10th November 2021
Last Saturday at the world’s largest gathering of shipping companies, regulators and policymakers at the ICS Conference on Shaping the Future of Shipping at COP26 in Glasgow, the Royal Belgian Shipowners’ Association joined in the discussions on how to move forward together in making sure that shipping will play its part in drastically reducing its 3% share of all global greenhouse gas emissions.
Any policy to hasten the pace of carbon neutrality and bring about the much needed and currently non-existant technological breakthroughs is welcomed. But any policy that is hastily passed through, would not only damage the whole industry, but also reverse the progress made so far towards the goal.
An example of a policy that risks doing so, is the proposed FuelEU Maritime Regulation within the ‘Fit for 55’ climate package recently tabled by the European Commission.
The FuelEU Maritime Regulation aims to “increase the use of sustainable alternative fuels in European shipping and ports by addressing market barriers that hamper their use, and the uncertainty about which technical options are market-ready“.
At first glance, the proposed regulation looks like the maritime version of the ReFuel EU Aviation proposal. Both introduce targets for alternative fuels and like ReFuel EU, FuelEU Maritime promotes fuel blends that are progressively carbon-neutral starting from 2025 to 2050. The legislation applies to all fuels used by ships at EU ports of call, on voyages between two EU ports of call, and on 50% of the fuels used between an EU port and a third country.
But the similarity stops there. A more careful reading of the FuelEU Maritime reveals a high level of inconsistency with the rest of the package, which in some instances are counter-productive.
1. Is it really necessary to introduce another MRV system?
2. The reliance on compliance certificates from non-EU fuel suppliers is a gaping enforcement loophole.
3. An independent body should decide on OPS exemption, not port authorities.
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European shipping currently reports into the EU Monitoring Reporting and Verification (MRV) System on the berth-to-berth CO2 emissions of its voyages, on top of the IMO Data Collection System (DCS). Instead of using the existing MRV system, FuelEU Maritime introduces a separate reporting and verification system just for the purposes of this regulation.
• Why is another system of reporting necessary on top of the fact that it is already burdensome for EU shipping operators to report into two existing systems?
FuelEU Maritime sets a target for the use of biofuel blends. But as non-EU fuel suppliers are not bound by EU laws, the only proof of compliance that shipowners and charterers can obtain from them is a piece of paper certificate. As biofuels have a similar chemical composition as conventional marine fuels, it is impossible to ascertain the quality and quantity of biofuels in blends purchased outside the EU.
• What are the legal ramifications for shipping companies and verifiers should the papers provided by non-EU fuel suppliers not correspond to the fuel blend in the tank of the ship?
• How effective is FuelEU Maritime in creating more uptake of cleaner fuels when it is essentially outsourcing the enforcement of its rules by relying on certificates from fuel companies outside its jurisdiction?
FuelEU Maritime requires passenger and container ships to use Onshore Power Supply (OPS) in a European port when the port infrastructure is available and compatible. But the exemption stops end of 2034. After this, port authorities will be the ones to decide whether to exempt or penalise ships on OPS use, instead of an independent body.
• How can the port authorities be allowed to judge and be judged?
“FuelEU Maritime is such a critical piece of the puzzle, that the whole Fit for 55 package would crumble for the shipping industry if we didn’t get it right,” said Wilfried Lemmens, RBSA Managing Director. “From the point of view of Belgian shipowners, FuelEU Maritime should fully align with the rest of the package, and it should go further to directly address longstanding issues such as the transparency of the fuel supply chain, in order to help shipping advance towards decarbonisation.”
Despite efforts by the shipping industry at national, EU and international levels, no significant progress has been made to address the quality and quantity concerns about conventional fuel oils, leading to numerous safety and operational incidents.
The FuelEU Maritime Regulation should be an opportunity to finally enhance the transparency in the maritime fuel oil supply chain as well by making fuel suppliers transparent on the origin and composition of their fuels as current EU regulation requires for the production and use of green and biofuels. If not, the regulation will only disincentivise shipowners who bunker sustainable fuels compared to conventional fuel oils.
FuelEU Maritime makes the fuel user responsible for delivering emissions reductions instead of the fuel suppliers. It makes no sense that this approach is taken only for shipping, where in aviation and road, the fuel supplier is responsible for making cleaner fuels available on the market. By wrongfully targeting the user instead of the supplier, this makes shipping come last on the fuel suppliers’ priority list and as a result delay the maritime decarbonisation process. Also, by placing the principal responsibility with fuel suppliers, FuelEU Maritime will align with the forthcoming Renewable Energy Directive (RED) as is already the case in ReFuel Aviation.
Another area of inconsistency is with the EU ETS. FuelEU Maritime needs to work hand in hand with EU ETS to foster the demand for cleaner fuel in shipping by encouraging efficiency improvements and providing economic incentive to companies using cleaner fuels. The impact assessment of the FuelEU Maritime has estimated the price gap between cleaner and conventional fuels to be at least €200 per tonne CO2. Therefore, a substantial part of the price gap between cleaner fuels and conventional fuels will need to be covered by the carbon price of the ETS, which is currently trading around €60 per tonne CO2.
FuelEU Maritime should work with the IMO on the latter’s current work on biofuels, including the compliance and requirement in the IMO Safety of Life at Sea Convention for marine fuels to have a flashpoint above 60°C. This is yet another reason any new fuel standards and legal responsibility for meeting those standards need to be addressed to fuel suppliers, not ship operators, as is the case in the other transport sectors. This will also ensure the EU does not hamper the work done by the IMO on the safety of future alternative fuels, such as ammonia and hydrogen, and its Well-to-Wake Life Cycle Analysis Guidelines.
If the concerns raised by the industry were not addressed, the regulation risks jeopardising the decarbonisation progress of shipping, rather than enhancing it. Furthermore, for the EU to be a true frontrunner, we must ensure that more will be able to follow. Even more impactful than being a frontrunner, Europe needs to be enablers as well. If not, all the efforts we are making will neither benefit the environment nor the economy.
Apart from the need for consistency with the rest of the Fit for 55 package, as well as placing the responsibility on the right parties in order to encourage real changes, the shipping industry requires a clear commitment from the EU for full alignment with the international level when the IMO delivers.