FuelEU Maritime Clause for SHIPMAN 2024

The FuelEU Maritime Regulation is a part of the EU’s “Fit for 55” package intended to fight climate change by reducing greenhouse gas emissions in shipping.  It aims to achieve a reduction in the EU’s net greenhouse gas emissions by at least 55% by 2030. It supplements the EU Emissions Trading System, CII ratings and other decarbonisation initiatives.

FuelEU Maritime sets well-to-wake greenhouse gas (GHG) emission intensity requirements on energy used on board ships trading in the EU from 2025. The yearly average greenhouse gas (GHG) intensity of all energy used on board, measured as GHG emissions per energy unit (gCO2e/MJ), needs to be below a required level. The GHG emissions are calculated from a well-to-wake perspective, including emissions related to extraction, cultivation, production, transportation of the fuel and emissions from energy used on board the ship. Under the Regulation, vessels’ GHG intensity rating is to be reduced in steps, with a 2% reduction in 2025 and up to, ultimately, an 80% reduction by 2050.

In the context of FuelEU Maritime, the role of the ship manager is of great importance due to the fact that the ISM (International Safety Management) company remains the responsible entity under this regulation, regardless of whether this entity is the registered owner, bareboat charterer, or a third-party technical manager such as a ship manager. Whereas with the EU ETS, the EU was entrusted to interpret the term "shipping company", no such mandate was given under FuelEU Maritime.

Drafting Team

The FuelEU Maritime Clause for SHIPMAN 2024 is the result of a collaborative and consensual process between owners, managers and legal experts. BIMCO is grateful to the drafting team for their considerable time, effort and commitment in producing the FuelEU Maritime Clause for SHIPMAN 2024:

• John Freydag, Harper Petersen
• Juan J. Fernandez-Ricoy, Empresa Naviera Elcano, S.A.
•  Harry Sarantidis, Navigare Capital Partners A/S
• Gaurav Rajora, Fleet Management
• Sebastian Hardenberg, BSM
• Dora Costa, V Ships
• Alessio Sbraga, HFW

BIMCO Secretariat:

• Stinne Taiger Ivø, Contracts
• Natalie Wong , Contracts & Clauses
• Carl Wilhelm Lindahl, Contracts & Clauses
• Gudrun Janssens, Intergovernmental Engagement

As part of the development work, the subcommittee consulted a large group of stakeholders engaged in shipping and decarbonisation. BIMCO would like to thank them all for their support and valuable input to the process.

Explanatory Notes

These explanatory notes are intended to provide an insight into the thinking behind some of the key subclauses in the FuelEU Maritime Clause for SHIPMAN 2024. They also explain how the clause is intended to operate and the allocation of responsibilities and costs between the parties. If you have any questions about the clause, please contact us at contracts@bimco.org and we will be happy to assist.

Key Features of the Clause

Definitions

BIMCO FuelEU Maritime Clause for SHIPMAN 2024

“FuelEU Penalty”: the reference to the “multiplier in this definition is to address situations where a vessel has a compliance deficit for two consecutive reporting periods or more during the charter period. Under Article 23(2) of FuelEU Maritime, the penalty shall be multiplied by 1 + (n -1)/10, where n is the number of consecutive reporting periods for which the vessel is subject to a FuelEU penalty.

“GHG Intensity”: the baseline is 91,16 g CO₂ equivalent per MJ based on the MRV data for voyages performed to, between or from the EU/EEA. Under FuelEU Maritime, the vessels’ GHG intensity rating is to be reduced in steps, with a 2% reduction in 2025 and up to, ultimately, an 80% reduction by 2050.

“Verification Period”: in practice, this will include the following keys steps as of the date of issuance of this clause:

• 31 January 2026 (thereafter, by 31 January every following year) of the verification period: the data and information monitored and recorded for the previous reporting period should be submitted to the verifier as a FuelEU report for each vessel. Subsequently, the report submitted will be assessed and verified by a FuelEU verifier, and the GHG intensity and verified compliance balance of the vessel will be recorded in the FuelEU database by 31 March 2026 (thereafter, by 31 March every following year).
• 30 April (thereafter, by 30 April every following year) of the verification period: any borrowing and pooling can only be registered in the FuelEU database after the FuelEU report has been verified and recorded in the FuelEU database by the verifier. Such registration shall be done no later than 30 April of the verification period.
• 30 June (thereafter, by 30 June every following year) of verification period:

if the vessel has positive compliance balance, banking of such can be registered before issuance of the FuelEU Document of Compliance (i.e. 30 June). If the vessel has a zero or positive compliance balance meaning that the vessel meets the GHG intensity limit (89,34 grams of CO₂ equivalent per MJ for the period 2025-2029) applicable for the relevant reporting period, the verifier will issue the FuelEU Document of Compliance.

If the vessel has a negative compliance balance i.e. a deficit, the Owners shall pay the FuelEU penalty for that reporting period and the competent authority of the administering state will issue the FuelEU Document of Compliance.

“Voyage”: is defined under FuelEU Maritime by reference to the EU MRV (Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and amending Directive 2009/16/EC) which states that it is any movement of a vessel that originates from or terminates in a port of call.

It is important to note that the FuelEU Maritime applies differently to the following three types of voyages (Article 2(1)):

• Intra-European Union (EU)/European Economic Area (EEA) Voyages: in respect of the entirety of (100%) the fuels/energy used on voyages between ports of call under the jurisdiction of EU/EEA Member States.
• Voyages to or from Outermost Regions: for voyages that start or end in an outermost region under the jurisdiction of a Member State, FuelEU Maritime applies to vessels in respect of 50% of the fuels/energy used.
• International Voyages: for voyages between a port of call under the jurisdiction of a EU/EEA Member State and a port of call under the jurisdiction of a third country (or vice versa), FuelEU Maritime applies to vessels in respect of 50% of the fuels/energy used.

A "port of call" under FuelEU Maritime (as of the date of issuance of this clause) means a port where vessels stop to load or unload cargo or to embark or disembark passengers. However, the following are not considered a “port of call" (Article 3(10) of FuelEU Maritime):

• The ship stops in the port only for the purpose of:

- refuelling
- obtaining supplies
- crew relief
- dry-dock
- making repairs to the ship and/or its equipment
- taking shelter from adverse weather

• If the ship stops in the port because it is in need of assistance or in distress
• If the stop is rendered necessary by search and rescue activities
• If ship-to-ship transfers are carried out outside the port
• If containerships stop in a neighbouring container transhipment port which is listed in the implementing act under Article 2(2) of FuelEU Maritime.

Subclause (a)

Both owners and charterers are to acknowledge that the vessel needs to comply with FuelEU Maritime. The managers (or its nominee) shall be the responsible compliance entity meaning they shall fulfil certain obligations under the regulation; however, they are not responsible for ensuring compliance. The rationale here being that the ship manager is not the entity taking decisions regarding the types of fuel and energy supplied, nor borrowing, banking and pooling.

Subclause (b)

This subclause is intended to provide transparency for the managers of the vessel’s FuelEU Maritime history. It could be a partial FuelEU report covering part of a reporting period and/or the previous two reporting periods – depending on the circumstances. At the start of 2025, there would be no information recorded/within scope for the last two reporting periods. Furthermore, if the vessel has not traded to, from or within the EU/EEA, there would not be any voyages within scope of FuelEU Maritime.

Under the BIMCO FuelEU Maritime clause, there is a requirement for the owners to provide the partial FuelEU report to the managers within one month (mirroring the regulatory requirements for the previous DOC holder to upload such report) while the verified FuelEU report is to be provided seven days after such FuelEU report is received.

Subclause (c)

The parties should work together to prepare the FuelEU Monitoring Plan as the owners will have information regarding intended compliance strategies including expected types of fuel and energy to be supplied. The managers are required to submit the FuelEU Monitoring Plan under the regulation. It is important to note that owners need to notify the managers if there are any changes that need to be recorded in the FuelEU Monitoring Plan so that the managers have an opportunity to update and/or modify and re-submit as required.

Subclause (d)

This subclause is intended to enable owners to supply biofuels and other alternative fuels so that they can take the benefits in FuelEU Maritime calculations stated in FuelEU Maritime and to allow managers to receive the relevant bunker documentation required by FuelEU Maritime for monitoring and reporting.  To this effect, the owners are to provide managers with BDNs/EDNs in accordance with FuelEU Maritime and, if owners supply fuels other than fossil fuels (e.g. biofuels and other alternative fuels like green methanol) and wish to take the benefit of lower emission factors in FuelEU Maritime calculations, they should provide the required documentation, sustainability certification and generally the documentation and information mentioned in FuelEU Maritime. The managers will do the monitoring and reporting based on the information received and will not be responsible for the accuracy of the data and information or failure of owners to provide such information.

Subclause (e)

This subclause is intended to allow the parties to agree on a frequency on which the aggregated compliance balance and potentially the projected aggregated compliance balance is provided. This allows owners to be regularly updated and to keep track of the aggregated compliance balance during each reporting period. Furthermore, this notification will enable the owners to determine their strategy on dealing with FuelEU Maritime.

For the sake of clarity, the “aggregated Compliance Balance” is the cumulative compliance balance of the vessel at any point in time during each reporting period split into per month/per voyage basis. This may not be identical to the monthly compliance balance. An example where reporting is made on a monthly basis is illustrated below:

The aggregated compliance balance effectively represents the managers’ exposure to payment of the FuelEU penalty as the responsible compliance entity. An independent third-party validator may validate the information used in the calculation of the aggregated compliance balance to ensure accuracy at the owners’ request and expense. Furthermore, it is important to note that the projected aggregated compliance balance is not to be validated as this is a future estimate to assist owners in their decision-making. The independent third-party validator could be a FuelEU verifier or another service provider offering similar services relating to FuelEU Maritime.

Subclause (h)

This subclause mirrors the wording of subclause (b) to ensure that the new managers will always receive the vessel’s FuelEU Maritime history for them to be informed and able assess the FuelEU exposure (if any).

Subclause (i)

Under this subclause, the managers should periodically monitor their exposure to a FuelEU penalty. The subcommittee has not further specified the frequency of such as it is for the managers to decide since they are the ones who are in the best position to assess the exposure taking into account the vessel’s trading patterns, business relationship and FuelEU strategy etc.

In subclause (i)(i), the parties are to agree on the form and amount of security though this does not have to be agreed at the outset/when entering into the ship management agreement as the provision of security should match the exposure and if the vessel has not previously traded within scope of FuelEU Maritime e.g. outside the EU/EEA, there is no exposure at the time of delivery into management. The security amount may need to be adjusted/reconciled periodically as it should correspond to the managers’ exposure over time. If the security to cover Managers’ corresponding exposure is not received within the agreed number of days of the managers written request, then the managers are entitled to terminate the agreement immediately as this is considered a material breach of the agreement.

If the managers need to apply the security to meet their  obligations under FuelEU Maritime, the owners are to provide additional security. Subclause (i)(ii)(1) was also included to deal with the situation of insolvency of the managers where monies advanced as security should return to the owners. However, it is important to note that insolvency is dealt with differently in different jurisdictions and it is therefore important to consider in the context of the applicable jurisdiction. Where a FuelEU Penalty is payable, subclause (i)(ii)(2) is intended to make clear that the owners are to transfer sufficient funds to cover such penalty and not to rely on the security to cover any penalties payable.

When the ship management agreement is terminated, any security (including replacement security) should be returned to the owners or cancelled within the agreed time under subclause (i)(iii) as there is no longer any exposure for the managers. However, where there is a continuing exposure for managers, the managers are entitled to hold onto such security (or replacement security) until either payment of the FuelEU penalty or where no penalty is payable, upon issuance of the FuelEU Document of Compliance. It is important to note that subclause (l) applies where the agreement is terminated between 1 January and 30 June and the managers were the responsible compliance entity on 31 December of the previous reporting period.

Subclause (j)

Subclause (j)(i) makes it clear that the owners have the rights to make all decisions relating to banking, borrowing and pooling of the compliance balance generated under the reporting period. It is also the owners that are to appoint the pool verifier. The pool verifier will not replace the verifier but shall be the entity responsible for verifying the allocation of compliance balance between the vessels within a pool.

While owners have all such rights, they shall provide such instructions in a timely manner which is for the parties to agree and insert in subclause (j)(ii), however, if no number is inserted then the default is 10 days. When considering the number of days to insert, parties should be mindful of the time needed for registration of instructions received by the managers in the FuelEU database and in some cases, such instructions may ultimately come from the charterers via the owners. The reason for the default being 10 days is to align with the existing provisions of SHIPMAN 2024. It is worth noting that the default for the owners to provide to the charterers information regarding the aggregated compliance balance under the FuelEU Maritime Clause for Time Charter Parties 2024 is 7 days. The owners may therefore wish to align the timing if they intend to utilise both clauses.

The owners are entitled to take any benefits from banking, borrowing and pooling and consequently bear any costs or risk of such.

Subclause (k)

This subclause covers two scenarios:

(i) where there is a FuelEU penalty, then the owners should transfer the funds within the time agreed so that the managers can pay the FuelEU penalty to the competent authority of the administering state in order to obtain the FuelEU Document of Compliance; and

(ii) where there is no FuelEU penalty, then the managers shall provide the owners with the FuelEU Document of Compliance.

Subclause (l)

Where the managers were the responsible compliance entity on 31 December of the previous reporting period, they will continue to be the responsible compliance entity for the previous reporting period even if the agreement is terminated. It is therefore the managers that will be responsible for fulfilling the obligations under FuelEU Maritime. As the managers remain the responsible compliance entity, security also needs to be put in place either by extending existing security or advancing funds prior to termination. Once the final outcome is known then the parties are to settle any difference between any estimated and actual FuelEU penalty paid and return any funds or security that have not been applied.

Subclause (n)

This subclause distinguishes between termination under subclause (i) and situations where monies are not paid by the owners under subclause (k) and/or (m) – where immediate termination is also permitted for material breach; as opposed to other types of breach where the defaulting party will be given an opportunity to remedy the default within a reasonable time before the agreement can be terminated. The wording in subclause (n)(ii) mirrors clause 31 of SHIPMAN 2024.

Copyright and Availability

Copyright in the FuelEU Maritime Clause for SHIPMAN 2024 is held by BIMCO.