Vying For Decarbonization In Shipping

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Credits: Venti views/Unsplash

  • Decarbonisation of the shipping industry is a high-profile current issue.
  • There are two upcoming IMO measures directed at reducing greenhouse gas emissions from ships.
  • The two new measures are the Energy Efficiency eXisting ship Index (EEXI), and the Carbon Intensity Indicator (CII).

The IMO’s stated goal is to reduce the carbon intensity of all ships by 40% by 2030 and 70% by 2050 (as against 2008 levels), and EEXI and CII build on existing measures to try and achieve this.

Energy Efficiency Existing Ship Index (EEXI)

EEXI is a one-off classification of the energy efficiency of a ship’s design, construction, and technical features, and seeks to impose a minimum standard on the global fleet. A wide range of ship-types are caught by the EEXI regulations and existing vessels will be required to have their EEXI technical files prepared by the time of their next International Air Pollution Prevention (IAPP) Certificate Renewal from 1 January 2023. Newbuilds will be required to do so by their initial survey before entering service. Information from various vessel documents is used to assist in preparing the EEXI technical file, including capacity plan/lightweight certificate. 

The EEXI describes the ship’s anticipated carbon emissions, expressed per cargo ton and mile, taking into account factors like engine power, fuel oil consumption, and cargo capacity. While EEXI compliance does not necessarily require technical modifications to a ship, in practice this is likely to be required for many vessels in order to achieve the minimum required EEXI rating of “C” or above. In 2021, BIMCO published a model EEXI transition clause for time charterparties, specifically addressing EPL/SHAPOLI modifications.

Other options which may enhance a ship’s EEXI classification include increasing cargo capacity, installing more efficient propellers and associated equipment, or potentially more radical (and expensive) alternatives such as switching to carbon-neutral fuel or introducing entirely green power technologies. The IMO intends (under MARPOL Annex VI Regulation 25.3) to review the effectiveness of the EEXI measures by 1 January 2026 to assess their effectiveness, and will possibly make amendments to them once there is real-world data available on the effectiveness of the measures and their practical consequences. 

Carbon Intensity Indicator (CII)

CII is an ongoing (annual) measure of the carbon intensity of a ship’s operations – i.e., its greenhouse gas emissions relative to the amount of cargo carried and the distance traveled. CII will regularly fluctuate depending on factors such as speed, length of voyages, and nature and volume of cargo, and it is to be calculated and reported annually using a formula prescribed by the IMO. Ratings range from A to E, with A being the highest rating. Stakeholders (such as flag states and port authorities) are being included in discussions of the CII regime to provide positive incentives to ships rated as A or B, while those with the lowest ratings (D for three consecutive years, or E for any length of time) will be required to submit corrective action plans setting out the remedial steps they will take to reach the required index of C or above.

In practice, in order to collect the necessary data for ongoing CII reporting and compliance, owners will need to monitor and record a wide range of operational data. Various proprietary software solutions are available that assist in monitoring the relevant factors. By 31 December 2022, all ships subject to the CII rating regime will be required to have prepared a SEEMP Part III (a specific part of the Ship Energy Efficiency Management Plan developed to support CII targets). From 1 January 2024, a Statement of Compliance containing fuel consumption and CII-related data will be issued.

As CII compliance (particularly for older or less efficient ships) is likely to necessitate changes to the speed, route, or cargo capacity of a ship (or indeed all three), there are obvious potential tensions between charterers’ requirements and the need to minimize the ship’s carbon intensity.

EU Emissions Trading System (EU ETS)

This proposal is expected to apply to all affected vessels operating within the EU, regardless of flag. Those whose voyages start or end outside the EU will only have to participate in the EU ETS for 50% of their emissions, but 100% for voyages between EU ports and for ships at berth in EU ports. Changes are proposed with the intention of reducing overall CO2 emissions in applicable sectors (including maritime transport) by 61% by 2030 (as compared with 2005). 

The EU ETS is based on a “cap and trade” principle, where a cap is set on the total amount of greenhouse gasses that can be emitted by a ship, which is reduced over time. Shipping companies will purchase (and surrender) emissions allowances to cover their fleets’ carbon emissions, with fines applying for exceeding these. The price of these allowances is intended to fluctuate based on market demand (and the availability of emissions allowances), so that as the cap reduces it becomes ever-more expensive to emit CO2.

FuelEU Maritime

This is another proposal that applies to all affected vessels calling at EU ports, regardless of flag. The intention of this measure is to encourage the use of more sustainable (either renewable or lower carbon) fuels by mitigating market barriers and technological uncertainty that presently discourage their use. It sets requirements for vessels to progressively reduce their greenhouse gas emissions from 2025 onwards, including compliance with monitoring obligations.

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Source: Clydeco

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