FuelEU Maritime Series – Part 5: RFNBOs, OPS and Penalties

In the fifth instalment of our six-part series uncovering the FuelEU Maritime Regulation, we examine the role of renewable fuels of non-biological origin, also known as RFNBOs, and of onshore power supply in ports. We will also look at the more immediate subject of penalties that may befall non-compliant actors.

RFNBOs - How will the use of renewable fuels of non-biological origin (RFNBOs) be incentivised?

A key objective of the EU’s FuelEU Maritime Regulation (the Regulation) is to encourage the use of renewable fuels within the shipping industry.

The Regulation pursues the EU’s process, under the “Fit for 55” package, of penalising companies which persist in using carbon-intensive fuels. However, it also goes a step further and, in addition, seeks to actively incentivise the use of renewable fuels of a non-biological origin (RFNBOs).

What are RFNBOs?

The EU defines RFNBOs as “liquid or gaseous fuels […] other than biofuels or biogas, the energy content of which is derived from renewable sources other than biomass.”^[1]

RFNBOs are essentially synthetic fuels which can be produced on a renewable basis from non-biological resources such as renewable electricity and carbon emissions captured directly from the air.

In practical terms, the main RFNBOs which the shipping industry is focusing on are methanol, ammonia and hydrogen. However, these are all developing technologies with limited vessels currently in operation capable of consuming these fuels and the technology required for the engines, pipework and storage etc., whilst developing at a fast pace, is not developed enough for (and perhaps not trusted enough by) many shipowners (and shipyards).

Moreover, at present, there is a lack of global bunkering infrastructure in place which would allow vessels to bunker these fuels.

Given that RFNBOs would result in significant emissions savings compared to traditional oil-based bunker fuels, the EU is seeking, through the Regulation, to heavily incentivise the development and use of RFNBOs technology in shipping.

How is the EU incentivising the use of RFNBOs?

Pooling

As mentioned in the previous article on the pooling mechanism (FuelEU Maritime Series – Part 3: Timeline : Clyde & Co), a major incentive for shipowners to operate vessels which consume RFNBOs lies in the fact that the compliance surplus generated through the consumption of RFNBOs can be pooled with other vessels in the fleet, meaning that other vessels which would otherwise have faced penalties for exceeding the GHG intensity limits can avoid such penalties.

This provides a significant incentive for shipowners to acquire vessels capable of consuming RFNBOs, so that other vessels within their fleet (which may not have the capability to process these fuels without an uneconomic retrofit) can avoid FuelEU penalties.

As the GHG intensity limits reduce in time under the Regulation, there is an increased incentive for a greater proportion of vessels in the fleet to use RFNBOs.

At the time of writing, there is no “industry standard” approach to pooling for the purpose of the Regulation and we understand that currently, BIMCO do not intend to provide any form of industry standard pooling agreement (although this may change).

Charterers, shipowners and technical managers are approaching the pooling of compliance surplus by various different means, some opting to wait until closer to the time of reporting and others taking steps now to reach agreements with parties in the chartering chain as to the use of any compliance surplus.  

Multiplier

The Regulation also rewards the use of RFNBOs by applying a “multiplier of 2” on the use of these fuels.

Between the dates of 1 January 2025 and 31 December 2034, every tonne of RFNBO used by a company in fuelling its fleet will count twice towards the shipping companies’ GHG intensity targets. This calculation bonus assists in incentivising the early take up of RFNBOs.

Potential sub-targets

In addition, the Regulation mandates a further 2% sub-target of RFNBO use from 2034, if the EU Commission reports that the share of RFNBOs in the bunker fuel market is less than 1% by 2031.

Investments

By incentivising shipowners to use RFNBOs, the EU is also seeking to encourage the development of the RFNBO bunkering infrastructure, by signalling to investors in the bunkering market that there will be certainty regarding future minimum demand for these fuels from ship operators as a result of the effect of the Regulation. The question remains “which fuel to opt for” though, when seeking to invest in providing bunkering solutions and infrastructure as there is no one clear choice. Many shipowners are expected to select multiple options initially.

Comment

Shipping companies will need to consider whether they have the means to benefit from the RFNBOs incentive regime, or if they will rely on other mechanisms to comply with the Regulation, such as through the use of certified biofuels or wind assisted technology.

However, the key point is that the EU is introducing significant incentives to encourage the uptake of RFNBOs as a means of driving both investment and orders for RFNBO compatible vessels as well as the bunkering infrastructure necessary for vessels to reliably stem RFNBOs. Given this, we can expect that a progressively increasing proportion of fleets calling at EU ports will be using RFNBOs going forward.

OPS - How will the use of Onshore Power Supply operate?

The EU introduced, through Reg (EU) 2023/1804, the obligation for ports to provide onshore power supply (OPS) for vessels. The overriding purpose is to abate the air pollution produced by these at berth and to reduce the amount of GHG emissions generated.

The EU also created a corresponding obligation, set out in this Regulation, for vessels to connect to the OPS infrastructure.

From 1 January 2030, containerships and passenger vessels over 5,000 GT will be required to connect to the OPS when securely moored at quayside in major Trans-European Transport Network (TEN-T) ports and to use this connection for all their electrical power demand at berth.

From 1 January 2035, this requirement will extend to all TEN-T ports where such OPS infrastructure is available[2].

There are exceptions to this requirement, which include where vessels are moored at quayside for less than two hours, where they use Regulation compliant zero-emission technologies for all their electrical power demand whilst at berth, or where there is a need to make an unforeseen emergency port call for reasons of safety or for saving life at sea[3].

Failure to connect to the OPS without a valid exception will result in a penalty.

OPS supply faces its own challenges as there is no standard interface or “plug”, meaning that different ports are likely to have different interfaces between the shore and the ship, the source of the energy supplied needs to be taken into account and the storage – both on and offshore – for the battery packs is problematic.

PENALTIES - What penalties apply in cases of non-compliance?

The administering State of a “company” (i.e. the EU/EEA Member State with which the shipping company is registered) shall ensure that, for any of its vessels with a compliance deficit for GHG intensity on 1 June of the verification period, the company shall pay by 30 June of the verification period an amount equal to the FuelEU penalty resulting from the application of the formulas specified in Part B of Annex IV.

If a vessel has a compliance deficit for two consecutive reporting periods or more, that amount shall be multiplied by 1 + (n -1)/10, where “n” is the number of consecutive reporting periods for which the company is subject to a FuelEU penalty for that vessel. 

“Company” means the shipowner or any other organisation or person such as the manager or the bareboat charterer, which has assumed the responsibility for the operation of the vessel from the shipowner and has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention. We look into this in more detail in the next article.

Member States are required to have the necessary legal and administrative framework in place at national level to ensure the fulfilment of the obligations concerning the imposition, payment, and collection of the FuelEU penalties, and they must  endeavour to ensure that the revenue generated from the FuelEU penalties, or their equivalent financial value, is used to support the rapid deployment and the use of renewable and low-carbon fuels in the maritime sector.

Each Member State must ensure that any inspection of a vessel in a port under its jurisdiction, carried out in accordance with Directive 2009/16/EC, includes checking that the vessel holds a valid FuelEU Document of Compliance in accordance with Article 24.

Where a vessel fails to comply with the obligation to hold a valid FuelEU Document of Compliance for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of the Member State of the port of call may, in respect of a vessel not flying the flag of that Member State, and after giving the opportunity to the company concerned to submit its observations, issue an expulsion order.

Where the competent authority of the Member State of the port of call decides to issue an expulsion order, it shall notify that order to the Commission, the other Member States, and the flag State concerned through the FuelEU database.

Every Member State, with the exception of the Member State whose flag the vessel is flying, shall refuse entry to the vessel, which is subject to the expulsion order, into any of its ports until the company fulfils its obligations.

Where a vessel fails to comply with the obligation to hold a valid FuelEU Document of Compliance as set out in Article 24 for two or more consecutive reporting periods and enters into a port of the Member State whose flag it flies, the Member State concerned shall, while that vessel is in one of its ports, after giving the opportunity to the company concerned to submit its observations, order a flag detention until the company fulfils its obligations.

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