Are you FuelEU ready or just coasting?

WHAT ‘READY’ LOOKS LIKE

Those in the market who are ready have devised a clear and ambitious FuelEU compliance strategy, based on calculations and projections for 2026 and beyond. They already know whether they will be in deficit or surplus and are planning accordingly. Taking these steps now means they are free to focus on entering into contractual arrangements with charterers, ship managers and even fuel suppliers to create clear allocations and apportionments of roles, costs and liabilities for FuelEU.

Generally, we are seeing costs passed on as far as possible in accordance with ‘polluter pays’ and a recognition of the invidious position of ship managers under FuelEU, with penalty risks covered such that their creditworthiness and balance sheets are protected.

Some parties are already discussing and agreeing what will happen to any FuelEU surplus and who will stand to benefit from it – the owner or charterer. As such, those who see safety in waiting for a ‘market standard’ to develop for the FuelEU should be aware that they do so at the risk of missing out on the most advantageous positions, including the chance to work with other maritime players to set the ‘market standard’ together.

“FuelEU is extremely, and deliberately, vague around the ownership of surplus and the management of ‘pooling’.”

FuelEU is extremely, and deliberately, vague around the ownership of surplus and the management of ‘pooling’. Anything that is left to assumptions or vague discussions could lead to lengthy and costly disputes when FuelEU really starts to bite from March 2026 onwards. This is one area where entering a detailed, binding contract that has been agreed early will really help all involved. ‘Shipowners’ must ensure they are already engaging with charterers, ship managers, fuel suppliers and specialist advisers to avoid penalties, which are estimated to be as high as 10% of annual fuel costs. Drafting bespoke multiparty agreements clearly to demarcate levels of responsibility and liability vis-a-vis FuelEU as well as EU ETS is becoming standard market practice which WFW is helping to build and shape.

ROUTES TO COMPLIANCE

In the event that ‘shipping companies’ are facing a compliance deficit, it is crucial to have approaches in place to minimise or neutralise any penalties. The deadline for reports to be assessed by verifiers is 31 March 2026, while the deadline for verifier approval for borrowing, banking and ‘pooling’ will be at the end of April 2026 (see our insight here for an overview of their function). ‘Shipowners’ should prioritise forward-planning, as the market is already seeing participants setting up ‘pooling’ arrangements at both the private and public level.¹As we approach the first verification period, the cost of ‘pooling’ with over-compliant vessels is also expected to rise.^² Moreover, ‘pooling’ is a concept supported by little direct guidance from the EU, with additional regulatory requirements that must be met and no direct equivalent in the EU ETS framework. As such, ‘shipowners’ are advised to develop any required arrangements urgently and long in advance of next year’s deadlines.

BIMCO CLAUSES

In November 2024, BIMCO published its FuelEU Maritime Clause for Charter Parties 2024 (available here) and its FuelEU Maritime Clause for SHIPMAN 2024 (available here). These clauses provide a useful starting point for contracting parties. However, owners and charterers should be aware that there are important details that are based on commercial assumptions or are simply not covered by BIMCO.

For instance, under the BIMCO Clause for Charter Parties, any FuelEU Surplus belongs to the charterer. However, the law does not expressly prescribe ownership of the Surplus to the charterer or the owner; this depends on what is agreed commercially. Unlike EU ETS,³ which clearly states that the charterer is ultimately responsible for the costs of compliance, FuelEU leaves responsibility with the ship manager as the body facing the regulator and the registered owner as the entity that bears the brunt of enforcement, even if responsibility for FuelEU is passed on contractually. As such, some argue that the owner should be entitled to any surplus, or to a share of it at the very least. The key is not to leave anything to assumption but expressly to agree detailed terms, liabilities and benefits in charterparties.

“To cater for such uncertainties, it is prudent to agree any ‘pooling’ arrangements early on contractually in readiness for when the ‘FuelEU Database’ is up and running.”

By way of another example, BIMCO Clauses are drafted on the basis that the ‘FuelEU Database’ to be established by the European Commission will be in action by 31 March 2026. No mechanism is offered for a scenario where said database is not set up or undergoes a malfunction. This is where bespoke drafting comes in and is recommended. Furthermore, ‘shipping companies’ wishing to ‘pool’ their compliance balance must register their intention in the ‘FuelEU Database’ to qualify. We have seen how ‘teething problems’ can cause commercial delays in the backlog of applications to open MOHA accounts under EU ETS, with few more than 2,000 opened out of more than 20,000 applications. We have also been made aware that France is imposing a 1 April cutoff date for the opening of MOHAs and that other registries in the EU may follow the same strict line. To cater for such uncertainties, it is prudent to agree any ‘pooling’ arrangements early on contractually in readiness for when the ‘FuelEU Database’ is up and running.

MITIGATION

We have previously outlined the consequences of non-compliance under FuelEU (see our insight here). In the event that ‘shipowners’ face penalties in spite of the strategies noted above, it is critical that steps are taken to ringfence liability in charterparties, multiparty EU ETS and Fuel EU agreements as well as in ship management agreements. Otherwise, responsible parties risk leaving unsecured debt on their balance sheets and detrimentally affecting their creditworthiness.

POLLUTER DOES NOT ALWAYS PAY

Whilst the EU has provided FAQs specific to FuelEU, these are subject to change and we await comprehensive guidelines. In particular, a lack of clarity persists in the identity of the party responsible for compliance with FuelEU. It seems that the ISM is the ‘shipping company’, but this is clearly contrary to the ‘polluter pays’ principle upon which all other EU environmental law is based. The European Commission are well aware of this discrepancy but have been clear that no changes will be made to FuelEU until 2027 at the earliest.

In our last article on FuelEU (see here), we noted that the consultation process on three important questions had only recently closed. All three of these have now been adopted as implementing and delegated acts, available below:

However, we await the following implementing acts, for which the consultation process is expected to begin soon:⁴

implementing act on On-shore Power Supply communication;
implementing act on the ‘FuelEU Database’;
implementing act on the criteria for the acceptance of zero-emission technology; and
implementing act on the list of neighbouring container transhipment ports.

CONCLUSION

We concluded our last insight by underlining the importance of the collaborative approach that the FuelEU aims to bolster in order to accelerate the use of renewable and low-carbon fuels in shipping. In this update, we have stressed the importance of being proactive rather than reactive and getting ahead of the market curve in preparing for and mitigating the impact of the first verification period.

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