Oceanscore: Shipping industry could profit €250M from FuelEU

According to Oceanscore, FuelEU Maritime is not just a cost to shipping in contrast to EU ETS – it does actually inject money into the industry.

As an earlier OceanScore analysis has shown, the sum of all compliance deficits of all vessels trading with a GHG intensity above threshold according to FuelEU is about 2.1mMT of CO2e. Vessels generating a surplus (mainly LNG and LPG carriers) generate a surplus of around 1.3mMT of CO2e.

For the market to be in balance, a net deficit of around 0.8mMT of CO2e thus needs to be closed and let’s assume that this will happen through the use of biofuels. Without going into too much detail, this use of bio fuel will require a somewhat higher volume of bunkers to be procured due to the lower LCVs of these fuels, will come at a higher cost and generate in return quite substantial savings with regards to EU ETS.

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At current fuel prices, exchange rates, and with the EU ETS phased in at 70%, the cost to generate 1 metric tonne (MT) of CO₂e compliance through burning biofuels (such as UCOME) is approximately €230 net.

With the shipping industry facing a net CO₂e compliance deficit of around 0.8 million tonnes (MT), bridging this gap would cost just under €200 million. While this may seem surprisingly low to some, it’s worth noting that LNG and LPG carriers, which were included in this analysis, already operate on LNG or LPG. As such, their share of emissions savings and thus compliance surplus is generated without incurring additional fuel costs.

Where does the extra revenue come from?

Container ships account for approximately 28% of total maritime emissions, while ferries and cruise vessels contribute another 20%. These segments are where emissions pricing is the most transparent and direct. We analysed charter party agreements (COAs) and FuelEU surcharges, assuming these reflect the cost of compliance and include emissions-related penalties in many cases.

Penalties are typically assessed based on MT of VLSFOe above the FuelEU threshold. For this analysis, we converted that into MT of CO₂e for comparison. The resulting penalty equates to roughly €640 per MT of CO₂e.

According to Oceanscore, assuming that only 50% of operators successfully pass on emissions costs to customers, either cargo owners or passengers and do so at two-thirds of the penalty rate, the resulting revenue increase across the industry could reach around €450 million.

The industry net gain would be in the range of €250m. If this is sustainable remains to be seen, competition tends to wipe out windfall profits over time.

Who will capture the windfall?

As maritime decarbonization regulations reshape the industry the key question becomes whether by whom this potential net gain benefits – the charterers, shipowners, or managers.

This outcome will vary by segment and depend on the type of charter agreement, the relative market power of each party and their strategic readiness. Charterers may aim to pass on more of the cost to end customers than they reimburse owners, while ship managers, who are ultimately responsible under FuelEU, will aim to keep their compliance costs lower than what they can recover from owners.

The case for ship managers

Third-party ship managers, who typically operate on thin margins, face the greatest challenge. They are responsible not only for the compliance risks but also for the added administrative and operational workload. This includes the cost of upgrading reporting and verification systems.

When these factors are considered, the cost of compliance for ship managers could quickly rise to €3,000–€4,000 per vessel per year, or more for smaller operators.

It’s critical that they are fairly compensated for their role in ensuring regulatory compliance and maintaining operational standards, Oceanscore highlights.