Authored by Antonia Panayides and Alexander Wayland.

Calls from the industry for the EU to scrap its maritime decarbonisation regimes, FuelEU and EU Emissions Trading System (EU ETS), in the event that the IMO Net Zero Framework is approved at the extraordinary IMO Marine Environment Protection Committee session in October this year. 

These calls stem from concerns over double taxation and the impact of such regulations remaining in play in Europe on top of the IMO proposals, impacting competitiveness.  

The proposed IMO Net Zero Framework will operate in a similar, although potentially more complicated, manner to FuelEU. The key distinction is that the IMO’s proposed scheme will have two tiers of compliance requirements: a Base Target and a Direct Compliance Target.

The compliance methods will also be similar to those under FuelEU. Vessels that are in a compliance deficit may purchase Remedial Units (RUs) from the IMO Net-Zero Fund. This operates in a similar manner to the FuelEU penalty, although RUs are priced according to the Tier of deficit.

A Tier 1 deficit can only be remedied by the purchase of Tier 1 RUs. Meanwhile, a Tier 2 deficit can be remedied by the purchase of Tier 2 RUs or by the purchase of Surplus Units (SUs) from vessels in a compliance surplus (similar to pooling under FuelEU).

Vessels in a compliance surplus will also have the ability to bank their SUs, although only for use within the subsequent two calendar years. 

Ultimately, time will tell how the Commission reacts in the event that the IMO Net Zero Framework is approved in October. The Commission has committed to assessing the proposal and how it interacts with EU regulations, so as to avoid “significant” double burden, but has not yet clarified how this will look in practice. Could we see the complete scrapping of FuelEU or perhaps an alignment to the new global scheme?

Where it is likely the IMO Net Zero Framework will come into play, it is important to start to understand the workings of it. We will be providing more details on this and parallels with FuelEU – watch this space!