June 16, 2021
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The International Maritime Organisation (IMO) adopts new short-term measures that require ships to combine a technical and an operational approach to reduce their carbon intensity. The operational Carbon Intensity Indicator (CII) will highlight the charterers role in emissions reductions, but is it too weak, too slow? The IMO is already criticised for its selected method as well as its limited ambitions.
New short-term targets known as the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) have been adopted at the MEPC 76 meeting. The operational CII will raise awareness on the charterer's role in reducing emissions, but the method is already criticised for its limited ambitions. Both shipowners and NGOs argue that it is "too weak, too slow".
The CII aims to reduce carbon intensity by 11% by 2026 which leaves a considerable gap between 2026 and 2030 to reach the overall 40% reduction. "The IMO's own analysis shows that this rate of improvement is no better than business as usual," wrote NGO Seas at Risk, Pacific Environment and Ocean Conservancy in a joint press release. More concerning is the fact that the IMO has not discussed how they intend to achieve this massive reduction following 2026.
"Other industries target carbon neutrality by 2050, while IMO - our industry’s most important organization - remains locked at 50% reduction only. The introduction of EEXI and CII are useful new measures, but the targets lack sufficient ambition to bring us much closer to meeting the Paris Climate Agreement goals. It is also highly questionable whether even the carbon intensity reduction goals for 2030 can be met with the adopted amendments" says Geir Olafsen, CDO of Siglar.
Given the level of criticism that the measures have gathered, it is important to examine the draft amendments in detail and address how the industry will be impacted going forward.
The Energy Efficiency Ship Index (EEXI) is a technical index which indicates a vessel’s energy efficiency stemming from ship design. To comply, ships might need to undergo technical modifications to their engine, bow or propeller as well as installation of energy efficiency technology. These changes will need to be approved by the flag state of each vessel and the burden of compliance falls largely on the shipowner.
With the adopted EEXI and the introduction of the CII mechanisms, charterers will be given tools to exercise due diligence prior to fixing, and thereby avoid non-compliant vessels.
The Carbon Intensity Indicator (CII) is an operational requirement applicable to ships above 5,000GT and measures the operational carbon intensity of a vessel. This translates to the carbon emissions per unit of transport work or the used mileage per year.
There are two ways in which to calculate a vessel’s carbon intensity; the Annual Efficiency Ratio (AER) and the Energy Efficiency Operational Indicator (EEOI).
The Annual Efficiency Ratio (AER) has been approved by the IMO as mandatory. It calculates a vessel’s operational carbon intensity by dividing a vessel’s annual carbon emissions by its total annual deadweight distance, irrespective of whether the vessel is sailing ballast or laden.
The EEOI is an additional reporting method which is currently voluntary. This method calculates carbon intensity by dividing annual carbon emissions by the tonne mile.
A vessel’s annual carbon intensity performance will then be compared against the IMO’s rating system which categorises ships into A, B, C, D and E.
Vessels which receive a D rating for three consecutive years and vessels which score an E for one year are required to submit a corrective action plan to demonstrate ways in which they can improve their performance.
The above amendments will enter into force by 2023 and will be reviewed in 2026.
Prior to the meeting, industry players including Bimco, Lloyds Register and the CEO of Klaveness Combination Carriers have expressed concerns on the basis that ships sailing ballast or partially laden will inevitably gain an advantage over vessels sailing in laden condition. Due to the draught difference, ballast or partially laden vessels will have the option to increase their speed without negatively affecting their carbon intensity rating, while laden vessels will simply not be afforded the same prerogative. This method could incentivise longer ballast legs, which would reduce the CII number, but emit more CO2.
Elizabeth Lindstad (Chief Scientist, Sintef Ocean) points out to ShippingWatch that “AER's proponents say you will not be doing things that are not commercially profitable, and then they of course say that there will not be an increase in ballast. But the case is that if the focus is the environment, we must have an index that rewards sensible environmental actions. Assuming that what's good for the wallet is always also good for the environment – that's where the logic is flawed.”
Following the discussion surrounding the use of AER, we are of the opinion that the purpose of the CII is to calculate emissions based on transport work and to help reach emissions reduction targets. Therefore, ballast voyages should not be encouraged or benefited from.
The Energy Efficiency Operational Indicator (EEOI) is viewed among industry players, as a more realistic approach which accurately calculates emissions based on the cargo being carried. Owners will have to operate their vessels more efficiently in order to produce a CII which is within the acceptable margins.
The main challenge with this method is the sharing of sensitive information (i.e., cargo description, quantity, vessel itinerary), which not all industry players are willing to do at this stage.
The carbon intensity indicator will be re-evaluated in 2026 and the consensus in the industry seems to lean towards the adoption of the EEOI as the main emissions reporting method.
The Carbon Intensity Indicator is an operational requirement and therefore, the charterers can take actions to assist in operating a vessel in a more environmentally friendly way. However, the discussions prior to and during the MEPC 76 question the legitimacy and future of the IMO measures in reducing the carbon intensity of ships. The CII will come into effect in 2023, but for how long will it be relevant in fast changing surroundings where both nations and industries call for increased climate action?
“Due to the limited ambitions and slow speed of IMO’s compromises, other countries have propelled action to reduce emissions in the maritime industry. My guess is that the EU together with forward leaning parts of the industry will take the lead in the decarbonisation of shipping” says Siglar CEO, Sigmund Kyvik.
The European Union is well on its way to include shipping into its emissions trading system, (ETS), as final details on the implementation and design of the system will be presented next month. The number of emissions trading systems around the world is increasing, and the EU ETS is inspiring many of the developments.
At this stage, AER is the IMO’s official method for estimating the CII, but Siglar advise to also include the EEOI or other preferred methods in any emissions report. The more granular the data, the more useful the insights, and insights are essential to making carbon efficient operational and commercial shipping decisions.
“We help our customers collect emissions data on a granular level to prepare them for navigating any muddy regulatory waters. Even more important, we prepare them to start making carbon effective operational decisions and reduce emissions.” Kyvik adds.
The MEPC 76 meeting also agreed on a working plan for the establishment of mid- and long-term measures, including market based measures. Future steps include discussions on a mandatory levy of USD 100/tonne CO2e on heavy fuel oil as well as the potential establishment of an International Maritime Research Board which will be funded by a mandatory R&D contribution equivalent to USD 2 per tonne of fuel oil consumed to fund and accelerate R&D of low and zero-carbon technologies. The proposed levy will be further discussed at the intersessional working group meeting in October 2021 while the Research Board proposal will be discussed at the MEPC’s 77th Meeting in November 2021.
Read more about EU actions to decarbonize the maritime industry, and how charterers could be held accountable for shipping emissions.
Want to know more about collecting emissions data on the granular level needed for real emissions insight, please contact our Commercial Executive Aleksander Berntsen.
The International Maritime Organisation (IMO) adopts new short-term measures that require ships to combine a technical and an operational approach to reduce their carbon intensity. The operational Carbon Intensity Indicator (CII) will highlight the charterers role in emissions reductions, but is it too weak, too slow? The IMO is already criticised for its selected method as well as its limited ambitions.
New short-term targets known as the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) have been adopted at the MEPC 76 meeting. The operational CII will raise awareness on the charterer's role in reducing emissions, but the method is already criticised for its limited ambitions. Both shipowners and NGOs argue that it is "too weak, too slow".
The CII aims to reduce carbon intensity by 11% by 2026 which leaves a considerable gap between 2026 and 2030 to reach the overall 40% reduction. "The IMO's own analysis shows that this rate of improvement is no better than business as usual," wrote NGO Seas at Risk, Pacific Environment and Ocean Conservancy in a joint press release. More concerning is the fact that the IMO has not discussed how they intend to achieve this massive reduction following 2026.
"Other industries target carbon neutrality by 2050, while IMO - our industry’s most important organization - remains locked at 50% reduction only. The introduction of EEXI and CII are useful new measures, but the targets lack sufficient ambition to bring us much closer to meeting the Paris Climate Agreement goals. It is also highly questionable whether even the carbon intensity reduction goals for 2030 can be met with the adopted amendments" says Geir Olafsen, CDO of Siglar.
Given the level of criticism that the measures have gathered, it is important to examine the draft amendments in detail and address how the industry will be impacted going forward.
The Energy Efficiency Ship Index (EEXI) is a technical index which indicates a vessel’s energy efficiency stemming from ship design. To comply, ships might need to undergo technical modifications to their engine, bow or propeller as well as installation of energy efficiency technology. These changes will need to be approved by the flag state of each vessel and the burden of compliance falls largely on the shipowner.
With the adopted EEXI and the introduction of the CII mechanisms, charterers will be given tools to exercise due diligence prior to fixing, and thereby avoid non-compliant vessels.
The Carbon Intensity Indicator (CII) is an operational requirement applicable to ships above 5,000GT and measures the operational carbon intensity of a vessel. This translates to the carbon emissions per unit of transport work or the used mileage per year.
There are two ways in which to calculate a vessel’s carbon intensity; the Annual Efficiency Ratio (AER) and the Energy Efficiency Operational Indicator (EEOI).
The Annual Efficiency Ratio (AER) has been approved by the IMO as mandatory. It calculates a vessel’s operational carbon intensity by dividing a vessel’s annual carbon emissions by its total annual deadweight distance, irrespective of whether the vessel is sailing ballast or laden.
The EEOI is an additional reporting method which is currently voluntary. This method calculates carbon intensity by dividing annual carbon emissions by the tonne mile.
A vessel’s annual carbon intensity performance will then be compared against the IMO’s rating system which categorises ships into A, B, C, D and E.
Vessels which receive a D rating for three consecutive years and vessels which score an E for one year are required to submit a corrective action plan to demonstrate ways in which they can improve their performance.
The above amendments will enter into force by 2023 and will be reviewed in 2026.
Prior to the meeting, industry players including Bimco, Lloyds Register and the CEO of Klaveness Combination Carriers have expressed concerns on the basis that ships sailing ballast or partially laden will inevitably gain an advantage over vessels sailing in laden condition. Due to the draught difference, ballast or partially laden vessels will have the option to increase their speed without negatively affecting their carbon intensity rating, while laden vessels will simply not be afforded the same prerogative. This method could incentivise longer ballast legs, which would reduce the CII number, but emit more CO2.
Elizabeth Lindstad (Chief Scientist, Sintef Ocean) points out to ShippingWatch that “AER's proponents say you will not be doing things that are not commercially profitable, and then they of course say that there will not be an increase in ballast. But the case is that if the focus is the environment, we must have an index that rewards sensible environmental actions. Assuming that what's good for the wallet is always also good for the environment – that's where the logic is flawed.”
Following the discussion surrounding the use of AER, we are of the opinion that the purpose of the CII is to calculate emissions based on transport work and to help reach emissions reduction targets. Therefore, ballast voyages should not be encouraged or benefited from.
The Energy Efficiency Operational Indicator (EEOI) is viewed among industry players, as a more realistic approach which accurately calculates emissions based on the cargo being carried. Owners will have to operate their vessels more efficiently in order to produce a CII which is within the acceptable margins.
The main challenge with this method is the sharing of sensitive information (i.e., cargo description, quantity, vessel itinerary), which not all industry players are willing to do at this stage.
The carbon intensity indicator will be re-evaluated in 2026 and the consensus in the industry seems to lean towards the adoption of the EEOI as the main emissions reporting method.
The Carbon Intensity Indicator is an operational requirement and therefore, the charterers can take actions to assist in operating a vessel in a more environmentally friendly way. However, the discussions prior to and during the MEPC 76 question the legitimacy and future of the IMO measures in reducing the carbon intensity of ships. The CII will come into effect in 2023, but for how long will it be relevant in fast changing surroundings where both nations and industries call for increased climate action?
“Due to the limited ambitions and slow speed of IMO’s compromises, other countries have propelled action to reduce emissions in the maritime industry. My guess is that the EU together with forward leaning parts of the industry will take the lead in the decarbonisation of shipping” says Siglar CEO, Sigmund Kyvik.
The European Union is well on its way to include shipping into its emissions trading system, (ETS), as final details on the implementation and design of the system will be presented next month. The number of emissions trading systems around the world is increasing, and the EU ETS is inspiring many of the developments.
At this stage, AER is the IMO’s official method for estimating the CII, but Siglar advise to also include the EEOI or other preferred methods in any emissions report. The more granular the data, the more useful the insights, and insights are essential to making carbon efficient operational and commercial shipping decisions.
“We help our customers collect emissions data on a granular level to prepare them for navigating any muddy regulatory waters. Even more important, we prepare them to start making carbon effective operational decisions and reduce emissions.” Kyvik adds.
The MEPC 76 meeting also agreed on a working plan for the establishment of mid- and long-term measures, including market based measures. Future steps include discussions on a mandatory levy of USD 100/tonne CO2e on heavy fuel oil as well as the potential establishment of an International Maritime Research Board which will be funded by a mandatory R&D contribution equivalent to USD 2 per tonne of fuel oil consumed to fund and accelerate R&D of low and zero-carbon technologies. The proposed levy will be further discussed at the intersessional working group meeting in October 2021 while the Research Board proposal will be discussed at the MEPC’s 77th Meeting in November 2021.
Read more about EU actions to decarbonize the maritime industry, and how charterers could be held accountable for shipping emissions.
Want to know more about collecting emissions data on the granular level needed for real emissions insight, please contact our Commercial Executive Aleksander Berntsen.
