Fuel choice key to navigating FuelEU compliance costs, says OceanScore

Albrecht Grell, managing director at OceanScore, emphasises that fuel selection is the most critical lever under FuelEU. “Your choice of fuel can either create a surplus or a deficit in your compliance balance, directly affecting costs,” he states. Grell further notes that selecting the right fuel could not only help avoid penalties but also generate revenue by pooling surpluses, though this depends heavily on uncertain future pooling prices.

FuelEU aims to bring shipping near net-zero by 2050, setting a GHG threshold of 89.3gCO2e/MJ until 2029. Presently, LNG and LPG, in dual-fuel engines, meet requirements and offer surplus compliance balances, though their benefits will diminish as emissions limits tighten approaching 2040. Biofuels offer another pathway, especially in blends (e.g., B20-B30) with conventional fuels, which will remain compliant until 2040. Higher blends or pure biofuels will then be required.

A further complication lies in how FuelEU and EU ETS handle biofuels differently. While EU ETS treats biofuels as zero-emission, requiring no carbon credits, FuelEU enforces stricter standards. Grell explains that under FuelEU, biofuels made from food or feed crops are considered conventional, leaving waste-based biofuels as the only fully compliant option despite their non-zero GHG values. This distinction, the infamous “food versus fuel” argument, impacts compliance strategies, as biofuels from sources like rapeseed or sunflower meet ETS reductions but fall short under FuelEU. For full compliance, waste-based biofuels from used cooking oil or animal fat are necessary.

OceanScore’s analysis highlights the importance of considering alternative fuel characteristics, including relative carbon intensity, calorific values (LCVs), pricing, and associated ETS costs, as part of the compliance strategy. Its FuelEU Planner integrates these metrics, helping companies simulate scenarios and manage compliance efficiently. The firm’s data suggests that the compliance market will likely have a surplus by January 2025, which may drive down pooling prices, making it cheaper to buy compliance surplus rather than generate it by using costly alternative fuels onboard.

Given these dynamics, a robust compliance strategy needs to extend beyond fuel choice to encompass the broader market landscape. “Our FuelEU Planner integrates these variables into a comprehensive scenario simulation,” Grell says, stressing the need for collaboration among charterers, managers, and owners using a shared, data-driven approach.

Grell advises that companies adopt a thorough understanding of fuel economics, considering costs, LCVs, EU ETS implications, and the cost of pooling FuelEU balances. Technical and operational assessments of biofuel usage are also essential, with considerations for engine compatibility and availability of bunkers in key ports. At present, many companies limit biofuel usage to certain fleet segments to simplify operations and mitigate risks, awaiting further support from engine manufacturers and bunker suppliers.

Contractual arrangements represent another major challenge. “How do you protect the DOC holder, who faces penalties, from charterers’ fuel decisions? How do you equitably divide biofuel costs and surpluses, and manage deployment uncertainties under FuelEU?” Grell asks. Without clear terms in agreements like Shipman and Charter Parties, companies risk financial exposure. Aligning the interests of owners, managers, and operators requires data-driven clauses to avoid disputes in this complex regulatory landscape.

OceanScore’s FuelEU Planner offers companies a structured approach to compliance, simplifying the complexities of FuelEU. Through simulations of fuel usage, compliance costs, and pooling options, the tool helps companies budget effectively and negotiate informed contracts. Grell concludes, “Our solutions provide transparency, allowing companies to confidently manage their compliance strategies and fully understand the commercial impact of fuel decisions.”

Click here to read an article about how pooling can be accomplished under FuelEU Maritime.