Maritime decarbonisation: five questions for 2025

Banks and Financiers – question four

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: 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 is 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.
- if you have any queries or concerns and would like to discuss matters related to biofuels in the maritime sector, consult our maritime decarbonisation experts who can advise and assist you further.

Related Expertise