In July 2021, the European Commission presented “Fit for 55” package aimed at making the EU’s climate, energy, transport and taxation policies suitable for reducing net greenhouse gas (“GHG”) emissions by at least 55% by 2030 compared to 1990 levels, ultimately achieving climate neutrality by 2050.
In addition to the European Commission’s Emissions Trading System (“EU ETS”), which we discussed in our other article, the “Fit for 55” package also amended MRV regulation[1] (“MRV Regulation”) for maritime transport, which has been in effect in the EU since 2018. Besides, it includes a new Fuel EU Maritime Regulation[2] (“Fuel EU”) to increase the use of marine renewable and low-carbon fuels. Here are key points regarding MRV Regulation and Fuel EU in the maritime sector.
1. What is MRV Regulation?
The MRV Regulation establishes monitoring and reporting obligations for voyages related to the European Economic Area (“EEA”) that have been carried out after 1 January 2018. Starting from 1 January 2024, shipping companies must monitor and report not only carbon dioxide (CO2) but also methane (CH4) and nitrous oxide (N2O).
Ships of 5,000 gross tons (GT) and above calling at EU ports are required to prepare a monitoring plan for their fuel consumption and an emission report, with certain categories exempted:
- Warships;
- naval auxiliaries;
- fish-catching or fish-processing ships;
- ships not propelled by mechanical means; and
- government ships used for non-commercial purposes.
2. Who holds compliance responsibility of MRV Regulation?
The entity responsible for compliance with the EU ETS obligations is also accountable for MRV obligations. For more details on the compliance responsibility, please refer to section 3 of our EU ETS article.
3. What are the obligations of the shipping company under MRV Regulation?
- Update the monitoring plan and submit it to the verifier and the administering authority
Shipping companies must update their monitoring plans for each ship undertaking voyages to and from ports in the EU/EEA after 1 January 2024. The revised plan must conform to the amended MRV Regulation and be assessed at least annually to ensure it accurately reflects the nature and functioning of the ship.
The MRV Regulation also specifies certain situations where companies are required to modify the monitoring plan, such as a change of company, new GHG emissions generated, or incorrect data resulting from the monitoring plan. Shipping companies may refer to Annex I to the Implementing Regulation (EU) 2023/2449 for the latest template of the monitoring plan.
If the assessment shows that the monitoring plan is in conformity, then shipping companies must submit the plan, assessed by an accredited verifier, to the administering authority by April 1, 2024, or no later than three months after the ship’s first call at an EU/EEA port.
- Monitor GHG emissions
Ongoing monitoring of GHG emissions per voyage is required from 1 January 2024. However, there is an exemption from “per voyage” monitoring if a ship undertakes more than 300 voyages during the reporting period, with all voyages within the EEA.
- Prepare and submit the emissions report
Starting in 2025, shipping companies must prepare and submit an emissions report for each ship for the previous year by March 31. This report must be verified and submitted through the THETIS-MRV platform to the administering authority in respect of the shipping company, the authorities of the flag States concerned, and the European Commission.[3]
4. What is Fuel EU?
Fuel EU is a complementary regulation to the EU ETS, which will be implemented from 1 January 2025 with the goal of increasing the share of renewable and low-carbon fuels in international maritime transport within the EU. It establishes a limit on GHG intensity (GHG emissions per energy unit, gCO2eq/MJ) for energy used on board ships and requires the use of on-shore power supply (“OPS”) or zero-emission technology in port for containerships and passenger ships only.
The GHG intensity limit will be tightened every 5 years and assessed on a Well-to-Wake basis. If a shipping company exceeds the GHG intensity limit, it will incur a penalty for the excess.
the Regulation (EU) 2015/757 of the European Parliament, as amended by the Regulation (EU) 2023/957 of the European Parliament and of the Council of 10 May 2023 amending Regulation (EU) 2015/757.
FAQ - Monitoring, reporting and verification of maritime transport emissions. Link: https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector/faq-monitoring-reporting-and-verification-maritime-transport-emissions_en
Ships arriving at an EU/EEA port for the first time after 31 August 2024 shall submit the monitoring plan to the verifier within 2 months of that port call.
For the full list, please refer to Article 8 of Regulation (EU) 2023/1805.
For the full list, please refer to Article 15 of Regulation (EU) 2023/1805.
5. Borrowing, banking, and pooling mechanisms of Fuel EU
Banking & Borrowing
Fuel EU offers flexibility through banking and borrowing options. Ships can save excess compliance for future periods or borrow from upcoming periods to offset deficits.
If the ship has a compliance surplus, the company may bank that compliance balance for the same ship in the next reporting period. For compliance deficit by the vessel, the company may borrow the corresponding amount from the next reporting period. However, borrowing of advance compliance is not allowed if the compliance balance exceeds 2% of the GHG intensity threshold multiplied by the ship’s energy consumption or is used for two consecutive reporting periods.
Pooling
Shipping companies can also opt for pooling, allowing verified ships under the same verifying body to combine compliance balances for individual ship compliance.
6. What is the implementation timeline of Fuel EU?
- Ship’s type / name / IMO identification number / shipowner and information of the shipping company;
- Sources of energy to be used onboard while navigating and alongside;
- Procedures for monitoring the fuel consumption of each fuel type;
- Procedures for monitoring the full fuel life cycle emission factors of the energy to be used;
- Standards and characteristics of OPS or zero-emission technology; and
- Value of the established total electrical power demand of the ship whilst alongside.[5]
Please note that the monitoring plan must be updated and reassessed by a verifier when there is a change of shipping companies or the types of fuel used, etc.
- Departure and arrival ports (including date and time);
- Amount of fuel used while at berth and at sea; and
- Amount of electricity supplied to the ship through the OPS.[6]
7. Who holds compliance responsibility of Fuel EU?
The shipping company is responsible for monitoring, reporting and paying any penalties. However, if fuel purchase and ship operation are managed by a different entity and the shipping company may have little control over the operation, the shipping company may mitigate this by incorporating an indemnity clause in the ship management agreement.
Conclusion
The far-reaching implications of the MRV Regulation and Fuel EU underscore the necessity for the shipping companies to adhere diligently to the prescribed requirements. Failure to comply not only jeopardises environmental sustainability but also induces penalties that must be paid. As such, it is imperative for shipping companies to remain vigilant, proactively preparing and adjusting their operations to align with the stringent requirements set forth by MRV Regulation and Fuel EU, ensuring regulatory compliance and operational efficiency in the dynamic EU maritime landscape.
