Pooling is one of the compliance mechanisms under the FuelEU Maritime Regulation and offers an advantageous but new compliance option. By redistributing compliance surpluses and deficits within a defined group (pool) of vessels, pooling can optimize compliance costs and even create financial opportunities. However, as a new approach, it comes with specific rules and challenges that require careful consideration.
Believe it or not, BetterSea’s Monday Newsletter has never officially introduced and explored pooling under FuelEU Maritime. But today is the time for a complete disassembly of the pooling mechanism and its intricacies, challenges, and opportunities.
What is FuelEU Maritime Pooling and What Are the Rules?
Under FuelEU Maritime, every ship gets an individual compliance balance based on its GHG intensity and the applicable regulatory limit. If the compliance balance is negative, the ship is non-compliant and has a so-called deficit. On the contrary, if the ship’s compliance balance is positive, the ship is over-compliant and has a so-called surplus.
Pooling allows vessels to share their compliance balances—redistributing surpluses and deficits—with each other in a group of vessels (pools). A simple example, a vessel with a surplus of 100 t CO2e could form a pool with a vessel with a deficit of 90 t CO2e, making both vessels compliant. The formation of pools can be done internally (with ships of one company) or externally (with ships of several companies).
The FuelEU Maritime Regulation includes a set of rules that define a valid pool in Article 21(4):
“A pool is valid only if the total pooled compliance is positive, if ships which had a compliance deficit as calculated in accordance with Article 16(4) do not have a higher compliance deficit after the allocation of the pooled compliance, and if ships which had a compliance surplus as calculated in accordance with Article 16(4) do not have a compliance deficit after the allocation of the pooled compliance.”
Image 1 below illustrates the three rules defined by the FuelEU Maritime Regulation based on a set of three sample ships.
It is important to note that these rules are not exclusive but must all be fulfilled for a pool to be valid.
Further, Article 21(4) alludes to an allocation of surplus or broader compliance balance between the vessels participating in the pool. The FuelEU Maritime Regulation does not define a standardized procedure for the allocation of compliance balances but instead allows the participating companies to decide the individual allocation to each ship as long as it outlines the mentioned rules. Recording of such allocation shall take place in the FuelEU Database according to Article 21(8).
“By 30 April of the verification period, the selected verifier shall record in the FuelEU database the definitive composition of the pool and allocation of the total pool compliance balance to each individual ship.”
For further details on the FuelEU timeline, please see our newsletter from July 22.
FuelEU Maritime Pooling Examples: Scenarios and Strategies
Pooling offers flexibility in how to allocate compliance balances across the participating vessels, allowing for many different cases, among others, the ones outlined below:
Example 1: The Straightforward Approach
The allocation of surplus is straightforward in Image 2. The surplus ship shares sufficient surplus with the other two to make them compliant. Therefore, the deficit ships do not face any compliance penalties for the corresponding compliance year. An additional 20 t of surplus remains on the surplus ship and can be banked for future compliance periods.
Example 2: Compliance Penalty Reduction
The surplus ship again shares surplus, but based on the chosen allocation, only the first deficit ship received sufficient surplus to be compliant with the FuelEU Maritime Regulation. The second deficit ship remains with a deficit of 5 t. Resultantly, the surplus ship can bank 25 t of surplus, whereas the second deficit ship faces a penalty for the remaining 5 t.
In line with Article 21(4), the second example also represents a valid pooling scenario. It predominantly applies to two use cases: (a) the surplus generated for an internal pool is not sufficient, no surplus trading was done, but the compliance costs shall be reduced to a minimum, or (b) the surplus bought for external pooling is not sufficient to make all deficit ships compliant.
Example 3: Prepare for the Future with Surplus Trading
While initially counterintuitive to Article 20(1) of the FuelEU Maritime Regulation, the third example also represents a valid pooling scenario. An insufficient amount of surplus has been allocated to the second deficit ship, leaving it with a penalty for 5 t of deficit, but, in contrast, more surplus than deficit has been allocated to the first deficit ship, ultimately making it over-compliant. As a result, the previous deficit ship is in surplus after pooling and is allowed to bank 20 t of surplus for future compliance periods. This raises several commercial thought experiments:
Companies in deficit that bought more surplus than needed do not lose the surplus but can trade or use it in the future.
A banked surplus can be traded even in subsequent compliance years, providing long-term financial opportunities.
By leveraging pooling, both deficit and surplus vessels can intentionally generate (more) excess surplus, bank it, and trade it on marketplaces like BetterSea’s FuelEU Marketplace in later years when the price might be higher.
Note that the same is not applicable for borrowing. Ships that have borrowed compliance in the same compliance period are not allowed to pool.
Open Questions and Regulatory Considerations
While the above already outlines clear rules for pooling and a fruitful ground for surplus trading, there are still a few open regulatory questions, including:
Additional Checks
Article 17(1) of the FuelEU Maritime Regulation states that competent authorities of administering states can check the data used for compliance purposes for the previous two compliance periods.
“At any time, the competent authority of the administering State in respect of a company may, for any of its ships, conduct, in relation to the two previous reporting periods, additional checks of any of the following: (…)”
This must be handled cautiously, especially with respect to pooling. In a worst-case scenario, the administering state finds an issue for 2025 data in 2027. This could potentially influence all ships involved in pooling with the misreporting ships in 2025 or 2026 and all ships involved in pooling in 2026 with the other pool participants from 2025.
A solution could be to restrict the implications of misreporting to the involved ship only and keep the compliance status of all the other potentially involved ships as is. This would remove post-verification alignment issues and any commercial and legal implications for ships not at fault. Another option could be to leave it to all involved stakeholders to reallocate compliance balances for 2025 and 2026. Share your view in the comments below!
Banked Surplus & Non-EU Scope
As explained in various newsletters, the generated compliance surplus has monetary value. This value is unclear, but the first indications can, for example, be found on BetterSea’s homepage.
Banking under FuelEU Maritime does not have a time limitation such that some compliance strategies may involve banking of surplus for a future in which the previously surplus-generating ships become non-compliant. Others might have received some unexpected excess surplus through external pooling for which banking is the only option.
If such vessels end up not trading in Europe for the next years or even the remaining lifetime and, therefore, do not fall under the scope of FuelEU Maritime, the monetary value attached to the banked surplus is lost. Based on the regulatory text, it is potentially possible to grant such vessels allowance to trade and pool the banked surplus even though they are not trading in Europe. Should this be allowed? Share your view in the comments below!
Keep an eye out for this and future newsletters! BetterSea will update you on the above questions as soon as we have regulatory clarity!
Conclusion
Pooling under FuelEU Maritime offers immense potential for cost savings and commercial benefits. Knowing the rules and regulatory intricacies is essential for successful and beneficial navigation of the new pooling landscape! On top of the rules and regulations, the legal alignment between all involved stakeholders is crucial. Check out BetterSea’s last newsletter on charter contracts!
BetterSea’s FuelEU Maritime Compliance Platform with integrated marketplace provides you with all the technical, operational, legal, and financial tools required to successfully pool both internally as well as externally. Book a product demo to explore BetterSea’s FuelEU Compliance Platform below!
Stay tuned for more insights on navigating these complex challenges in our upcoming newsletters. If you have any questions or need further guidance on pooling, feel free to reach out!
Best regards,
The BetterSea Team
Contact Us: info@bettersea.tech
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