We are nearing the end of 2025, but many charter parties are yet to be amended to take account of FuelEU Maritime. And that is not surprising. While BIMCO’s FuelEU T/C clause is a solid starting point in negotiations, it does not provide any guidance on how to arrive at a price for compliance. This brings a lot of complexity, especially for short-term charters where the polluter and the party in charge of deciding on the compliance strategy are not the same party.

In this article, in collaboration with our partners at Watson Farley & Williams, we help you get ready. Five topics you should discuss with your counterparty.

1. Agree on accepted fuels

Most vessels are perfectly equipped to run on biofuels in order to comply with FuelEU. The BIMCO FuelEU Maritime T/C Clause includes provisions for enabling charterers to use biofuels and other alternative fuels whereas charterers are obliged to provide owners with the fuels’ Bunker Delivery Notes and Proofs of Sustainability. Going forward, however, it may be necessary to make amendments to existing charter parties to reflect the use of alternative fuels including biofuels. It is therefore prudent to:

• Plan your compliance strategy and agree on accepted fuels

• Align on efficient ways to share required additional documentation

2. Request the vessel’s compliance status before delivery

Vessels may have already accrued a deficit before the start of the charter party. It is essential to be aware of this if your charter party starts in the middle of the reporting year. BIMCO’s FuelEU T/C Clause includes a requirement for the owner to disclose the two previous reporting periods and the aggregated compliance balance for the current reporting period up to the date of delivery. This way, charterers are well informed of the FuelEU compliance status including the potential use of banking and borrowing mechanisms or penalty multipliers that were triggered by penalties paid in the previous year(s). The clause mainly argues for transparency, but does not provide guidance in cost-sharing or resolution. To address this we recommend that you:

• Request a verified compliance statement from the owner (who should be able to obtain it from the verified class society).

• In case of existing deficits, borrowed balances, or penalty multipliers triggered by previous operators, make sure to analyse its impact and address this during the negotiations.

3. Discuss prioritisation of fuels

All fuel energy on voyages into and out of the EU can contribute to the total annual GHG intensity, even though only 50% of the energy is in the scope of FuelEU Maritime. This means there is some flexibility in which fuels to include within the scope of FuelEU. Prioritising consumed fuels by their GHG intensity until the total energy in scope is covered will result in the lowest overall GHG intensity and thus the lowest deficit (or highest surplus).

Charterers should ensure they fully benefit from the biofuels they bunker. To do so, fuel prioritisation should be applied to the fuels consumed within the charter party period. The effects of applying this prioritisation cannot be overstated and can easily mean the difference between compliance and non-compliance and result in significant cost savings in the form of prevented penalties. It is therefore essential to:

• Understand the intricacies of fuel redistribution

• Request verified statements with fuel prioritisation applied to the charter period

4. Determine a price per tonne of CO2eq for settling surpluses and deficits

The BIMCO FuelEU Maritime T/C clause proposes frameworks for the payment of surcharges in case of the charterer not meeting FuelEU targets and generating negative compliance balances. It also mentions the opposite situation, where a charterer generates surpluses which the owner should compensate for. It is far from obvious though how to arrive at a price for compliance (typically in EUR/tCO2eq).

Most charterers are well aware that paying the FuelEU penalty at a price of about EUR 640/tCO2eq will be by far the most expensive strategy and will therefore object to paying a price this high for generated deficits. Owners on the other hand will want to make sure their financial risk is covered. Many charterers know by now that switching to biofuels is one of the cheapest modes of compliance. They know that when surpluses from the use of biofuels are pooled, biofuel consumption will actually generate revenues. When redelivering the vessel, they should receive compensation that reflects this. We cannot emphasize enough the importance of analysing your options and their price points before entering negotiations. Setting the right compliance price is crucial to reducing financial risk on both sides. It is also important for owners to understand that incentivising the charterer to consume biofuels is in their direct benefit. If the charterer has access to high quality and affordable biofuels, it would be a missed opportunity to not benefit from this.

Analyse the abatement costs of the various options

To determine a fair price for compliance, one should analyse the abatement costs of the various compliance strategies. The abatement cost is the cost of reducing emissions by one ton of CO₂ equivalent. Included below is a step by step plan to guide you through it:

1. Calculate the abatement cost for paying the penalty.

   This one is easy. The penalty for non-compliance is about €640 per tonne of CO₂eq.

   
   

2. Calculate the abatement cost for FuelEU pooling.

   This one is also fairly easy. Most FuelEU pooling marketplaces or pool managers will offer pooling at a price per tonne of CO₂eq. Prices vary greatly, but you can currently expect abatement costs of about €200-€250 per tonne CO2eq. Pooling can be a smart strategy when available at competitive rates or when you don’t have access to biofuels. Make sure to compare your options!

   
   

3. Calculate the abatement cost for switching to alternative fuels.

   This is where it gets tricky. The abatement cost of a biofuel switch is dictated by multiple factors, for example the fossil fuel you’re replacing, the quality of the to-be used biofuel (combination of WTW-factor and energy content), fuel prices and EUA prices (switching fossil fuels for biofuels will result in significant EU ETS savings). Knowing what and how much to buy is even more important here. Abatement costs can get as low as €150 per tonne CO₂eq for high quality biofuels, and fall well below €150 per tonne CO₂eq when including EU ETS savings.

   
   

4. Consider carbon insetting as an alternative.

   Operators have another option to monetise their emission savings. They can opt to use their emission savings in insetting programs and share the costs of their decarbonisation efforts with freight forwarders and cargo owners. Participating in the voluntary market can be a good strategy for short-term charterers who want to be less dependent on the ship owner’s choices and avoid potential penalty payments. Also ambitious charterers who cannot seem to reach an agreement on a fair compensation of generated surpluses may want to take matters into their own hands and exclude their emission savings from being used as FuelEU surpluses.

   
   

5. Compare your options.

   Use the abatement costs to compare your options side-by-side and determine a feasible strategy that achieves compliance at the lowest cost. Then use these numbers as input for negotiating a fair and data-driven price point for future compliance balance compensations. Consider including indexation mechanisms based on for example Platts biofuel indices.

5. Compensation for fuels left on board at redelivery

It is standard practice for charter parties to have “Conventional Fuels Only” clauses. This protects owners from inheriting uncertain and potentially contaminated fuels. However, under EU ETS, FuelEU, and IMO CII, certified biofuels now carry compliance value, making it worthwhile to negotiate robust biofuel clauses. If the vessel is being redelivered with biofuels left on board, this should only be permitted if the charterers can contractually guarantee to the owners that the vessel will not be laid up, made idle, or operated at slow speed, as such circumstances may render the fuel unstable or unusable before the next charterer takes over. It should also be contractually agreed that such biofuels will be certified and that only pre-agreed blends of biofuels will be accepted. Provided immediate rehire of the same vessel with biofuels on board can be guaranteed, and the charterer appropriately is compensated, specific biofuel provisions should be negotiated to help meet FuelEU compliance. Furthermore, charterers should agree to bear the risk of any degradation or instability for a fixed number of days post-delivery, until the vessel is taken over by the next charterer.

Navigating FuelEU Maritime with confidence

Navigating FuelEU Maritime in the context of short-term time charters requires careful legal drafting, a solid understanding of compliance options in their costs, and thorough operational planning. By addressing the five negotiation topics outlined above, owners and charterers can reduce compliance risks while also identifying opportunities to achieve compliance at the lowest possible cost for both owner and charterer.

The partnership between Watson Farley & Williams and ZERO44 combines legal expertise in shipping and carbon regulation with the digital tools that allow shipping companies to structure contract clauses, analyse their compliance options, and negotiate data-driven price points with confidence. Together, we help shipowners, managers, and operators align their contracts and strategies with IMO CII EU ETS, and FuelEU, staying ahead of regulatory change while capturing the benefits of decarbonisation.