ABS: How FuelEU aims to turbocharge sustainable shipping investments

Today, we are fluent in the new language of shipping: CO2 per ton mile. But there’s a new variant that is about to reframe the energy transition and redefine the industry in the process. And we’ll all be speaking it from January next year. 
This is the calculation at the heart of FuelEu, which every five years reduces the quantity of Greenhouse Gas Emissions that can be emitted per megajoule of energy used on board before there’s a compliance cost.

For a typical container vessel burning 100 tonnes of Light Fuel Oil (LFO) per day, the cost of compliance from January will be around $3,000 dollars each day. That’s a compliance bill of around $150,000 on a typical 50-day round trip from Europe to the Far East. From 2030, costs start to rise significantly until by 2035 the same vessel is incurring $20,000 a day, or around $1m on a round trip to Shanghai. By 2050, the daily cost is $100,000. And this is only if the voyage begins or ends in the EU. If it’s an entirely intra-EU voyage, you can double the daily cost. 
The legislation is designed to ensure few are in fact ever paying that much by driving change in the industry and rewarding first movers on emissions reduction technology.

FuelEu incentivizes wind-assisted propulsion, particularly up to 2040. Depending on the propulsion potential of the technology, you can expect to see no costs as a result of FuelEU until 2030 and then only at half the rate of an unassisted vessel up to 2035.  The impetus is even greater in the case of green or e-fuels, which are awarded a massive incentive through halving their GHG intensity limit until 2034, meaning operators of vessels burning green methanol, ammonia or hydrogen will generate massive compliance surpluses. And it is in the regulators’ plan for pooling of these surpluses that the game changing nature of FuelEu is most clearly revealed.

Compliance surpluses can be linked to other vessels with a negative balance, which have therefore built up a compliance deficit. These surpluses can be sold to other operators or used to extend the viability of older portions of the fleet.  

ABS research indicates the power of pooling will be significant, rewarding pioneers of alternative fuel technologies. An LFO vessel operating with 30 percent biofuels may be able to generate sufficient surpluses to offset 10 vessels, while running 30 percent green methanol may allow you to offset 15 vessels up to 2030.   
Τhe vision behind the regulation is to change the calculus on alternative energy investment at sea, turbocharging the rate of return on emission reduction capital expenditure.

And this is not only a new reality for those trading in European waters, because the IMO has indicated it intends to introduce its own version globally in 2027. So, wherever you are, whatever you ship, however it is fueled, there’s a new paradigm at sea. A new lens through which to view everything from trade routes and energy choices to investment decisions: CO2e per megajoule.