The FuelEU GHG intensity limit and the three routes out of a deficit (EU Regulation 2023/1805)

FuelEU regulates the greenhouse gas intensity of the energy used on board, not a total volume of emissions. Where the yearly average exceeds the limit the ship ends in deficit, and the Regulation opens three routes out of that deficit, each with a different restriction attached.

The limit is the reference value cut by a percentage that steps up

2. The limit referred to in paragraph 1 shall be calculated by reducing the reference value of 91,16 grams of CO2 equivalent per MJ by the following percentage:

From	Percentage cut from the reference value
1 January 2025	2%
1 January 2030	6%
1 January 2035	14,5%
1 January 2040	31%
1 January 2045	62%
1 January 2050	80%

The reference value is 91,16 grams of CO2 equivalent per MJ. That what is regulated is a yearly average matters too. One bad voyage does not put the ship in deficit; the judgement is on the year averaged.

The intensity itself is calculated as the amount of GHG emissions per unit of energy under the methodology in Annex I.

The first route is banking, and it closes when the document issues

A surplus may be banked to the same ship’s compliance balance for the following reporting period. The banking is recorded in the FuelEU database subject to approval by the verifier. When that door closes is written into the provision.

The company may no longer bank the compliance surplus once the FuelEU document of compliance has been issued.

Once the document of compliance has issued, banking is no longer possible. The decision has to be made before the document is issued.

The second route is borrowing, and it carries interest

Where the period ends in deficit, an advance compliance surplus of the corresponding amount may be borrowed from the following reporting period. What is repaid is more than what was borrowed.

The advance compliance surplus shall be added to the ship’s compliance balance in the reporting period and the advance compliance surplus multiplied by 1,1 shall be subtracted from the same ship’s compliance balance in the following reporting period.

The borrowed amount is added to this period’s balance, and that amount multiplied by 1,1 is subtracted from the following period’s. The cost of deferring is written into the provision as a number.

Two restrictions attach. One is size: nothing may be borrowed beyond 2 % of the limit in Article 4(2) multiplied by the ship’s energy consumption. The other is frequency: it may not be borrowed for two consecutive reporting periods. The route of deferring a deficit indefinitely is closed.

The third route is pooling, and it has three validity conditions

The compliance balances of two or more ships may be pooled to meet the requirements. A ship’s balance may not be included in more than one pool in the same reporting period. Two separate pools may be used, one for the GHG intensity target and one for the renewable fuel subtarget.

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.

Unpacked, the three conditions are: the total pooled compliance is positive; a ship that was in deficit is not in a deeper deficit after the allocation; and a ship that was in surplus is not in deficit after the allocation. The last two stop a pool being used to push a burden onto a particular ship.

The procedure runs through the database. The company registers in the FuelEU database its intention to include the ship’s balance in a pool, the allocation of the total pool balance to each ship, and the choice of verifier for verifying that allocation. Where the ships in the pool are controlled by two or more companies, all the companies concerned have to validate those details in the database.

Some ships cannot join a pool at all: those not complying with the obligation in Article 24.

After the three routes, the verifier records the balance

Before 1 May of the verification period, the verifier records in the FuelEU database the verified compliance balances of the ship, after the possible application of Articles 20 and 21. Banking, borrowing and pooling have to be settled before that point.

Worth confirming

The passages above come from Regulation 2023/1805. The methodology for the intensity calculation and the emission factors are set in the Annexes, and the Commission may by delegated act add factors for new sources of energy or adapt existing ones. Whether this period’s balance is in surplus or deficit, whether borrowing was used in the previous period, and whether another ship in the same company is available to pool with are where the actual judgement starts.