Efforts to reduce the carbon intensity of shipping will receive a major boost early next year when a new suite of regulations take effect.
Global maritime greenhouse gas emissions stand at about 1,076 million tonnes per annum, according to the International Maritime Organization, which, if global maritime was a country, would put it a little bit ahead of Germany and at number 6 in a list of countries ranked in order of how much they emit. That 1,076 million tonnes figure includes ocean shipping, global fishing and domestic fleets.
The IMO’s Greenhouse Gas Strategy ties in with the 2015 Paris Agreement (to limit global warming to below 2 degrees Celsius) and aims for a cut of emissions on average by 40% by 2030, a cut in total emissions of 50% by 2050; working towards a 70% cut by 2050 and a complete phase-out by century’s end.
Carbon Intensity Indicator
Several regulatory tools and policies have been developed by the IMO to meet these goals, however, we are going to focus on one specific regulatory policy that could prove to be a major driver of shipping industry decarbonisation: the Carbon Intensity Indicator (CII).
Following amendments to MARPOL by MEPC 76 (see box below for acronyms), the IMO has mandated that as of 2023 there will be a Carbon Intensity Indicator (set with reference to 2019 data) and that ships must be assessed against that indicator.
In 2023, ships will be required to hit a CII (the “attained CII”) that has 5% fewer emissions when compared to the benchmark. The attained CII is based on the actual operational performance of the ship, and so the assessment will likely require expert analysis.
Ships will be given a grade of A-E, where A is the best and C is the pass grade. The results will be reported to a Classification Society. Any ship getting a D grade for three years in a row, or an E in any year, will have to take corrective action to get the ship back to a pass grade.
Then, each year thereafter, the standards will be toughened a little bit and ships must, each year, meet that tougher standard. So, a ship could get a pass mark in one year, but it could fail the year after!
This process will continue until 2026, at which point the CII will be 11% lower than the 2019 benchmark, and a review of the system is scheduled.
Compliance?
At the moment there are few official sanctions for non-compliance with the CII or non-implementation of corrective action plans. There are no flag state or port state penalties. Shipping Australia understands that port state control measures have been discussed at the IMO but, so far at least, these have not been green-lit. If there were to be port state control in the future, it could be that ships get detained for non-compliance.
The shipping industry is opposed to the implementation of any such penalty, however, as the CII system is entering into an initial review period which must complete by 1st January 2026. It will not be clear whether the system is functioning in an accurate and fair manner until then. Meanwhile, CII ratings will be confirmed against annual data returns. In between the annual submissions, it will be impossible to know what a ship’s annual rating will be – because of seasonal (winter/summer) variations. Unless a port state inspection coincides with the end of an annual CII reporting period, or at some point thereafter, it would be impossible for a Port State Controller to fairly judge whether a ship will fully complete its plans or ultimately achieve or exceed a C rating at the end of a given annual reporting period.
As it happens, Shipping Australia has received comments from the Australian Maritime Safety Authority that, initially at least, there will not be any sanctions for non-compliance.
“Noting the so called ‘soft’ enforcement approach of the short term measure in the first several years after implementation, AMSA has no plans to take unilateral enforcement action against vessels that arrive in Australian ports with a CII of less than grade C or have not implemented corrective actions within 12 months of being rated E once or D three years in a row. Please note that strengthened or enhanced enforcement mechanisms may be considered as part of the review of the short term measure, which is to be completed by the IMO by 1st January 2026″, AMSA wrote to Shipping Australia in late October 2022.
Market sanctions
It is, however, likely that there will be market-sanctions for non-compliance.
Major shippers, such as IKEA, Electrolux, Target and the like, have declared ambitions for zero emission vessels by 2040. It seems unlikely that such major shippers would charter vessels or do deals with shipping companies that cannot at least hit a C grade.
Age, the freight rate environment, and the amount to be spent on corrective actions, will likely be major factors. Ships generally have a life of about 20-25 years. Elderly ships that get low scores, and which are faced extensive retrofitting or repair work, are likely to be simply scrapped instead as they would be unlikely to ever earn back the cost of expensive corrective actions.
Any new ships would then be subject to the Energy Efficiency Design rules, which mandate that all new ships are built to be highly efficient.
Calculating matters
Ship owners and operators have a wide range of tools to cut their emissions. The key to understanding how can be found in the CII concept calculation:
The product of “Annual fuel consumption” multiplied by a “C02 emissions factor”), which is then divided by the (“annual ship distance travelled” multiplied by “ship’s capacity”).
(Annual fuel use x C02 emissions factor) / (distance x capacity) = CII
Shipping companies have little control over the elements that make up the latter half of the calculation.
Ships are generally built to a given size and dimensions to match the volumes and distances of a given trade. Because of the volumes, we see large bulkers on the WA / north Asia trade and small box ships deployed on the Asia / ANZ trade. For exactly the same reasons, we don’t see many tiny bulkers on the WA / north Asia trade, similarly, it is unlikely that an 24,000 TEU vessels will be deployed on the China-Australia trades any time soon.
As ships are built for, and deployed on certain trades with largely set routes and distances, there is little that can be done cut emissions by focusing on the latter half of the CII calculation.
But the elements in the top half of the calculation – fuel consumption and CO2 emissions factor (i.e., related to the type of fuel chosen) – are both very controllable.
What to do, what to do?
Annual fuel consumption can be cut either by running ships more efficiently (more fuel efficient management e.g., polish the hull more or slow down more) or by installing fuel saving technology (such as kites, sails, waste heat recovery systems). If ship operators choose a lower emissions fuel such as, green hydrogen, green ammonia, biodiesel or methanol, then they’re basically done.
That is, of course, a gross over-simplification for the purposes of explaining how it will work and what can be done. There’s still a lot of research and development to be done on future fuels, and the likely industry-wide ‘winner’ is, as yet, still uncertain. In the near-term, over the next 10-15 years, ocean shipping will initially heavily rely on ship management practices to make existing operations more energy efficient.
As vessels become elderly and inefficient, they will be sent to the scrapyard and their replacements will likely be equipped with all the energy saving bells and whistles while we await the debut of clean fuels.
Decarbonisation: how to
GHG counter-measure / Scale of GHG reduction (in %)
- Power & Propulsion systems 5-15%
- Fleet management, logistics 5-50%
- Voyage optimisation 1-10%
- Concept, speed, capability 2-50%
- Extensive speed optimisation 1-75%
- Go fully electric* 50-90%
- Bio-LNG / LPG 35%
- Biofuel (3rd gen) 90%
- Synthetic fuels** 80-100%
- Energy management 1-10%
- Hull and superstructure 2-20%
- Hull biofouling management 5-25% * for smaller, near-shore, commercial vessels – tugs, ferries, small coastal tankers
** e.g., green hydrogen, green ammonia, green methanol. Not all ships can adopt all measures. List is non-exhaustive. Source: IMO; notes by Shipping Australia
Acronym overload! Don’t know your EEOI from your EEXI or your EEDI? Shipping Australia’s handy guide makes everything clear!
CII
Carbon Intensity Indicator. A reference carbon intensity indicator benchmark is set with reference to the year 2019 (see SEEMP Part 2). A specific CII must be calculated each year for each ship based on the ship’s actual carbon intensity (“attained CII”), and that attained CII must beat the benchmark CII. There are two elements of the CII that may particularly drive decarbonisation of international shipping: (a) the attained CII must be re-discovered and re-calculated each year; and (b) the benchmark CII reduces every other year relative to 2019. It will reduce by 5% in 2023, then it will reduce for the next until it reaches an 11% reduction in 2026.
EEOI
Energy Efficiency Operational Index. A key performance measurement system used to measure the energy efficiency of a ship. Particularly used in recent years for reporting data to the IMO – and can still be used for that purpose – but it is likely to fall out of favour with the introduction of the CII.
EEDI
Energy Efficiency Design Index. Entered into force in 2013. An index for new ships. A reference or “benchmark” EEDI is set and new ship designs must attain a one-off efficiency (“attained EEDI) that is better than benchmark. The benchmark reduces every few years. The IMO states that ships built in 2025 will be “a massive 30% more energy efficient than those built in 2014).
EEXI
Energy Efficient Existing Ship Index. The counterpart to the EEDI, it sets a reference point or “benchmark” for ships that exist and those ships must attain a one-off efficiency (“attained EEXI”) that is better than the benchmark. The benchmark reduces over time. Ship owners can use an approved EEDI file as the EEXI technical file and no further action is required. The EEXI comes into force in January 2023 and is one of the recent amendments to MARPOL Annex VI
IMO
International Maritime Organization. A specialist United Nations organisation that regulates the global maritime sector. Membership of IMO is limited to countries that accept the IMO Convention and pay the applicable fees (based on tonnage in the merchant fleet). There are about 175 countries that are IMO members (about 195 countries exist), there are about 66 inter-governmental organisations (e.g., the Indian Ocean Commission) that have observer status, and 85 non-governmental organizations with consultative status (e.g., the World Shipping Council). The main Assembly meets every two years and, in-between, a council of 40 nations acts as a governing body. The technical work of the IMO is carried out by a series of committees and sub-committees which are attended by government delegates from around the world. The IMO Secretariat consists of about 300 international civil servants and the Secretary General. See also: MEPC, MARPOL / MARPOL Annex VI
MARPOL / MARPOL Annex VI
“MARPOL” is the amalgamated form of the word “Maritime Pollution”. MARPOL refers to the “International Convention for the Prevention of Pollution from Ships, 1973”, which was signed in 1978 and which entered into force in 1983. About 156 or so countries have signed up to MARPOL, account for about 99.4% of the world’s merchant fleet. MARPOL Annex VI regulates airborne emissions from ships such as Nitrogen Oxides (NOx), Sulphur Oxides (SOx), Volatile Organic Compounds (VOCs), Particulate Matter (PM), Greenhouse Gases (GHG), Carbon Dioxide (CO2). Australia implements MARPOL through the Protection of the Sea (Prevention of Pollution from Ships) Act 1983 and the Navigation Act 2012.
MEPC
Marine Environment Protection Committee. The IMO processes a large volume of work through its committees and sub-committees. One of the most important committees in recent decades is the Marine Environment Protection Committee, which tackles environmental issues in the IMO’s area of responsibility. The MEPC meets once or twice a year and may also have inter-sessional meetings too. The MEPC is empowered by MARPOL to make international maritime environmental law regulations. See also: IMO and MARPOL.
SEEMP
The Ship Energy Efficiency Management Plan. An IMO-mandated plan that must be placed aboard every ship. It links high level international policy on energy efficiency, company policy, and the activities of and aboard a ship. The SEEMP sets out how the ship is supposed to be operated in a way that meets company and international policy goals. Is split into three parts. Part 1 – for monitoring and improving ship’s energy efficiency. The IMO recommended tool to set goals and monitor Key Performance Indicators under Part 1 was / is the EEOI. Part 2 – mandated the collection and reporting of fuel consumption data to the IMO; reporting took place in 2019. Part 3 – this brings the CII into being. See the entry for CII for further details.
Further reading:
“Decarbonisation of shipping: an overview” by Shipping Australia
