While the EU has long taken pride in leading the regulatory drive to reduce maritime greenhouse gas emissions, industry participants are watching how Brussels will keep its promise of aligning its legal frameworks with international rules to ease the burden on shipping companies.
Earlier this month, International Maritime Organization member states voted for the first sector-wide GHG costs on marine energy use globally, 63-16, with all 27 EU member states backing the proposal.
The landmark decision, which came after more than a year of negotiations and despite strong opposition from the US and Saudi Arabia, was reached after European countries stopped pushing for a flat levy on shipping emissions and compromised with China on two tiers of GHG intensity thresholds for bunker fuels between 2028 and 2035.
“The EU and its member states played a key role in securing the deal … [we will] assess the new global measure to see how it interacts with current EU maritime related regulations, maintaining environmental integrity while avoiding significant double burden,” the European Commission, EU’s executive arm, said in a statement following the vote.
Brussels has been charging ships of 5,000 gross tons or more in EU-related trades for their GHG, with its Emissions Trading System extended to cover maritime transportation since 2024 and FuelEU Maritime rules in force since this January.
With the ETS due to be reviewed in 2026 and FuelEU Maritime due in 2027, the EU could theoretically modify its regulations in time so shipping firms would’t need to pay for the emissions twice when IMO rules become effective in 2028.
But Georgios Kasimatis, head of regulatory affairs at classification society DNV, suggested the optimistic scenario might not be likely as EU agencies could take time to evaluate various regulatory regimes.
“We will continue to see this regulatory overlap and complexity for some time,” Kasimatis told Platts, part of S&P Global Commodity Insights. “There may be some years.”
Multiple rules
Adding to the complexity is that Brussels has stated EU rules would be modified only when the IMO regulation has the same level of climate ambition or more, but some analysts said the global rules might not be as stringent.
To cover their emissions under the ETS, shipping companies will need to purchase EU emission allowances – whose contract for the nearest December was assessed by Platts at /mtCO2e ($/mtCO2e) on April 16.
FuelEU Maritime mandates a reduction of the GHG intensity of marine energy use by 2% from 2025 against 2020 baselines, progressively rising to 80% from 2050, and the starting fine for a non-compliant firm is set at Eur2,/mt of very low sulfur fuel oil equivalent.
In comparison, IMO rules set out two tiers of GHG intensity thresholds in any given year, and ship operators — based on their compliance level — could need pay a penalty of $/mtCO2e or $/mtCO2e.
Both IMO and FuelEU regulations allow the trading of compliance units. Moreover, EU rules apply to full emissions in intra-EU trades but only cover 50% of emissions from voyages between an EU port and a non-EU one.
With all taken into consideration, consultancy Wood Mackenzie estimates burning one mt of VLSFO would be attached with an emission cost of over $710 under EU rules and $160 under IMO in 2030 for ships trading within the EU.
Lara Naqushbandi, CEO of e-fuel developer ETFuels, said Brussels could consider rebates for companies paying charges for the same emissions under both EU and IMO regimes, possibly for voyages between EU and non-EU ports.
Industry group World Shipping Council’s environmental director for Europe, James Corbett, suggested Brussels should recognize counting global warming is a global rather than regional effort.
“All of the EU regulations have a common flaw. They’re all regional. They cannot create global change,” Corbett said.
Alignment issues
Others have complained the that EU itself has not adopted the same technical details when enforcing its different regulations, an issue that needs to be resolved before further regulatory alignment with the IMO.
For example, the EU ETS for shipping and FuelEU Maritime have different GHG accounting systems, while the companies directly responsible for compliance could also vary.
“EU regulations sometimes were developed in silos,” said International Association of Classification Societies Chair Roberto Cazzulo, adding maritime rules could be developed by the EC’s climate, transport or energy departments independently.
“They should have a rational approach. Those need to integrate,” Cazzulo added.
Gudrun Janssens, head of EU engagement at shipowner organization BIMCO, said EU regulations tend to have “too many loopholes” and are hard to be used to regulate a global industry like shipping.
For example, Janssens said the ETS could apply to shipmanagers rather than ships themselves, which could create complications in charter agreements as a company managing the ship does not necessarily have the power to control bunker use. The control could lie with a ship operator based outside of the EU.
“The difficulty with the ETS is that it’s not ship specific,” Janssens said.
The IMO, based on its regulatory timeline, is scheduled to adopt the new regulation in October and hammer out technical details for implementation by 2027.
“The European Commission needs to have open discussions with the stakeholders, like shipowners and technology providers, and to have good communication and cooperation with the IMO as well,” said Stamatis Fradelos, vice-president for regulatory affairs at classification society American Bureau of Shipping.
Source: Platts
