The 20x Penalty Risk: The BIMCO FuelEU Blind Spot

This article examines the critical commercial blind spots in the newly adopted BIMCO FuelEU Maritime Clause for Time Charter Parties 2024. While standard clauses attempt to allocate emissions liabilities fairly, they fail to adequately protect charterers from exponential, compounding penalty multipliers inherited from a vessel's previous employments. By 2035, vessels burning standard MGO could face penalties nearly 20 times higher than today. Furthermore, this piece explores the cash-flow traps for charterers burning alternative fuels and the legally untested off-hire risks under standard NYPE forms, ultimately arguing that bespoke commercial negotiations are essential to mitigate these massive financial liabilities.

FuelEU Maritime

FuelEU Maritime came into force on 1^st January 2025. It establishes limits for GHG intensity, measured in gCO2eq/MJ on Well-to-Wake (WtW) basis. Vessels must report their GHG intensity annually on a calendar-year basis. 

For the initial 2025 reporting period, the limit is set at 89.34 gCO2eq/MJ. The limit will tighten progressively, dropping to 77.94 gCO2eq/MJ by 2035 and ultimately reaching 18.23 gCO2eq/MJ in 2050.

If a vessel exceeds the applicable limit, a FuelEU penalty must be paid for that year calculated based on the resulting energy deficit and the mass of the fuel consumed. Fuel consumed during intra-EU and EU port stays is calculated on a 100% basis, whereas fuel consumed on extra-EU voyages is calculated at 50%. 

Furthermore, if a vessel carries a deficit history from consecutive previous reporting periods, a penalty multiplier is applied at the rate of 10% per consecutive year of deficit. Consequently, if a vessel records a deficit for 10 consecutive years, the penalty multiplier will double the base fine. 

The multiplier clock resets only when a vessel completes a reporting period with no deficit. An owner or charterer may strategically reset this clock by trading the vessel entirely outside the EU for a full calendar year. Alternatively, a deficit can be avoided by pooling the vessel's balance with other ships that hold a compliance surplus. Another option is to "borrow" from the vessel's expected surplus for the following year, though this mechanism is subject to strict regulatory limitations. Crucially, selling the vessel does not erase the liability, as the compliance balance legally follows the vessel.

Standard Marine Gas Oil (MGO) has a GHG intensity score of 90.63 gCO2eq/MJ, exceeding the 2025 limit by 1.29 gCO2eq/MJ. Therefore, any vessel burning purely MGO and trading to, from, or within the EU cannot avoid a penalty unless the operator modifies the vessel, switches to alternative fuels, or utilises a pooling mechanism. 

The commercial risk escalates drastically over time. By 2035, when the limit drops to 77.94 gCO2eq/MJ, the deficit generated by burning standard MGO will balloon to 12.69 gCO2eq/MJ—nearly 10 times greater than the deficit created by the exact same fuel in 2025. If that vessel has recorded deficits for the 10 consecutive years from 2025 to 2034, the penalty will be compounded by a 100% multiplier (2.0x). This renders the final penalty payable in 2035 almost 20 times higher than what the vessel would pay for burning the same amount of MGO today.

BIMCO FuelEU Maritime Clause for Time Charter Parties 2024

To what extend does BIMCO FuelEU Maritime Clause for Time Charter Parties 2024 manage this escalating risk?

Subclause (d) of the Clause stipulates that if a vessel incurs a negative compliance balance (a deficit) during the charter period, the charterer must pay the owner a "surcharge" equal to the FuelEU penalty corresponding to that deficit. On its face, this mechanism appears to neatly confine the charterer's financial liability strictly to the emissions they generate.

However, this is fundamentally incorrect. The critical blind spot in the Clause is the penalty multiplier. A new charterer employing a vessel in 2035 will not merely pay for the isolated deficit they created during their voyage; they will pay double that amount due to the multiplier inherited from the vessel's employment by previous charterers.

In practical terms, this makes it necessary for charterers to rigorously inquire into the vessel's complete FuelEU deficit history dating back to 2025. The current BIMCO Clause only requires the owner to provide the compliance balance for the two previous reporting periods. This two-year disclosure window completely fails to account for a potentially decade-long multiplier streak and is therefore dangerously insufficient for charterers. 

The higher the multiplier a vessel carries, the more severely its charter hire value will be impacted, potentially jeopardising its ultimate commercial viability to trade to, from, or within the EU. Even in cases where the inherited multiplier is relatively small, due diligence may reveal a need to negotiate a specific allocation of these legacy penalty costs between the owner and the new charterer.

This regulatory framework poses risks to owners as well. When a charterer redelivers a non-compliant vessel, they leave behind an escalated multiplier that burdens the owner and deters the next charterer. It is highly in the owner’s interests to negotiate protection against this. Yet, the BIMCO Clause in its default form only provides an option to claim liquidated damages for this future loss if the charter period covers at least two consecutive years.

Consequently, a vessel's deficit history is no longer just a chartering issue; it directly impacts the asset's valuation in Sale and Purchase (S&P) and ship mortgage transactions. Where the financial burden of a legacy deficit history becomes insurmountable, the most practical avenue to break the cycle and wipe the multiplier clock clean is to deploy the vessel exclusively outside the EU for a full calendar year—unless the parties are willing and able to burn low-emission alternative fuels, such as biofuel blends; the adoption of alternative fuels will inherently require bespoke commercial negotiations, as these fuels are often significantly more expensive for charterers to procure and can present technical risks for the vessel's engines. 

Subclause (c) of the BIMCO FuelEU Clause does grant charterers the option to supply compliant fuels to mitigate penalties. On the surface, this appears to seamlessly permit the use of biofuels. Legally, however, it does not. Conventional bunker clauses—such as the BIMCO Bunker Quality and Liability Clause 2011, which relies on the ISO 8217:2010 standard—do not adequately cover high-blend biofuels. Fortunately, this contractual bottleneck is expected to be resolved shortly with the anticipated launch of the BIMCO Biofuel Clause, which will reference the updated ISO 8217:2024 standard.

Furthermore, Subclauses (d) and (f) allow owners to claim the estimated FuelEU surcharge in advance, on a monthly or voyage basis, payable within 15 days. While this successfully minimizes the owner's credit risk, it simultaneously exposes charterers to severe cash-flow disadvantages, particularly when they invest in expensive, energy-efficient fuels. Charterers cannot legally claim the compliance benefits of these cleaner fuels until they produce a Proof of Sustainability (PoS) from the bunker supplier. In practice, a PoS is rarely issued within BIMCO’s 15-day payment window. While this is technically a timing issue—as subclause (g) allows charterers to eventually claim back any excess surcharge paid once the PoS is secured —it nevertheless creates a cash‑flow issue for charterers, which they may need to negotiate depending on the parties’ credit standing, particularly where the charterer intends to use energy‑efficient fuels.

Standard time charter forms, such as the various iterations of the NYPE, typically render a vessel off-hire in the event of a detention by the Port State control or other competent authorities for vessel deficiencies. However, it remains legally untested whether such standard clauses would be triggered if a vessel is detained or denied entry solely due to the non-payment of FuelEU penalties (which must be settled by 30 June of the year following the reporting period to obtain the mandatory Document of Compliance). To mitigate the arbitration risk on this point, owners and charterers must include an express contractual provision clarifying the allocation of off-hire risk in the event of a FuelEU-related detention.

Conversely, for modern dual-fuel vessels (such as those powered by LNG), operations will likely generate a significant compliance surplus. In these scenarios, owners should proactively negotiate a surplus-sharing agreement to capitalise on the financial benefits of that surplus, ensuring a return on their substantial capital investment in green technology.

Conclusion

The BIMCO FuelEU Maritime Clause for Time Charter Parties is merely a starting point. The regulation introduces exponential, compounding financial liabilities that a standardised clause cannot fully protect against. Both owners and charterers must look beyond the boilerplate language and negotiate bespoke terms that accurately reflect the compliance history of the vessel and the specific commercial realities of their charter.