Collaboration is king: Ship owners and charterers can reduce emissions and costs within new EU regulations 

Written by: Jon Lane, RightShip Head of Sustainability 

The shipping industry stands at the forefront of the global transition to net zero, with a dual role to play: decarbonising its own operations and influencing sectors beyond the maritime ecosystem.   

New EU regulations are designed to ‘bend the curve’ and get us to net zero faster. Here, the legislators know that it is the journey, not the destination, which matters on the road to decarbonisation. In other words, faster decarbonisation now means less decarbonisation later.  

 The introduction of these regulations – Fuel EU Maritime and EU ETS – offers opportunities for forward-thinking stakeholders across the maritime supply chain to achieve a ‘triple win’ of reduced fuel consumption, reduced emissions, and reduced costs.   

New regulations may be hard to navigate, but they offer a game-changing opportunity for proactive ship owners and charterers.    

The maritime industry operates across multiple jurisdictions and is subject to a growing number of regulations. This can get confusing – sometimes maddening – for stakeholders across the supply chain, but particularly for owners and managers.    

The first, and most discussed, level of regulations that bind the industry come from the IMO. The IMO has set targets (illustrated below) and introduced metrics to measure these targets (mainly EEDI, EEXI, and CII). Although the targets and the metrics are open to criticism, they nevertheless provide us with clarity (and data).   

 The second level of regulations is regional – and this is where proactive ship owners and charterers can make the system work them.   

Europe is leading the way, with the inclusion of shipping into the EU Emissions Trading System (EU ETS) and the introduction of Fuel EU Maritime intensity metric from 2025. By 2024, the EU ETS will cover 40% of CO2 emissions, increasing to 70% in 2025 and 100% of CO2, CH4, and N20 in 2026. These are robust regulations that will drive significant behavioural shifts in maritime players, including ship owners, charterers, ports, and others. We expect to see investment in energy saving devices, the eventual adoption of alternative fuels, an up-tick in on-shore power use (for appropriate segments), and increased biofuel utilisation ahead of the fuel transition used to comply with the tightening gC02/MJ requirements.  

The impact of regulations   

At first glance, the IMO’s regulations seem to place the burden of responsibility on the ship owner and manager. This is driving ship owners to improve the design efficiency of their vessels, much as RightShip’s GHG rating has done for the past decade.

The EU has taken a different approach to this, with the impact of noncompliance potentially being spread across the stakeholders involved in a commercial vessel’s operation, including shipowners, charterers and finance institutions. Companies noncompliant with EU ETS limits face a penalty of €100 per tonne of CO2 whilst the current cost of an EUA is ~€75.   

The additional cost of EU ETS is variable. Currently, in 2024, only 40% of CO2 emissions are covered, but this increases to 70% CO2 in 2025 and 100% of CO2, CH4, and N20 in 2026.    

This incentivises charterers to select fuel efficient vessels and further incentivises ship owners to upgrade their vessels with energy-saving devices. However, this can hurt ship owners who have less resources at their disposal.  

Proactive ship owners and charterers should use this as a driver to collaborate with each other – investing jointly in energy-saving devices to increase the efficiency of vessels (driving the design efficiency combined with the operational efficiency to accelerate decarbonisation now). This will reduce fuel, emissions, and costs, while ensuring vessels are better adapted when future fuels eventually arrive. And there is the potential for spillover of these regulations as vessel owners get greater evidence of the benefits and apply it to non-EU routes.  

Working within regulations 

 

 

 

 

 

 

 

 

 

 

 

 

 

Levels of maturity on agreements between owners and charterers will need to further evolve as there is a mixed understanding in the market currently, from those who have agreements in place to less formalised ones.   

Now is the time to push this forward - from the charterer side to have more efficient operations, and from the shipowner side to have more attractive vessels. The two parties can discuss options for improved efficiency and how the savings can be shared.   

Savings in energy now will save fuel cost, reduce CO2e, and therefore the tax burden for both ship owners and managers in the nascent EU ETS and ahead of any other regional tax schemes implemented ahead of any potential global IMO approach to shipping emissions.    

The role of ports and terminals  

There is also the potential for further collaboration between charterers and ports and terminals to reduce in-port emissions and improve local air quality.   

Addressing the impact of the Sail Fast Than Wait (SFTW) culture, where the average transportation fleet can spend around 10% of its operational life at anchorage waiting to be loaded or discharged. It is true that the concept of ‘just in time’ (JIT) arrival or the virtual arrival is not new to the industry but is set to be revisited and have increased focus with the potential savings. Functional queues can be established where vessels can slow down coming into port thus reducing consumption and emissions on the transit leg, and the emissions impact on the port while in demurrage.   

Ports can also implement incentive schemes for more efficient vessels by giving discounts to better performing vessels or putting higher up the queue vessels with bold commitments to sustainability such as those with large investments like solid state wind sails. These schemes have can drive further ESD investment, while addressing the SFTW culture, which will have direct impacts on fuel consumption and emissions, and therefore correlate with the CII (in its current form), EU ETS, and Fuel EU Maritime costs.    

Conclusion  

The shipping industry is at a pivotal juncture in the global transition to net zero. The path to decarbonisation is complex, but it offers a chance for proactive stakeholders to achieve a ‘triple win’ of reduced fuel, emissions, and costs. The new regulations, while challenging, offer a game-changing opportunity for those willing to adapt and innovate. Collaboration across the ecosystem will be key to maximising opportunities and minimising impacts. By investing in energy-saving devices and improving efficiency, ship owners and charterers can navigate the regulatory landscape, reduce their environmental footprint, and drive the industry towards a sustainable future.