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RFNBO Incentive under FuelEU Maritime: A Critical Case Study


Containership arriving at a terminal for loading of containers as background for BetterSea's Monday Newsletter

This week, we’re taking the example of our recent case study to assess the incentive for RFNBOs under FuelEU Maritime.


General Overview: RFNBO Incentive under FuelEU Maritime


The FuelEU Maritime regulation is clear when it comes to incentivizing RFNBOs:


"In order to create a clear and predictable legal framework and thereby encourage the early market development and deployment of the most sustainable and innovative fuel technologies with growth potential to meet future needs, a dedicated incentive for renewable fuels of non-biological origin (RFNBO) is necessary." as per FuelEU Maritime Regulation (EU) 2023/1805.

Until 2033, FuelEU Maritime aims to foster the uptake of RFNBOs through a reward factor (RWD). This reward factor is essentially a multiplier that enables counting the energy of RFNBOs twice. If the incentive doesn't result in the intended effect, defined as a share of reported RFNBOs equal to or larger than 1% by 2031, then a 2% RFNBO subtarget shall apply by 2034.


In Practice: How does FuelEU Maritime incentivize RFNBOs?


The regulation's annexes help understand how the reward factor incentivizes RFNBOs. As a reminder, the compliance balance is the essential variable under FuelEU that defines whether a ship has a surplus or deficit. The surplus makes it eligible for banking and/or pooling, the larger the better.


The first step to reveal a ship's surplus is to calculate its GHG intensity as defined under Annex I. Here the GHG emissions are divided by the energy used onboard. The reward factor (RWD) that incentivizes the use of RFNBOs under FuelEU Maritime is represented by a multiplier of 2 in the denominator, essentially counting the energy related to RFNBOs twice and as such reducing the GHG intensity of the ship.


Energy Calculation for determining the GHG intensity under FuelEU Maritime Annex I

The second step is the actual calculation of the compliance balance as defined under Annex IV. Here the difference between a ship's GHG intensity and the regulation's GHG intensity limit is multiplied by the ship's energy used onboard to determine the compliance balance. Unfortunately, the reward factor is not included in this formula despite the regulation's intent to incentivize RFNBOs.


Energy Calculation for determining the compliance balance under FuelEU Maritime Annex IV

The regulation's omittance of the reward factor when calculating the compliance balance has a significant impact on the degree with which RFNBOs are incentivized, especially as the compliance balance is the ultimate number defining the surplus that can for example be monetized through pooling.


 

Case Study: RFNBO Incentive for a 15,000 TEU Containership


In a recent case study, we calculated the FuelEU penalty for a 15,000 TEU containership. The same assumptions shall be used to determine the impact of the missing reward factor for RFNBOs when calculating the sample ship's compliance balance. Instead of the previously chosen fossil fuel mix, it is assumed that the ship consumes an RFNBO at a well-to-wake (WtW) greenhouse gas (GHG) emission factor 70% less than the one of heavy fuel oil (HFO).


Case I: Calculation as per regulation


If calculated according to Annex I and Annex IV as of today, the sample ship has the following values:


GHG intensity: 13.74 g CO2e / MJ

Compliance Balance: 30 billion t CO2e

Number of equal ships to pool: 36

Add. revenue through pooling: 3.3M EUR


Case II: Including the reward factor in the compliance balance calculation


Instead of following the compliance balance calculation as per Annex IV (see above), this case includes the reward factor when determining the sample ship's compliance balance. The formula has therefore been changed as per below:


Improved energy calculation for determining the compliance balance under FuelEU Maritime Annex IV

Ensuring a comprehensive application of the reward factor throughout the regulation has an immense effect on the intended RFNBO incentive.


GHG intensity: 13.74 g CO2e / MJ

Compliance Balance: 60 billion t CO2e

Number of equal ships to pool: 72

Add. revenue through pooling: 6.6M EUR


Key Takeaways


The FuelEU Maritime regulation undoubtedly outlines the reasoning behind incentivizing RFNBOs and the intended effect:


"However, the production costs of RFNBO are currently much higher than the market price of conventional fuel and are expected to retain such higher costs in the mid-term. Therefore, this Regulation should provide for a combination of measures to ensure the support for the uptake of sustainable RFNBO (...)" as per FuelEU Maritime Regulation (EU) 2023/1805.

The regulation aims to reward decarbonization leaders by significantly reducing their higher OPEX costs due to the early adoption of RFNBOs. The case study shows that this has not been achieved to the extent it could have been possible when consistently applying the reward factor throughout the calculation.


Stay tuned for more insights and case studies in our upcoming newsletters. Together, we can navigate the path to maritime decarbonization.


Feel free to reach out if you have any further questions or are interested in learning more about how BetterSea's streamlined and end-to-end FuelEU software solution can help achieve cost-efficient and effortless compliance.


Best regards,

BetterSea Team


Contact Us: info@bettersea.tech


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Note: The additional revenue that could be achieved with pooling assumes selling 100% of the achieved surplus at 400 EUR/t LFOe.

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