Maritime decarbonisation: five questions for 2025
Fast-paced regulatory, technological and contractual change continues to drive maritime decarbonisation, with numerous fresh challenges emerging day-to-day.
To assist you in navigating these changing times, by focusing on the practical issues likely to impact your business directly, we continue 2025 by illuminating five key maritime decarbonisation questions.
This week we ask: 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.
