Achieving targets for maritime decarbonization relies on a complex mix of regulation, technological advances and economics. DNV’s latest Maritime Forecast to 2050 contains new research into the impact of drivers including FuelEU Maritime’s pooling mechanism on compliance strategies and conditions influencing the future fuel mix.Progressive goal-oriented regulation is vital to drive ship decarbonization beyond its current slow progress, and must be well-designed to achieve its aims,” Eirik Ovrum, DNV Principal Consultant and lead author of Maritime Forecast to 2050, says. “This eighth annual Forecast provides a timely study of whether the pooling mechanism allowed in the EU’s FuelEU Maritime regulation will drive the uptake of carbon-neutral fuels and propulsion systems. We also run an updated version of our GHG Pathway model to investigate conditions under which the uptake of certain fuel types will accelerate with decarbonization towards 2050.”
Pooling is one option to comply with FuelEU Maritime
From 1 January 2025, FuelEU Maritime (Regulation (EU) 2023/1805) imposes a well-to-wake GHG fuel intensity (GFI) requirement on annual energy use for ships above 5,000 GT transporting cargo or passengers for commercial purposes. The regulation aims to force the use of qualified low-GHG fuels.
In a novel approach, it gives shipowners the option to pool GFI compliance across several ships from the same or different companies. A non-compliant vessel could rely on others in a pool to achieve a compliant combined GFI. Pooling is an idea whose time has come – IMO is also discussing it for potential inclusion in its requirements for the GHG intensity of ship fuels.
Under FuelEU Maritime, a ship with a “compliance surplus” can sell excess emission units to those with compliance deficits. This can compensate shipowners for the extra costs of investing in and operating over-compliant vessels that can run on costly carbon-neutral fuels.
Paying the penalty for non-compliance with FuelEU Maritime
In modelling the potential impacts of the pooling mechanism, the economic consequences of non-compliance with the regulation must be considered.
There is a FuelEU Maritime penalty for ships that have a higher GHG intensity than the requirement and still have a negative compliance balance even if they banked a positive balance from the previous year, or if they have borrowed and pooled balances from other vessels.
Moreover, the penalty increases for each consecutive year with a negative compliance balance.
First-mover advantage for green vessels under FuelEU Maritime?
The report illustrates the pooling potential of one over-compliant ship operating on e-methanol in a pool with other vessels fuelled by fossil marine gas oil (MGO).
Assuming all ships in the pool have the same annual energy requirements and share of time in the EU/EEA, the only difference is the fuels used for power generation.
The calculations indicate that depending on the GFI of the e-methanol used, one e-methanol vessel can offset deficits for a maximum of 55 to 64 fossil MGO vessels annually in the period 2025–2029, and 13 to 16 fossil MGO vessels in the years 2030–2034.
“This suggests that having an over-compliant vessel in the period 2025–2039 could be a business advantage as several owners may want to pool with green vessels to offset compliance deficits,” Ovrum says.
The model shows that because FuelEU Maritime targets tighten over time, first movers on green vessels may have the biggest opportunity to sell compliance surpluses. The tightening of targets in the regulation will progressively diminish the compliance surplus of the over-compliant vessel.
“The implication is that pooling may provide otherwise non-compliant vessels with limited time to continue operating without investing in energy efficiency, alternative fuel capacity, carbon capture or other decarbonization tools,” Ovrum says.
Will emissions pooling appeal to shipowners?
Maritime Forecast to 2050 also examines how a ship’s total combined annual cost of fossil fuel and compliance measures may affect whether its owners pay to include the ship in an emissions pool.
The graphic below suggests that to attract owners of conventional oil-fuelled vessels, the “ticket” for pool participation should result in a total cost (middle column) less than the two alternatives, which are to just pay the FuelEU Maritime penalty (left column) or use drop-in fuel (right column).
In the scenario illustrated, pool participants will likely be willing to pay a pool ticket price comparable to the cost of either paying the penalty or using the drop-in fuel – whichever is lower.
Modelling annual fuel expenses for a case-study containership
Maritime Forecast to 2050 describes four of the strategies available for a 1,300 TEU case-study container feeder vessel to comply with the FuelEU Maritime GFI target. Two of the strategies are applied in modelling annual fuel expenses for the case-study ship in and out of a compliance pool.
In strategy C in the graphic below, the ship uses just enough e-methanol alongside fossil MGO to comply while being outside the pool. In strategy D, aside from a little MGO for pilot fuel, the ship uses full e-methanol capacity to over-comply, and its compliance surplus can be used to cover other ships’ compliance deficits in a pool.
“The results are highly sensitive to fuel prices and the GHG fuel intensity. But based on our study, pooling does appear to have potential to encourage the use of full green-methanol capacity in the methanol-capable case-study vessel,” Ovrum says.
Pooling can reduce decarbonization costs
The simplified analysis in Marine Forecast to 2050 indicates that FuelEU Maritime regulation can be a tool for sharing costs and driving uptake of alternative fuel technologies and their corresponding low-GHG intensity fuels.
It would be a timely boost to decarbonization as more than 99% of the global fleet still runs on fossil fuels without onboard carbon capture.
“In another report – the impact assessment we did for IMO – we estimate that allowing for compliance pooling in future IMO GHG regulations could optimize the abatement cost, lowering it by 6% per tonne of GHG emissions reduced, due to a more optimized use of investments,” Ovrum concludes.
Modelling uptake of fuel types under decarbonization by 2050
Maritime Forecast to 2050 uses an updated version of its GHG Pathway Model to investigate what could accelerate the uptake of different fuel types with decarbonization towards 2050. The study also estimates the increased transport costs of decarbonization for the container, tank and bulk segments.
The current assumptions in the model are described in the report. The study is based on four exploratory scenarios that aim for significant uptake of a specific fuel or technology – ammonia, biofuels, hydrogen, methanol and on-board carbon capture and storage (CCS).
What does the modelling indicate about shipping’s future fuel mix?
Key differences between the results of simulations include significant uptake of: nuclear and bio-LNG in scenario 1; bio-methanol, e-methanol and e-LNG in scenario 2; blue ammonia and e-ammonia in scenario 3; and blue liquid hydrogen (LH2) and e-LH2 combined with hydrogen fuel cell technology in scenario 4.
All scenarios result in a gradual phase-out of fossil fuels by 2050 if unabated by carbon capture. On-board carbon capture becomes important after 2030 in all scenarios, but demand for carbon-neutral fuels nevertheless remains high.
“The findings indicate that maritime could find it tough to source sufficiently high levels of such fuels and carbon storage between now and 2030. Shipping’s mid-term strategy for compliance should therefore focus on maximizing the energy efficiency of ships,” Ovrum comments.
For all scenarios, there is a significant uptake of carbon-neutral MGO in the 2030s and 2040s because many ships in the model still use mono-fuel engines. No single fuel or technology dominates in any scenario – the forecast for energy and technology mixes remains diverse.
Estimated increase of transportation costs
The GHG Pathway model estimates the decarbonization cost by 2030, 2040 and 2050 for operating containerships, bulkers and tankers.
“Total cost” includes capital expenditure (capex) on ships and on-board technologies, operating expenditure (opex), carbon price, fuel costs and the cost of depositing captured carbon dioxide.
The costs of transportation by decarbonized ships have been compared to those that continue operating on a business-as-usual basis. Within the four presented scenarios, the increase in cost per transport work in a decarbonized 2050 is 69–75% for bulk carriers, 70–86% for tankers and 91–112% for container vessels.
“Decarbonizing shipping will cost, and larger ownership and operating costs will require higher freight rates to maintain the same average return on capital invested. Ultimately, costlier seaborne transport will have to work through the value chain. We are already seeing movements in the market to move costs to consumers,” Ovrum concludes.
Source: DNV
