This week, we’re exploring a case study to illustrate the impact of the fuel allocation mechanism under the FuelEU Maritime.
General Overview of FuelEU Maritime Regulation
The FuelEU Maritime Regulation aims to reduce the maritime sector's greenhouse gas (GHG) emissions, targeting a 6% reduction by 2030 and 80% by 2050. The regulation mandates stricter emissions reporting and compliance with GHG intensity limits for ships operating to/from or within the EU, promoting the use of cleaner fuels and innovative technologies to drive sustainability.
The Geographical Scope
All ships that call an EU/EEA port are exposed to the FuelEU Maritime Regulation irrespective of their company's origin or flag state. A difference is made between intra-EU voyages, voyages to/from outermost regions, and voyages to/from the EU (international voyages):
Intra-EU voyages: 100% of the energy used is subject to the regulation
Voyages to/from outermost regions: 50% of the energy used is subject to the regulation
International voyages: 50% of the energy used is subject to the regulation
Note, that the FuelEU Maritime regulation further uses the concept of transshipment ports similar to the EU ETS. Stops in transshipment ports do not count as port calls.
The Fuel Allocation on non-EU to/from EU voyages
While the fuel (energy) allocation on all intra-EU voyages is straightforward, 100% of the energy used onboard must be accounted for, the allocation on international voyages provides flexibility in the form of an allocation mechanism.
The allocation mechanism, or the flexibility in allocating renewable and low-carbon fuels to international voyages, stems from the fact that the GHG intensity is calculated using the total energy used per reporting period (annually). This allows for what can be called a fuel allocation optimization ensuring that the maximum amount (50%) of renewable and low-carbon fuels is allocated to the scope of the FuelEU Maritime regulation. Further details can be found under Question A.1 in the official FuelEu FAQ.
Case Study A: Fuel Allocation for Lower 50% Renewable or Low-carbon Fuel
The below illustrates a simple example of an international voyage with a 70/30 fossil/biofuel blend:
In the above picture, the fuel allocation is not optimal. As chosen, the energy content in scope would be 50% fossil fuel, despite having used 30% biofuel on the international voyage. The resulting GHG intensity for this voyage would be above the limit and the penalty would amount to about 15,000 €.
Here, the fuel allocation is optimal. The energy content in the scope includes the maximum amount of lower emission fuel resulting in 20% fossil and 30% biofuel in scope for the respective international voyage. The resulting GHG intensity for this voyage would be way below the limit, no penalty payment would be required and the resulting surplus could potentially be monetized for about 85,000 €.
Case Study B: Fuel Allocation for Above 50% Renewable or Low-carbon Fuel
The below illustrates a simple example of an international voyage with a 40/60 fossil/biofuel blend:
In the above picture, the fuel allocation is not optimal. As chosen, the energy content in scope would be 40% fossil fuel and 10% biofuel, despite having used 60% biofuel on the international voyage. The resulting GHG intensity for this voyage would be below the limit and the resulting surplus could potentially be monetized for about 15,000 €.
Here, the fuel allocation is optimal. The energy content in the scope includes the maximum amount of lower emission fuel resulting in 50% biofuel in scope for the respective international voyage. The resulting GHG intensity for this voyage would be way below the limit, and the resulting surplus could potentially be monetized for about 360,000 €.
Since the GHG intensity is calculated using the total energy used per reporting period (annually), the allocation can further be improved. As only 50% of the 60% biofuel has been used, the remaining 10% can be added to a future voyage with less than 50% of renewable or low-carbon fuel within the same reporting period.
Further Benefits of the Flexibility in Fuel Allocation on International Voyages under FuelEU Maritime
The previous case studies clearly outlined the benefits of the fuel allocation mechanism for the GHG intensity and respectively the penalty and potential surplus earnings related to compliance with the FuelEU Maritime regulation. Another reason for this flexibility and additional benefit might arise in the future. As other countries are currently discussing a similar regional regulation, international voyages between two similar regional regulations might be exposed to different penalties. The allocation mechanism allows to account for the renewable and low-carbon fuels in the regulation that is preferential from a financial perspective. This ultimately incentivizes the shipping companies consuming such fuels by improving their business cases.
Stay tuned for more insights and case studies in our upcoming newsletters. Together, we can navigate the path to maritime decarbonization.
Feel free to reach out if you have any further questions or are interested in learning more about how BetterSea's streamlined and end-to-end FuelEU software solution can help achieve cost-efficient and effortless compliance.
Best regards,
BetterSea Team
Contact Us: info@bettersea.tech
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Note 1: The above is not only valid for international voyages but also for voyages to/from outermost regions.
Note 2: The surplus price has been assumed to be 370 € per unit.
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