Falling FuelEU surplus prices could reduce short-term compliance costs for shipowners, but raises questions over whether the regulation is creating sufficient incentives to accelerate alternative fuel adoption.
The first year of FuelEU Maritime has shown that shipping will engage with market-based compliance mechanisms, but falling surplus prices are raising questions over whether the regulation is delivering the fuel transition it was designed to accelerate.
According to maritime compliance specialist EmissionLink, FuelEU has successfully created an active commercial market, with shipowners using pooling arrangements, biofuels and surplus trading rather than simply accepting penalties for non-compliance.
However, the company warns that a rapid decline in the value of FuelEU surplus units, following the first major compliance window, could weaken incentives for operators to adopt lower-carbon fuels.
“FuelEU has worked in the sense that it has created a market,” said Philippos Ioulianou, Managing Director of EmissionLink. “Shipowners have engaged with pooling, biofuels and surplus trading. That is positive. But if buying compliance becomes easier and cheaper than using lower-carbon fuels, then the regulation risks becoming an accounting exercise rather than a driver of decarbonisation.”
EmissionLink said surplus prices, which had been discussed at approximately €175-185 per unit before the June reporting deadline, subsequently fell towards €120-130 after the main pooling activity concluded.
The company believes the decline indicates that more surplus was available than some market participants expected, supported by long positions, banked surplus and stronger-than-anticipated generation of compliance units.
For shipowners, lower surplus prices reduce immediate FuelEU costs. However, they may also alter the commercial calculation behind fuel choices.
FuelEU Maritime was designed to encourage lower-emission fuels by progressively reducing the greenhouse gas intensity of energy used onboard ships. Operators can comply by using compliant fuels, pooling vessels or purchasing surpluses from other companies.
That flexibility was intended to allow the market to identify the most efficient route to compliance. The challenge, according to EmissionLink, is ensuring it does not become a substitute for fuel transition.
“If surplus is abundant and cheap, some operators may simply buy compliance units instead,” said Ioulianou. “That meets the rules on paper, but it does not necessarily move the industry closer to fuel transition.”
The issue highlights a wider challenge facing market-based climate regulation. Compliance mechanisms must balance cost efficiency and flexibility with the need to create sufficient economic pressure to change behaviour. A system that is too expensive risks placing excessive pressure on operators, while one that is too inexpensive may fail to influence investment decisions in vessels, fuels and infrastructure.
For shipping companies, the first FuelEU cycle also provides important commercial lessons. The cost of compliance will increasingly depend not only on fuel choices but also on data quality, contractual arrangements, pooling strategies and understanding how the market develops.
“Cheap compliance may be welcome for shipowners in the short term, but it should not become a substitute for real progress,” said Ioulianou. “Regulators should study the market sooner rather than later, and shipowners should also learn from this first year.”
Market-based regulation succeeds when commercial incentives and environmental objectives are aligned. FuelEU has established a functioning market with its own price signals and trading dynamics; however, whether those signals create incentives to encourage investment in lower-carbon fuels or simply make compliance another cost to be optimised is still to be determined.
