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Maritime Decarbonisation: Five questions for 2025 gift wrapped - owners and charterers
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Maritime Decarbonisation: Five questions for 2025 gift wrapped - banks and financiers
Through 2025 fast-paced regulatory, technological and contractual change continued to drive maritime decarbonisation, with numerous fresh challenges emerging day-to-day. To assist banks and financiers in navigating the changing times, by focusing on the practical issues likely to impact their business directly, we illuminated throughout 2025 five key questions addressing important themes of the year.
2025 was a year in which maritime decarbonisation made headlines far beyond the maritime press. With provisional approval of the IMO Net Zero Framework in April, and postponement of the vote on its formal adoption in October, attracting global attention.
2025 was also a year in which the industry grappled with the first ever verification period of the EU Emissions Trading Scheme and first ever reporting period of FuelEU Maritime. The proposed extension of the UK Emissions Trading Scheme started to take shape in the form of final policy decisions, and the other national regulators advanced their plans for national level emissions regulation.
Commercially, the drive to adopt lower GHG intensity fuels has brought the maritime industry increasingly into contact with the biofuel and alternative fuels markets, and an entirely new compliance market has emerged in connection with FuelEU pooling. Meanwhile as the benefits of efficiency improvements continue to multiply many technical and technological advancements have been made, with associated financial and insurance structures developing alongside.
Throughout, contractual innovation has been essential. Whether responding to regulatory, commercial or technological change, defining specific parties’ responsibilities and liabilities, and aligning those within a wider eco-system of contractual relations, has been crucial to successfully navigating the shifting terrain.
‘Five questions for 2025 gift-wrapped’ brings together all five questions posed throughout 2025 and is accompanied by our very best wishes for 2026. We wish you a peaceful and prosperous year ahead and look forward to supporting you with any maritime decarbonisation queries you may have.
QUESTION 1: ARE YOU AN EU ETS ‘SHIPPING COMPANY’ WITHOUT KNOWING IT?
Legal context
The EU ETS regime imposes regulatory obligations on the "shipping company", including an obligation to surrender EU allowances in connection with the greenhouse gas emissions of vessels calling in the EEA (regardless of a vessel's country of registration or flag state).
The default position is that the registered owner of the vessel will be the "shipping company" (and therefore responsible for surrendering allowances). Although there are provisions which enable the compliance obligation to be shifted to another party, provided that various regulatory requirements are fulfilled.
Why does it matter
In cases where a bank or financier SPV is the registered owner of a financed vessel, the default position is that the SPV will be the "shipping company" and, amongst other obligations, obliged to surrender EU allowances in respect of the vessel's greenhouse gas emissions. This will be the case notwithstanding that responsibility for the operation of the vessel may have been passed to bareboat charterers pursuant to the terms of the bareboat charterparty.
Meeting the obligations of the EU ETS regime entails not only a financial cost for the "shipping company", but also requires registration of the "shipping company" with an administering authority in the EU and the opening of a Maritime Operator Holding Account for holding and surrendering EU allowances (which must be purchased at auction or on the secondary market, or acquired via the charterparty chain), alongside compliance with obligations related to the monitoring, reporting and verification of a vessel's greenhouse gas emissions on an annual basis.
Investor SPVs are often not well placed to respond to the significant administrative and technical burden of these obligations and in some instances may not be aware of them. A risk of non-compliance and penalties, such as financial, reputational and potential detention of vessels in, or expulsion from, the EEA, may therefore arise where the compliance obligation has not been identified and transferred to another entity.
What should you do
If you are financing vessels trading to the EEA and likely to be the registered owner by way of an SPV, we recommend you:
- check which SPVs and vessels are concerned;
- check what steps have been taken to comply with the EU ETS regime obligations or transfer those to another entity in accordance with the regulatory requirements;
- if you have any queries or concerns, consult Stephenson Harwood's maritime decarbonisation experts who can advise and assist you further.
QUESTION 2: WHEN FINANCING THE PURCHASE OF A VESSEL THAT HAS BEEN TRADING TO EUROPE, DOES HISTORICAL EU MRV AND EU ETS COMPLIANCE MATTER?
Legal context
Subject to specific exemptions, vessels of and over 5,000GT carrying cargo and passengers for commercial purposes have been within the EU MRV regime since 1 January 2018 and within the EU ETS regime since 1 January 2024. Offshore vessels and commercial cargo vessels of and over 400 GT joined the EU MRV on 1 January 2025.
If vessels within the EU MRV have traded to Europe obligations concerning the monitoring, reporting and verification of the vessel's greenhouse gas emissions will have arisen. If vessels within the EU ETS have traded to Europe obligations concerning the surrender of emission allowances will also have arisen.
Penalties for non-compliance with the EU MRV and EU ETS include the publication of names, financial penalties and, following two years consecutive non-compliance, expulsion of vessels from, or detention in, Member States.
Why does it matter
Whilst the EU ETS penalty regime provides that historical non-compliance penalties would be levied on the ships of the non-compliant shipping company (i.e. the Sellers or previous owners or managers), the EU MRV penalty regime provides that historical non-compliance penalties would be levied on the non-compliant vessel.
Historical compliance is therefore of interest as vessels with a history of non-compliance could be exposed to expulsion or detention risks which, if realised, could impact the commercial viability of the vessel and repayment capacity of borrowers.
What should you do
- Check whether any transactions concern vessels which fall within the scope of the EU MRV or EU ETS;
- undertake due diligence in respect of historical compliance to further appraise the risk; and
- if you have any queries or concerns, consult our maritime decarbonisation experts who can advise and assist you further.
QUESTION 3: THE BAREBOAT CHARTERERS OF SHIPS YOU FINANCE (AND ARE THE REGISTERED OWNERS OF) SAY A MARITIME OPERATOR HOLDING ACCOUNT NEEDS TO BE OPENED IN YOUR NAME, WHAT DOES THIS MEAN?
Legal context
The EU Emission Trading Scheme (EU ETS) governs maritime emissions produced by vessels on voyages to, from and within the EU from 1 January 2024. Throughout 2024 'shipping companies' were required to monitor their greenhouse gas emissions. In 2025 'shipping companies' are required to report their 2024 emissions (by 31 March 2025) and surrender (by 30 September 2025) a quantity of EU allowances (EUAs) calculated on the basis of the 2024 emissions reported.
The default position under the EU ETS regime is that the registered owner of the vessel will be the 'shipping company'. For lenders who are registered owners of vessels via SPVs then, absent a transfer of EU ETS compliance obligations to the ISM Code party by way of mandate, the obligation to surrender allowances will fall on the lender.
In practical terms EU ETS matters are likely being handled by bareboat charterers or their managers without input from the registered owner, however, when it comes to the surrender of allowances the input of the lender will be needed. This because a special type of Union Registry account, a Maritime Operator Holding Account (MOHA), is needed to surrender allowances and must be opened in the name of the 'shipping company'.
Why does it matter
Without a MOHA the 'shipping company' cannot surrender EUAs. If the 'shipping company' has not surrendered EUAs by the 30 September 2025 deadline it will be in breach of the EU ETS rules and exposed to statutory penalties.
The EU ETS regime provides that where EUAs are not surrendered in accordance with the EU ETS rules financial penalties will be imposed on 'shipping companies'. Although the bareboat charterparty will typically provide for bareboat charterers to be responsible for losses and penalties incurred in connection with the operation of the vessel, recovery of EU ETS financial penalties from the bareboat charterer may be complicated where the penalty has resulted from the lender's lack of co-operation and non-compliance.
Furthermore, after two years of non-compliance the ships of the 'shipping company' could be subject to expulsion from Member States or detention in a Member State if the flag state. These are sanctions that could significantly impact the commercial viability of a vessel and consequently the repayment capacity of borrowers, so should be of concern to lenders.
What should you do
- Check whether you are the registered owner of any vessels within scope of the EU ETS regime;
- engage with bareboat charterers to understand the steps they are taking to ensure compliance with the EU ETS regime and co-operate with them in order to open MOHAs where needed; and
- if you have any queries or concerns, or would like to discuss future transfer of the compliance obligation to another party, consult our maritime decarbonisation experts who can advise and assist you further.
QUESTION 4: YOU ARE INVESTING IN A BIOFUEL PRODUCTION FACILITY THAT INTENDS TO PRODUCE SUSTAINABLE BIOFUEL FOR MARINE CONSUMPTION, WHAT SUSTAINABILITY STANDARDS SHOULD THE BIOFUEL COMPLY WITH?
Legal context
The International Maritime Organisation (IMO), the global regulator of shipping, recently approved new rules setting fuel standards for shipping. Pursuant to those rules (if adopted and accepted by the IMO later this year) the greenhouse gas intensity of biofuels used by ships from 2028 onwards will be assessed using a lifecycle assessment methodology taking account of both the upstream and downstream impacts of biofuels. The lifecycle assessment methodology is currently being reviewed, and it is not yet clear to what extent the pre-existing criteria for biofuels will be altered.
Meanwhile, the EU has already implemented regulations setting out detailed sustainability and greenhouse gas emission reduction requirements for biofuels used in the maritime sector. These are: 1) The Renewable Energy Directive (RED III), and 2) FuelEU Maritime (FuelEU).
RED III sets targets for the use of renewable sources of energy within the Union. To contribute to such targets, biofuels must meet the prescribed sustainability and greenhouse gas emissions savings threshold. RED III also establishes a Union Database for biofuels to improve traceability and to avoid double counting.
FuelEU applies to passenger and cargo ships over 5,000 gross tonnes sailing to, from or between EEA ports from 2025 onwards and imposes limits on the permitted greenhouse gas intensity of energy used by such ships. Ships can reduce the greenhouse gas intensity of energy used by a number of means, including through the use of biofuels certified to be compliant with RED III and which meet the additional sustainability criteria of FuelEU.
Why does it matter
For ships sailing to, from or within the EU, biofuels that do not meet the sustainability criteria set out in RED III and the additional sustainability criteria of FuelEU (which pertain to particular feedstocks) will not be awarded the lower emission factor attributed to fully compliant biofuels, and may even be awarded the emissions factor of the least favourable fossil fuel comparator. A non-compliant or partially compliant biofuel will not therefore facilitate compliance with FuelEU in the manner that a fully compliant biofuel would, will therefore be less attractive to ships and will not command the same market price as a fully compliant biofuel. The position under the new IMO rules and lifecycle assessment methodology is likely to be similar although the detail of the rules and standards may vary.
As the sustainability characteristics of a biofuel will directly influence its market price, identification of and compliance with the relevant rules applicable to ships is imperative if biofuel is to be produced for sale to marine markets.
What should you do
- Determine who the intended end-users of the fuel will be, e.g. does the target market comprise ships calling at EEA ports?
- identify the applicable rules pertaining to issues such as feedstock, land-use, production methods and greenhouse gas emissions reductions and assess whether the biofuel produced will be compliant; and
- if you have any queries or concerns, or would like to discuss the issues arising, consult our maritime decarbonisation experts who can advise and assist you further.
QUESTION 5: A SHIP YOU FINANCE IS MANAGED BY A TECHNICAL MANAGER WHO IS RESPONSIBLE FOR ISM CODE COMPLIANCE, DO THE FUELEU MARITIME PROVISIONS OF THE SHIP MANAGEMENT CONTRACT MATTER TO YOU AND WHAT MORE CAN YOU DO TO PROTECT YOUR POSITION?
Legal context
In contrast to the EU Emission Trading Scheme, where the default compliance entity is the shipowner (with the option of transferring the compliance obligation to the entity responsible for ISM Code compliance), the entity statutorily responsible for compliance with FuelEU Maritime is the ISM Code company, i.e. typically, the ship manager.
While ship managers of time-chartered vessels will have little involvement in decisions relating to the fuelling of the ship, and thereby little influence on the greenhouse gas intensity 'compliance balance' the ship generates, ship managers have a very important role to play in the procedural aspects of FuelEU compliance. This includes ensuring that a FuelEU Monitoring Plan is submitted to the verifier, key data is reported, each ship's individual FuelEU Report is submitted and, crucially, that any FuelEU Penalties due are paid.
Why does it matter
Pursuant to Article 24(1) of FuelEU ships sailing to, from or between EU Member State ports must from 30 June 2026 onwards hold a valid FuelEU document of compliance corresponding to the reporting periods in which the ship traded to, from or within the EU (with 2025 being the first reporting period). Where a ship does not hold a valid FuelEU document of compliance the provisions of Article 25 impose heavy sanctions, including "effective, proportionate and dissuasive" sanctions to be imposed by EU Member States, and, where the ship is non-compliant for two consecutive reporting periods or more:
- expulsion of the ship from all EU Member States except the flag state, and
- detention of the ship in the flag state.
- Notably, the most draconian of the sanctions, expulsion and detention, impact the ship and thus the ship owner rather than the ship manager directly, would severely hinder the trading of the ship, would have a negative impact on the ship owners' cash flow and thereby the ship owner's ability to meet its commitments under any finance agreements.
- Chronic non-compliance therefore poses a serious concern for financiers. The terms of the ship management agreement, the extent to which they oblige and enable the ship manager to comply with FuelEU and the remedies afforded to ship owners where there are failures of compliance, should therefore be of interest to financiers. This is true in relation to management agreements entered into in the future and those agreements in force today, which may have been entered into prior to FuelEU being a consideration for the parties and which may therefore stand to be updated.
- Robust terms in the ship management agreement should not, however, be the only protection sought by financiers. It is recommended that the ship manager's undertaking is also updated to take account of the manager's contractual and statutory FuelEU obligations, create obligations owed to the financier directly and provide for remedies that can be exercised by the financier directly against the ship manager.
What should you do
- Check ship management agreements and ship managers' undertakings for provisions related to compliance with FuelEU Maritime.
- Ascertain whether the provisions impose sufficient obligations on ship managers and give ship owners and financiers suitable remedies in the event of non-compliance.
- If you have any queries or concerns, or would like to discuss any matters related to FuelEU compliance, consult our maritime decarbonisation experts who can advise and assist you further.
