Starting in January 2023, the International Maritime Organization (IMO) will be instituting two new regulatory measures that will alter the day-to-day dynamics of the maritime shipping industry. These measures are the Energy Efficiency Index for Existing ships (EEXI) and the Carbon Intensity Indicator (CII) rating, both of which will play a critical part in the IMO’s push to reduce the maritime shipping industry’s greenhouse gas (GHG) emissions by as much as 70% by 2050.
In this piece, we will focus on CII, which measures how efficiently a ship operates, expressed in terms of “grams of CO2 emitted per cargo-carrying capacity and nautical mile.” Let’s dive into the details.
What is carbon intensity?
In the shipping industry, carbon intensity is the measure of a ship’s GHG emissions relative to the amount of cargo carried over a certain distance. This metric is preferable to total carbon emissions as a measure of a vessel’s environmental impact because it controls for periods of inactivity. During the COVID-19 pandemic, for example, total vessel GHG emissions briefly declined as more ships remained docked; this, of course, was due to a dip in supply chain productivity, not because of more efficient shipping. Carbon intensity, on the other hand, takes economic activity into account, providing a more realistic measure of the shipping industry’s progress toward a more sustainable future.
Calculating carbon intensity using CII
CII will be used by the IMO to assess how efficiently a ship is operating and is calculated using the following carbon intensity formula:
Annual Efficiency Ratio (AER) = (Annual Fuel Consumption x CO2 Emission Factor*) / (Annual Distance Sailed x Design Deadweight of the Vessel**)
CII = AER (adjusted for corrections & exclusions)
*A ship’s CO2 emission factor is calculated based on the type of fuel used to power it.
**A ship’s design deadweight is the maximum amount of cargo plus crew, fuel, etc. that it can carry.
Each ship will get a CII rating of A, B, C, D, or E, with A being the best possible mark. A ship that is rated D for three consecutive years, or E in one year (e.g. those with the highest carbon intensity) will be required to submit a “corrective action plan” that outlines how the vessel will be brought to a minimum C rating.
How will IMO enforce CII?
CII regulations apply to all ships above 5,000 GT. This includes bulk carriers, gas carriers, tankers, container ships, general cargo ships, refrigerated cargo carriers, cruise ships, combination carriers, LNG carriers, vehicle carriers, and more.
In January 2023, all ships will be required to submit an enhanced Ship Energy Efficiency Management Plan (SEEMP) to the IMO. The latest SEEMP requirements include mandatory content related to CII; that is, each SEEMP will be required to detail the actions that a shipping company will take to improve the energy efficiency of a vessel in a cost-effective manner.
As our partners at ABS detail, the SEEMP of every vessel must include the following key information:
- The required Annual Operational CII for the next three years.
- An implementation plan describing how the Required Annual Operational CII target will be achieved over the next three years.
- How the shipping company calculates and reports the vessel’s Attained Annual Operational CII. This metric is compared to the Required Annual Operational CII each year to track progress.
- A plan for the ship’s continued self-evaluation and improvement.
Additionally, for vessels that consistently earn D and E ratings, the SEEMP is where a shipping company would include the aforementioned corrective action plan to bring the vessel to a minimum C rating.
The IMO also plans to make its CII ratings more difficult to achieve each year, in order to motivate ship operators to continuously optimize. Critically, the IMO is encouraging key maritime shipping stakeholders, such as port authorities, to award incentives to companies that use ships with high CII ratings.
According to one ESG assessment, over one-third of the world’s fleet could fall short of the C CII rating required by the IMO. Shipping companies that fail to meet target CII ratings will damage the environment and, potentially, their bottom lines.
“Recently, cargo owners, charterers and banks and insurance companies have all committed to reducing the emissions from their shipping supply chain and portfolio respectively,” wrote one expert.
Subpar “...CII ratings will significantly reduce the commercial attractiveness of the ships. Charters will not want to charter them, insurance premiums for these ships will increase, and they will not get preferred slots in ports around the world and the port fee will increase for these ships.”
Shipping companies can take immediate steps to improve their vessels' CII ratings by utilizing shipping route optimization. This approach strives to decrease the “annual fuel consumption” component of the carbon intensity formula by helping ships consistently skirt bad weather. The IMO estimates that this weather routing approach can reduce a vessel's fuel consumption by up to 3%, decreasing its emissions output and increasing the likelihood that it meets its CII targets. Decreased fuel consumption is also a financial boon, as fuel costs make up an estimated 50-60% of a ship’s total operating costs.
Voyage optimization is an affordable and proven way to make meeting CII targets a reality. Sofar Ocean’s Wayfinder platform optimizes a vessel’s entire voyage using a combination of weather forecasts and business metrics, such as market impact, contract terms, and strategic initiatives (e.g. time charter index, demurrage, bunker prices, etc.). Wayfinder also provides data that helps operators understand their carbon intensity and prioritize emission reductions to meet new and existing regulations.
To learn more about decarbonization in the shipping industry, check out our blog.
Lead photo credit: Chris LeBoutillier