG savings criteria as per the RED directive.

The EU recognizes and periodically updates a list of recognized certification schemes, known as voluntary schemes, which are owned by governments and third-party organizations. These schemes safeguard sustainability and traceability along the fuel production supply chain and provide detailed guidance to producers on how to make production compliant. The schemes oversee:

1. the process to attain sustainable or renewable status of the raw materials used, and
2. the mass balance bookkeeping to trace the molecules reported to Member States, in order to avoid double accounting or claiming.
   

What is mass balance?
It is a chain of custody system for tracking incoming and outgoing material following a basic principle where incoming mass must be equal, or at least not exceeding, the outgoing mass. The system is location specific and applicable when materials with a set of specified characteristics are mixed. For example, it would apply to a storage facility with manure batches sourced from multiple agricultural sources.

Most shipping companies are already familiar with submission of bunker delivery notes (BDNs) as they are one of the permitted methods to document a ship’s fuel consumption as required by EU MRV and MARPOL Annex VI Reg. 18. FuelEU Annex I requires that, in addition to BDNs, companies submit complementary information for each non-fossil fuel used onboard. All non-fossil fuels must be traced through the supply chain in line with RED III Article 30.

• Biofuels: Companies must submit lower calorific value (LCV) also known as the lower heating value, fuel production pathway, emissions factors according to RED (i.e., ‘E’ values), and evidence of compliance. For both liquid and gaseous biofuels, sustainability criteria are set out in RED II Article 29 (2 to 7), covering agricultural biomass as well as bio-waste/residue feedstock (per Annex IX). Both types of raw material must meet the minimum GHG emission savings outlined in RED II Article 29(10). Fuels produced from food and feed crops defined in RED II Article 2(40) are ineligible for FuelEU compliance and are given an emissions factor equal to the least favorable fossil fuel. However, note that under a RED delegated act on Annex IX, certain crops are eligible.
  
  
• RFNBOs: In addition to the LCV and emissions factor, companies must show compliance with criteria for renewable hydrogen and its derivatives according to RED. This requires that fuels:
  • satisfy the definition of an RFNBO in RED II Article 2(36),
  • achieve at least 70% GHG emissions reduction against the RED comparator, and
  • comply with rules on sourcing renewable electricity in RED III Article 27(6).
    

In addition, the delegated act of RED on RFNBO sets out rules, including additionality requirements on how fuel producers can source renewable electricity. For more details, see the Q&A on the hydrogen delegated acts released by the European Commission.

For non-fossil fuel emission factors, operators have the choice to use either default values per FuelEU Annex II, or actual values provided that they are certified in line with RED per FuelEU Article 10(4).

The use of RFNBOs is new for shipping companies and the supply is only just starting to ramp up. Discussions with industry show that certification and supply are in the early stages of development.

Daniel Gent, Energy & Sustainability Manager from UECC, a Ro-Ro shipping liner, finds that uptake of RFNBOs at scale will take time. However, UECC is currently modeling the impact of certified RFNBOs on decarbonization targets and expects them to play a significant role in the coming years.

Sif Lundsvig, Sustainable Fuels Manager from DFDS, finds varying levels of maturity across RFNBO producers, which reflect a new and underdeveloped market. She explains that as the market matures, it will be crucial for both the fuel producers and shipping companies to strike the right balance between ensuring a trustworthy product and not creating an unnecessary administrative burden.

Thomas René Bock from International Sustainability & Carbon Certification (ISCC), recognized as a voluntary scheme by the EU, says that the organization is already certifying RFNBOs with an existing standard and is conducting pilots to test the approach in practice. However, certification under RED will only be possible once the European Commission officially recognizes the ISCC standards for certification.

In addition to RFNBOs and biofuels, recycled carbon fuels (RCF) and low-carbon fuels (LCF) can be certified and counted towards FuelEU targets. According to the proposal for the Gas Directive, both fuel types must meet a lifecycle GHG savings threshold of 70% against the comparator of 94 gCO2eq/MJ.

• RCF, as defined in RED Article 2(35), are produced from non-renewable waste and residue streams, for example, chemical production and plastic waste. Today, these fuels are produced in relatively small quantities, and are not currently considered a key fuel pathway. However, discussions with industry experts revealed that production has been constrained by lack of certainty around quantification of emissions and acceptance by national authorities. As clarity increases and Member States allow for the use of RCF to meet RED targets, the availability of RCF is expected to increase.
  
  
• LCF represent a broader set of fuels, defined in Article 2(12) of the proposal for the Gas Directive, and include blue fuels produced from hydrogen made from fossil fuels with carbon capture and storage. Blue fuels, such as blue ammonia, have a high level of readiness compared to e-fuels and can potentially scale in the near term. LCF will be certified according to the Gas Directive, currently in proposal form. Certification is not possible until the guidance has been finalized.

Member States facing RED quotas require fuel suppliers to submit a Proof of Sustainability (PoS) demonstrating adherence to RED and the sustainability certification scheme. PoS provides a potential method for companies to fulfill the evidence of compliance needed for FuelEU; however, it is almost always unavailable to shipping companies for bunkering within the EU territory. This is because in many cases, the PoS is submitted by fuel suppliers to a Member State and retired to satisfy minimum share obligations under RED. A retired PoS cannot be used for other purposes in order to prevent double counting.

As a workaround, Louise Dobler from Norden notes that suppliers generally provide Biofuel Delivery Statements (BDS) to demonstrate compliance with criteria. However, BDS do not follow a standard format and in some cases have been identified where they contained wrong information. A thorough review is, therefore, always required.

This concern has been discussed by a certification workstream under the Sustainable Alternative Power for Shipping subgroup of the European Sustainable Shipping Forum (ESSF), an expert stakeholder group within DG MOVE. As a member of the workstream, Ratna Nataliani from Hapag-Lloyd mentions that a potential solution explored by the group was a "Proof of Compliance" (PoC) document as proposed by ISCC. The PoC would feature compliance data and reference the original PoS, noting if it had been submitted to the respective Member State and is, therefore, not available to be re-issued.

Below is an overview of how the PoC would work alongside PoS.

This document, which would fall within the same scope as the PoS, would, in principle, allow for cross-regulatory sustainability declarations, and could work as an interim solution until an alternative system is developed. Such a system should be able to transfer the data and information in the Union Database (UDB) to the FuelEU Database.

To enhance traceability, prevent double counting, and mitigate fraud risks in the verification process of renewable energy, the EU has implemented the UDB. Industry experts expect the UDB to reduce administrative burdens and streamline the certification process. From January 2024, operators could register liquid renewable fuels with the UDB. Work is underway to extend the UDB to include gaseous renewable fuels.

FuelEU verification bodies will use the output from the UDB to prove the correctness and plausibility of the reported emissions being compliant with the regulation.

Thanks to Thomas Edelgaard Christensen and Johan Casper Hennings at Gorrissen Federspiel as well as Ratna Nataliani from Hapag-Lloyd for their input and review of the content.

• Short but comprehensive podcast episode breaking down the FuelEU from DNV
• If you want to know more about RCF, a new paper studies fuel from waste plastics
• Bunker company Monjasa, finds low uptake of marine biofuels compared to other sectors
• Industry groups have raised concerns over EU restriction of the use of mass balance for biomethane outside the EU
• A quick read in Bloomberg on the state of play for maritime decarbonization
• With five US hydrogen hubs located in ports, RMI finds they will play a key role in scaling up clean maritime fuels

• A new report on the applications of fuel cell technology for deep-sea shipping
• A new blog post on the role of onshore power in the green transition
• The Center has four new academic partners: University of Michigan, Maritime Research Alliance, Norwegian University of Science and Technology and World Maritime University
• The Fuel Cost Calculator allows users to calculate bottom-up production cost of sustainable fuels and benchmark them against fossil fuels

The European Commission has a dedicated helpdesk for EU ETS and FuelEU: fitfor55@emsa.europa.eu

• Text of FuelEU Regulation
• The Renewable and Low-Carbon Fuels Value Chain Industrial Alliance (RLCF) is a useful member initiative where both the supply and demand side of transport fuels can collaborate, learn, and support sustainable fuels in the EU.
• ‘Preparing for FuelEU’ Webinar
• Transatlantic Testing Ground report on EU & US policy impacts