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Maritime Decarbonisation: Five questions for 2025 gift wrapped - owners and charterers
Through 2025 fast-paced regulatory, technological and contractual change continued to drive maritime decarbonisation, with numerous fresh challenges emerging day-to-day.
To assist owners and charterers 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: YOUR VESSEL LEFT THE EEA BEFORE 1 JANUARY 2024 BUT WAS STILL PERFORMING ITS DEPARTURE VOYAGE ON 1 JANUARY 2024, ARE ITS DEPARTURE VOYAGE EMISSIONS WITHIN THE EU ETS?
Legal context
The EU ETS imposes an obligation on "shipping companies" to surrender EU allowances in connection with the greenhouse gas emissions of vessels on voyages to, from and within the EEA. Now that the 2024 reporting year has concluded, parties are preparing to report their 2024 emissions (in time for compliance with the 31 March 2025 deadline) and acquire EU allowances to cover those emissions (in time for compliance with the 30 September 2025 deadline).
2024 is the first year the EU ETS has applied to emissions from vessels and there are at least two schools of thought as to how emissions from vessels which left the EEA before 1 January 2024, but were still performing their departure voyage on 1 January 2024, should be counted.
Why does it matter
If a portion of the departure voyage emissions fall within the EU ETS an obligation to surrender allowances in connection with those emissions arises. Whilst charterparties are likely to make provision for EU allowances to be collected and provided along the chain, disputes may arise where the EU ETS regime is interpreted differently by different parties. This could leave the "shipping company" short of EU allowances, if those are not transferred along the chain in good time to meet the surrender deadline, and facing increased costs where EU allowances need to be acquired at short notice and/or at the "shipping company's" own cost to avoid non-compliance.
What should you do
If you are the "shipping company" in connection with a vessel which was still performing a departure voyage on 1 January 2024, or a party in the charterparty chain of such a vessel:
- check whether allowances in connection with that voyage have been collected/transferred along the chain;
- address calculation issues and regulatory and contractual interpretation issues with counterparties as soon as possible; and
- if you have any queries or concerns, consult Stephenson Harwood's maritime decarbonisation experts who can advise and assist you further.
QUESTION 2: WHEN SELLING A VESSEL THAT HAS BEEN TRADING IN EUROPE, DO YOU NEED TO CONSIDER CONTINUING OBLIGATIONS UNDER THE EU MRV AND EU ETS?
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.
Both the EU MRV and EU ETS contain provisions imposing obligations in the event of a change of company (which will often arise upon the sale of a vessel), including obligations which fall on the outgoing company.
Why does it matter
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. Non-compliance may also breach contractual warranties.
Upon the sale of a vessel there is a risk that ongoing obligations may be overlooked, leading to non-compliance and exposing parties to statutory penalties and/or contractual claims.
What should you do
- check whether allowances in connection with that voyage have been collected/transferred along the chain;
- address calculation issues and regulatory and contractual interpretation issues with counterparties as soon as possible; and
- if you have any queries or concerns, consult Stephenson Harwood's maritime decarbonisation experts who can advise and assist you further.
QUESTION 3: SHOULD YOU CHECK YOUR CHARTERPARTY EU ETS PROVISIONS NOW?
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.
EUAs can be acquired at auction on the primary market (the European Energy Exchange), by way of purchase on the secondary market (e.g. ICE) or by way of transfer from third parties – such a contractual counterparties in a charterparty chain.
Why does it matter
Parties with compliance obligations under the EU ETS regime ('shipping companies') will in many instances be relying on the charterparty chain to obtain the EUAs the 'shipping company' is required to surrender by 30 September 2025. The effectiveness of this source of supply depends, however, on i) the terms of the contracts in the chain, and ii) the diligence with which the terms have been administered.
Whilst the BIMCO ETS clause for time charterparties provides for a monthly transfer of allowances from charterers to owners, other provisions work differently. Some may provide for annual transfer of allowances or feature transfer obligations falling very close to the surrender deadline.
Any gaps in supply of EUAs not identified well ahead of the surrender deadline could lead to parties struggling to meet their own EUA obligations, whether those entail surrendering EUAs to the regulator or providing EUAs to another contractual counterparty, or having to purchase EUAs at a market high (EUAs are tradable, transferable and do not have a fixed price) if trying to secure supply close to the compliance deadline. It would therefore be preferable for parties to identify and resolve gaps in supply well ahead of the 30 September surrender deadline.
What should you do
- check your charterparties to identify obligations up and down the chain.
- check what quantity of allowances are/were due to be transferred in respect of 2024 emissions and the quantity actually available to be transferred or which have been transferred; and
- if you have any queries or concerns, or would like to discuss how the position may be improved for the future, consult our maritime decarbonisation experts who can advise and assist you further.
QUESTION 4: YOU INTEND TO REDUCE GHG INTENSITY AND EMISSIONS THROUGH THE USE OF BIOFUELS, WHAT DOES THAT MEAN FOR YOUR CHARTERPARTIES AND FUEL SUPPLY CONTRACTS?
Legal context
FuelEU Maritime (FuelEU) regulates from 1 January 2025 the greenhouse gas (GHG) intensity of energy used on board ships. From 2028 the International Maritime Organisation (IMO)'s recently approved Net Zero Framework (NZF) will (if adopted and accepted by the IMO later this year) regulate the GHG intensity of marine fuels on a global basis. These two pieces of regulation amplify the incentive to use biofuels already established by the IMO's Carbon Intensity Indicator (CII) regulations and the EU's Emissions Trading Scheme (EU ETS).
For time charterers with responsibility for fuelling the ship, and to whom liability for penalties and costs associated with FuelEU, NZF, CII and EU ETS will likely be transferred under the time charterparty, the uptake of biofuels is likely to be an attractive and available mechanism for reducing GHG intensity and emissions. However, the typical terms of a time charterparty do not adequately address the issues which arise when introducing biofuels to the ship and amendments will be needed.
Why does it matter
The time charterparty sets out important provisions relating to the fuelling of the ship, including the physical specification of the fuel to be provided by Charterers, the way the fuel should be handled and how quantities of fuel on board at delivery and redelivery of the ship are to be dealt with as between Owners and Charterers. However, time charterparties do not usually address the issues arising when the ship is fuelled on biofuel, such as:
- owners' competence to handle different types of fuels,
- when and under what circumstances biofuel may be consumed, or
- how biofuel, which typically has a higher value than fuel usually consumed by ships, is to be handled on delivery and redelivery.
The parties to a time charterparty therefore need to consider the issues arising where biofuels are to be used, decide how those issues will be handled and how risks will be allocated and amend the terms of the charterparty accordingly. Charterers will also need to go further and consider and revise the terms of fuel supply agreements, which do not typically address issues such as:
- the required GHG intensity of fuel supplied,
- which feedstocks are permissible and prohibited, or
- the provision of proof of sustainability documentation.
Addressing such issues is important because the benefits of using biofuel (reduced GHG intensity and emissions) can only be counted under the regulations if the biofuel meets sustainability criteria set out in the relevant regulation. If a biofuel (and its associated proof of sustainability documentation) does not comply with those criteria it 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.
Furthermore, biofuels are expensive and capable of damaging the vessel if handled incorrectly. It is in Charterers' interests to ensure they are protected from any mishandling of biofuel by Owners and carefully define when biofuels are to be consumed and whether and at what price title to any biofuels on board at delivery or redelivery is transferred between Owners and Charterers.
Charterers failing to address key issues and provide for those contractually, in the time charterparty and the fuel supply contract, risk a situation in which they have purchased an expensive fuel but are unable to realise the anticipated benefits whilst also being liable for penalties and costs incurred pursuant to emissions regulations.
If the relevant issues are addressed and Charterers are able to realise the anticipated benefits of using biofuels, a further consideration arising is how to approach the pooling of any surplus where the required level of compliance has been exceeded and a transferable and tradable benefit is rendered.
What should you do
- For existing and future charters, check whether there is an intention to use biofuels and whether biofuel specific issues are addressed in the relevant time charterparties and fuel supply agreements.
- Irrespective of whether there is an intention to use biofuels, check the provisions governing the transfer of title of fuel on board at the time of delivery in case the previous charterers have used biofuel.
- If you have any queries or concerns, or would like to discuss biofuels related issues, consult our maritime decarbonisation experts who can advise and assist you further.
QUESTION 5: WHAT KEY CONSIDERATIONS ARISE IN TIME CHARTERPARTIES IN RESPECT OF FUELEU POOLING AND/OR COMPENSATION FOR A COMPLIANCE SURPLUS?
Legal context
As of 1 January 2025, FuelEU Maritime has applied well-to-wake greenhouse gas emission intensity limits to energy used on board ships trading in the EU. If the limits for a reporting period (i.e. calendar year) are exceeded, FuelEU penalties are payable and currently set at €2,400 per equivalent metric tonne of very low sulphur fuel oil (VLSFO).
To assist with compliance, FuelEU Maritime contains flexibility mechanisms permitting 'borrowing' of an advance compliance surplus, and 'banking' of an existing compliance surplus to offset against future compliance deficits. Vessels can also enter a pooling arrangement to trade compliance surplus, allowing over-compliant vessels to generate revenue and under-compliant vessels to improve their compliance at an attractive price. Consequently, as time Charterers will typically have responsibility for fuelling the ship and so will wish to have a stake in any compliance surplus generated, FuelEU introduces new time charterparty considerations additional to those relating purely to compliance with the Regulations.
Why does it matter
Whilst there are regulatory parameters for pooling, such as the restriction on the number of pools a ship can participate in and the verification requirements for pools, FuelEU is silent on most of relevant issues; leaving these to be worked out as matters of private contract. The terms of the time charterparty are therefore critical in determining important issues, such as:
- whether Owners or Charterers have the benefit of a compliance surplus,
- whether the position differs in relation to reporting periods falling fully within the charterparty vs. reporting periods falling partly within the charterparty, and
- which party will effect pooling.
Where Charterers are not entitled to pool a compliance surplus generated in part by their fuelling of a ship, it is likely Charterers will seek compensation from Owners. This gives rise to a second set of contractual considerations concerning the valuation of a compliance surplus. These include:
- whether valuation will be by reference to the cost of generating the surplus, its potential value upon pooling or some other benchmark,
- the relevant sources of data used for valuation purposes, including relevant dates and locations if bunker indices are used,
- whether any energy consumption is to be excluded from valuation calculations, and
- whether adjustments are to be made in respect of the impact of the compliance balance of previous reporting periods, including any banking or borrowing decisions.
As FuelEU introduces new concepts and practices for the shipping industry, and the industry has not yet experienced even one full compliance cycle, there is a lack of settled norms and mechanisms for parties to adopt or fine tune. Neither are there established customs which a Court or Tribunal could look to when interpreting a time charterparty, and seeking to ascertain what the parties intended, should disputes in connection with pooling and compensation later arise.
In an era of creativity and experimentation, while the industry works out how to respond to the opportunities and risks presented by FuelEU, the importance of the express terms of the time charterparty is elevated.
The complexity of the territory, many possible factual permutations and risk of exposure to unanticipated liabilities (or loss of expected benefits) should not be underestimated. Addressing the issues thoroughly and methodically, and capturing precisely the parties' intended meaning, will therefore be key to protecting Owners and Charterers.
What should you do
- Check your existing and upcoming charterparties for any provisions relating to FuelEU.
- Ascertain whether the provisions are sufficiently clear and precise, cover a full range of pooling and/or compensation scenarios and address all the relevant issues.
- If you have any queries or concerns, or would like to discuss FuelEU pooling, pooling agreements, compensation provisions or other time charterparty terms, consult our maritime decarbonisation experts who can advise and assist you further.
