FuelEU Maritime Regulation – How it works

Fuel EU Maritime Regulation (EU 2023/1805) (FuelEU Maritime), effective 1 January 2025, with first regulatory reporting and verification commencing in the first half of 2026, introduced stringent requirements to reduce greenhouse gas (GHG) emission intensity in the maritime sector.

One of the key challenges facing finance teams at shipowners and operators is translating the FuelEU Maritime’s complex compliance mechanisms into clear, supportable accounting outcomes. This means addressing a few critical questions: how should flexibility mechanisms, penalties, and compliance costs be recognised, measured, and disclosed in the financial statements?

FuelEU Maritime introduces a mechanism of linking emissions performance to profitability by imposing financial cost on shipowners that do not comply with defined fuel intensity thresholds. However, FuelEU Maritime’s structural complexity combined with the multiple compliance mechanisms and limited precedent for what would be an appropriate accounting treatment, has created uncertainty for operational and finance teams.

As the focus for organisations now shifts to ensuring that the financial implications of FuelEU are appropriately assessed, consistently applied, and audit ready. This is where organisations are increasingly seeking specialist support.
 

GHG Intensity requirements

The GHG intensity is calculated as total GHG emissions per total energy used. The regulation adopts a well‑to‑wake approach. Emissions are assessed across the full fuel lifecycle; from extraction or cultivation through production and transport to final combustion. This considerably broadens the emissions profile compared to traditional tank‑to‑wake measures.

The scope of the GHG intensity requirements is defined by voyage exposure to the EU/EEA. It covers 100% of energy used on intra EU/EEA voyages and while at berth in EU/EEA ports, and 50% of energy used on voyages entering or departing from the EU/EEA, including relevant outermost regions.

The baseline GHG intensity is set at 91.16 gCO₂e/MJ (based on 2020 levels). From this starting point, the regulation imposes a progressively tightening reduction pathway, beginning at 2% in 2025, increasing to 6% in 2030, and scaling up towards an 80% reduction by 2050. This trajectory creates a steadily increasing compliance gap for vessels relying on conventional fuels, reinforcing the need for new operational strategies.
 

FuelEU Maritime Compliance and Flexibility Mechanisms

Under the regulation, the responsibility for compliance lies with the shipowner, or with any other organisation or person such as the manager or bareboat charterer that has assumed responsibility for operating the ship from the shipowner and has agreed to take on all duties and obligations set out in the International Safety Management (ISM) Code.

Non-compliance with the GHG intensity targets results in financial penalties calculated per ton (or unit of energy) of excess fuel-equivalent emissions, with escalating penalties for repeated breaches. FuelEU Maritime offers several alternative compliance mechanisms for ships that do not meet the required GHG intensity. A central element for these mechanisms is the compliance balance which must be calculated for each ship as part of the annual regulatory compliance reporting process.

A ship with an actual GHG intensity below the required level will have a positive compliance balance, and a ship with an actual GHG intensity above the required level will have a negative compliance balance.

The regulation provides the following flexibility mechanisms to enable compliance:

  1. Banking: Positive compliance balance can be banked for future periods (no expiry). Banked surplus cannot be transferred to other ships (even for the same ship owner).
  2. Borrowing: Negative compliance balance can be borrowed from next year, with +10% penalty applied, but no borrowing is allowed for two consecutive periods. This means that if the company still has a negative balance in the subsequent year, it is not permitted to borrow again.
  3. Pooling: Ships (even from different owners or operators) can pool compliance balances and re-allocate compliance balance between the individual ships, if:
    • Total pool balance is positive;
    • Ships that had a compliance deficit do not end up with an even higher compliance deficit after the reallocation of the compliance balance;
    • Ships which had a compliance surplus do not have a compliance deficit after the reallocation of the compliance balance.

A ship can only join one pool for each annual reporting period.
 

Penalties

Ships with negative compliance balance after any banking, borrowing, or pooling will have to pay a penalty corresponding to its compliance deficit. The penalty is set to about €58.54 per GJ of non-compliant balance.
 

Monitoring, Reporting & Verification (MRV)

The first regulatory reporting period of Fuel EU is 1 January to 31 December 2025. Following the end of this reporting period, the first verification cycle commenced in January 2026 for all ships within scope of the Regulation. All in-scope ships are subject to the same verification framework and timetable. The verification process follows a set of prescribed milestones, which are outlined below:

1 January
2025		31 December
2025		By 31 January
2026		By 31 March
2026		By 30 April
2026		Before 1 May
2026		By 30 June
2026
End of the first reporting period
Fuel EU came into force
Company submits Fuel EU Report for reporting period to
Fuel EU report recorded in Fuel EU Database
Declaration of banking, borrowing or pooling in the Database
Verified Compliance Balance is confirmed
Penalty Payment deadline.

Document of Compliance issue if no penalty or penalty already paid

Accounting implications

Ships with a negative compliance balance (deficit)

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, provision needs to be recognised when the actual GHG intensity exceeds the required threshold. The provision is progressively increased as the deficit increases. Once the penalty is confirmed, the provision is reclassified as a payable and derecognised upon settlement. However, the presence of the flexibility mechanism like pooling and borrowing may affect the measurement of such provision.

Ships from different owners/operators might participate in a pooling arrangement. Pooling is the most common flexibility mechanism applied by entities. It allows the entity to offset penalties with surplus positions within the pool. The accounting impact of pooling depends on the stage of negotiation at the reporting date and whether there is sufficient objective evidence that such arrangement will become binding.

Alternatively, some companies might opt for paying the penalty, which is potentially the most expensive option, or borrowing a portion of the following year's expected surplus. Borrowing defers settlement by increasing the following year's compliance requirement.

Borrowing should affect provision measurement only where there is sufficient objective evidence, at the reporting date, that the entity will generate an adequate surplus in the following year to cover the current year’s compliance deficit. Without such evidence, borrowing should not be considered in measuring the provision.
 

For ships with a positive compliance balance (surplus)

Ships with a surplus can choose to participate in the pooling arrangements so that the positive compliance balance can be shared with other ships with a deficit compliance balance, or alternatively, they can choose to bank the positive compliance balance for the use in the future periods.

As discussed above, ships from different owners/operators might participant in a pooling arrangement. In such a case a pooling contract would in general be established which stipulates the compensation the ship owner/operator with a deficit would need to pay the owner/operator with a surplus. A receivable should be recognised only when the owners/operators with a surplus becomes a party to the contractual provisions of the instrument in accordance with IFRS 9 and the entitlement of payment is established. For entities that choose to bank the positive compliance balance for future use, we general would not expect an asset to be recognised.
 

Background to FuelEU Maritime

FuelEU Maritime came into force on 1 January 2025, forming a central component of the EU’s wider "Fit for 55" decarbonisation package. The regulation applies to ships above 5,000 GT transporting cargo or passengers for commercial purposes within the EU/EEA and imposes progressively stricter annual limits on lifecycle emissions. To meet these limits, the Regulation incentivises ship owners and operators to transition toward renewable and low-carbon fuels, improve energy efficiency, and adopt clean technologies. From 2026, non-compliance carries direct financial penalties, making fuel and operational decisions increasingly material to financial profitability.
 

Conclusion

A clear understanding of the entity's compliance position, the flexibility mechanisms applied, and their status at the reporting date are essential in determining the accounting implications of FuelEU Maritime. This assessment includes determining whether there is adequate objective evidence to justify pooling arrangements and borrowing. This is especially important for deciding whether a provision should be recognised and how it should be measured.

FuelEU Maritime introduces new accounting complexity, judgement, and potential earnings volatility. Finance functions should act now to assess exposures, align accounting positions, and integrate impacts into financial planning.

We are already working with shipping organisations to evaluate accounting implications and financial performance impacts of FuelEU Maritime. We would be delighted to discuss how FuelEU Maritime is affecting your business and how we can help.

Key contacts

Cassie Forman-Kotsapa

Cassie Forman-Kotsapa

Partner, Head of Shipping & Transport
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