Introduction
Vessel efficiency and carbon intensity rules
Comment


Introduction

Growing environmental awareness is shaping the way in which the shipping industry operates as international regulations become increasingly geared towards implementing measures that help mitigate the impact of shipping activities on the environment. Recent years have witnessed a profound impetus to effect change in internal shipping, leading to the International Maritime Organization's (IMO's) 2020 sulphur cap. This regulation entered into force under the International Convention for the Prevention of Pollution from Ships (MARPOL Annex VI) and resulted in a reduction in the sulphur content in marine fuel from 3.5% to 0.5% in Malta flagged vessels, as well as across international markets.

Vessel efficiency and carbon intensity rules

The success of the IMO's 2020 sulphur cap set the tone for the shipping industry's decarbonisation goals and the momentum built over the past three years has served as a catalyst for the introduction of new IMO 2023 Regulations. The amendments to the MARPOL Annex VI came into force on 1 November 2022 and were implemented on 1 January 2023, introducing new rules that target vessel efficiency aspects and carbon intensity, which have become mandatory for certain categories of Malta flagged vessels, including bulk carriers, gas carriers, tankers, container ships, general cargo ships, refrigerated cargo carriers, combination carriers, liquefied natural gas carriers, ro-ro cargo ships, ro-ro passenger ships and cruise ships.

The amendments to MARPOL Annex VI include new measures aimed at reducing the carbon intensity of ships by 40% by 2030 compared with the 2008 baseline. To achieve these goals, Malta flagged ships will be required to calculate their energy efficiency existing ship index (EEXI) to determine their efficiency, as well as their carbon intensity indicator (CII) to determine their CII rating. These measures are aimed at meeting the target set in the IMO's initial greenhouse gas strategy in the short term and impose more onerous requirements for ships to improve their energy efficiency as a further means of reducing their carbon footprint.

EEXI
It has become mandatory for certain Malta flagged ships to:

  • calculate their EEXI;
  • measure their energy efficiency; and
  • start collecting data to report their annual operational CII rating.

The first annual reporting is to be completed during 2023 and initial ratings are to be provided in 2024, where the carbon intensity of a ship will be rated from "A" to "E" ("A" indicating superior efficiency performance levels and "E" indicating inferior performances levels). The ship's performance level will then be recorded in a statement of compliance and further elaborated in the ship's energy efficiency management plan.

The EEXI applies to ships above 400 gross tonnes that are engaged in international voyages, while the CII applies to ships above 5,000 gross tonnes. Such ships will need to be surveyed and issued with appropriate certification evidencing compliance with the regulations. A ship's EEXI will indicate its energy efficiency as compared with the agreed baseline as a percentage of the energy efficiency design index. The attained EEXI for ships must be below the required EEXI value to ensure the ship meets the minimum energy efficiency standard.

CII
Working in conjunction with the EEXI is the CII, a rating system for ships that includes a system whereby a fixed percentage in the ships carbon rating increases annually by the factor required to ensure continuous improvement of the ship's operational carbon intensity. The operation carbon intensity is within a specific rating level and this operational CII will need to be documented and verified against the required annual operational CII.

Ship operators are expected to adopt the required measures to ensure that their ships are compliant with MARPOL Annex VI. Any ships that get a rating of "D" (indicating minor inferior performance) for three consecutive years, or "E" (indicating major inferior performance) for one year, will have to submit a corrective action plan illustrating how the required index of "C" (indicating moderate performance) or above will be achieved. MARPOL Annex VI encourages port authorities to provide incentives for vessels that manage to obtain the highest ratings, which may come in the form of discounted ship registrations fees, port fees and other associated shipping costs.

The ways in which vessels can decrease their carbon footprint and rating may vary, although it is widely recognised that one of the most cost-effective means of increasing a ship's EEXI and CII is though speed and routeing optimisation as well as regular hull cleaning to reduce drag. It is estimated that such measures alone may be enough to reduce carbon emissions by up to 30%. The use of low-carbon fuels is also encouraged, although it is expected that this will be more gradual.

Comment

The IMO 2023 Regulations are another step in the right direction for a greener shipping industry and one that will continue to expand as a key feature in the shipping industry's efforts to address environmental concerns in the years to come. The new measures are expected to evolve over time and the IMO's Marine Environment Protection Committee has been tasked with assessing the effectiveness of the implementation of the CII and the EEXI by 1 January 2026.

For further information on this topic please contact Peter Grima at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email ([email protected]). The Fenech & Fenech website can be accessed at www.fenechlaw.com.