FuelEU Pooling Could Accelerate Biofuel Adoption

The FuelEU pooling mechanism introduces a new economic incentive to accelerate adoption of biofuels, according to OceanScore.

The company has identified tangible savings on the cost of compliance with FuelEU Maritime that can be made through burning biofuels to generate surpluses for vessel pooling.

This enables companies to capture financial gains from overcompliance with carbon intensity reduction targets.

Albrecht Grell, Managing Director of OceanScore, says FuelEU can understandably be seen as annoyingly complex and just another cost burden for shipping, with players facing a hefty penalty of €2,400 per tonne of VLSFOe for compliance deficits and the prospect of increasing costs if no action is taken as intensity reduction targets are tightened towards 2050.

However, he also highlights business opportunities arising from the concept of surpluses and deficits under the FuelEU pooling mechanism whereby overcompliance for vessels using alternative fuels can be used to offset compliance deficits of other units running on conventional fuels to create a neutral compliance balance - both for internal fleets and with vessels from third parties.

Grell says generating compliance surpluses through burning the right biofuels will be much cheaper than paying penalties. And if sufficient compliance surpluses are generated, these can be ‘sold’ via FuelEU pooling arrangements with others.

OceanScore has calculated the net value of surpluses generated by replacing for example HFO with rapeseed-based biofuel will be around €440 per tonne of HFO replaced, taking into account the different bunker prices and calorific values of these fuels, as well as FuelEU penalties and EU ETS costs.

And this benefit could increase to up to around €1,250 per tonne of HFO replaced with the use of bunkers based on waste cooking oil, which have an especially low carbon intensity in the context of FuelEU.

The surpluses generated by each of these alternative fuels will vary according to their different well-to-wake CO2e emissions, including the climate effect of methane and nitroxide.

Rapeseed-based biofuels have a default carbon intensity of 51.584g of CO2e per megajoule (MJ) of energy, giving a solid surplus versus the initial FuelEU hurdle rate of 89.3g CO2e/MJ, while waste cooking oil-based fuels come in at only 16.384g CO2e/MJ - basically doubling the positive effect on compliance balances.

“Given comparable low calorific values and bunker prices, the need to carefully select bunkers based on the feedstock used becomes apparent,” Grell says.

He believes biofuel availability should not be an issue given that demand from shipping will only be around 4% of Europe’s total biofuel production, though the supply of fuel based on waste cooking oil and other similarly advantageous fuels is more limited. The pool of available fuels is even larger for vessels sailing to and from the EU that will be liable for carbon intensity reductions on 50% of energy consumption.

“Given new implementation guidelines that provide additional benefits to biofuels used on these voyages to and from the EU, non-European bunkering opportunities should be considered, too. While their biofuel prices typically are higher than in the EU itself, the new benefits provided in the context of FuelEU make them attractive options to consider,” Grell says.

Taken together, these opportunities introduce a new economic incentive to accelerate adoption of biofuels.