FuelEU Maritime Regulation aims to reduce the greenhouse gas (hereafter GHG) emissions from shipping transport by promoting the use of renewable, low-carbon fuels and clean energy technologies.
Its first milestone compliance date is right behind the corner: until 31 August 2024 the Companies either the shipowners, or any other ISM responsible entity, organization or person, distinct from the shipowners are required to submit a monitoring plan for each ship in their fleet. From 1 January 2025, they are also required to record data for each of their ships’ arrivals and departures at EU ports. By 31 January of each verification period, a ship specific ‘FuelEU report’ must be provided to the verifier.
Key outlines of the Fuel EU obligations are:
- GHG emissions reduction targets: Mandatory requirement for ships to be compliant with GHG intensity limits, using renewable fuels and innovative technologies.
- RFNBO usage targets: Special incentive regime to support the uptake of the so-called renewable fuels of non-biological origin (RFNBO).
- Use of flexibility mechanisms:
- Banking and borrowing: Designed for GHG intensity compliance and, if applicable, also for the RFNBO subtarget compliance.
- Pooling of compliance: Flexibility mechanism that serves a dual purpose: it rewards ships that exceed compliance expectations with positive Compliance Balances, and it offers ships that struggle to meet technical compliance options a chance to comply with the targets set by the FuelEU Maritime Regulation.
- Monitoring, Reporting and Verification (MRV): A complex procedure which ensures efficient reporting and accounting with respect to GHG emissions.
- Inspection by tax and port authorities: Applicable to all ships which are subject under this regulation for compliance checks.
- Penalties for non-compliance: To be paid by 30 June of each verification period and determined based on the factors adopted by the same regulation.
Such application of FuelEU can create associated tax consequences for which actions needed to be promptly taken.
With one step closer to the first compliance deadline for FuelEU and despite the difficulties that the responsible parties might face from the crucial consequences of the regulatory and tax perspective, they can start preparing their strategic position through the below:
- Regulatory – tax evaluation to manage operational and other related maritime expenses for transactions relating to FuelEU.
- Compliance and reporting preparation in escaping compliance issues, or even worse the imposition of penalties by the tax authorities.
- Know your counterparties process to be put in place which will be involved in such transactions to mitigate risk of loss or disputes.
- Continuous industry readiness for FuelEU updates to meet the compliance deadlines and requirements as well as providing adequate documentation to tax authorities if necessary.
Having recently seen the implementation of EU ETS with multiple implications, pro-active steps in relation to FuelEU can be instrumental for a sustainable and efficient operational model to be adopted by shipping groups.
By:
Era Xenofontos, ESG Taxes | EY Cyprus
Martyna Szlufik, Environmental Law | EY Poland
