Starting in January 2023, the International Maritime Organization (IMO) will require shipping companies to track the carbon intensity of vessels. Based on the data collected, each ship will receive a Carbon Intensity Indicator (CII) rating, an assessment of how efficiently the ship moves cargo in terms of the greenhouse gas emissions (GHG) it produces.
The outlook for many ships’ forthcoming CII grades is not positive; in one ESG assessment, over one third of the world’s vessels were projected to receive a failing CII grade. To ensure that their ships are compliant when regulations go into effect, owners and operators must understand what vessel carbon intensity is, how the IMO measures it, and what tools they can use to reduce it.
In the shipping industry, a vessel’s carbon intensity is a measure of its greenhouse gas emissions relative to the amount of cargo it carries over a certain distance. To calculate carbon intensity, the IMO uses the following 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.
CII scores will translate to an A - E grade, with A being the best rating. Ships that earn a D or E grade will be required to submit a “corrective action plan,” which outlines how the vessel will make the improvements necessary to achieve a minimum C rating. The criteria for achieving a passing grade will become more stringent each year, an aggressive approach in line with the IMO’s goal to reduce the shipping industry’s GHG emissions by as much as 70% by 2050. Key stakeholders, such as port authorities, are encouraged to offer incentives to companies that use ships with high CII ratings.
Two of the primary carbon intensity reduction strategies focus on fuel consumption. They are:
The full potential of alternative fuels, such as biofuels, liquified natural gas (LNG), clean ammonia, and other less carbon-intensive inputs, has yet to be unlocked. That said, major shipping companies like Maersk and CMA CGM are actively investing in these potential replacements. Zero-carbon fuel — fuel that emits no GHGs – is currently neither affordable nor scalable.
The shipping industry’s carbon intensity reduction goals may still be met absent a “silver bullet” alternative fuel. Existing technologies, in particular, offer immediate solutions.
"I would support the suggestion that the existing tech can get to 11% [carbon intensity improvement),” said Tristan Smith, an associate professor at UCL Energy Institute and the Director of University Maritime Advisory Services, in a conversation with S&P Global. “We estimate that existing mature tech can get to a 31% carbon intensity improvement by 2030, without any change in fuel carbon intensity."
Shipping route optimization is an existing technology with particular promise. According to an IMO estimate, a vessel that follows a route with optimized weather conditions can reduce fuel consumption by up to 3% during a voyage.
Sofar Ocean’s Wayfinder provides fleets with continuously optimized voyage guidance. Using Sofar’s highly accurate forecasts powered by the largest ocean weather sensor network, Wayfinder sends daily speed and waypoint recommendations that put vessels on the least weather-restricted path to port. These recommendations take into account vessel-specific business and safety constraints. To meet an emissions target, for example, an operator could preset a fuel consumption limit; by burning less fuel voyage after voyage, the operator reduces the vessel’s carbon intensity and improves its CII rating.
The CII will be widely adopted by shipping companies as a guiding metric in 2023 and will surely spur some corrective action. Nonetheless, the IMO’s approach to reducing and measuring carbon intensity has its critics.
Currently, the IMO’s CII–based plan will require an industry-wide carbon intensity reduction of 2% annually to reach its stated 40% reduction goal by 2030 (relative to 2008 levels). According to The International Council on Clean Transportation, however, a 2% annual reduction is not aligned with the IMO’s commitment to the temperature goals of the Paris Agreement; to be in line with that benchmark, a 6-7% annual reduction would be necessary. Put differently, even if all vessels globally meet current carbon intensity targets — unlikely, given the industry’s starting point — the collective reduction would still be insufficient in the context of the world’s foremost climate agreement.
There is also debate over how carbon intensity should be measured. Lars Robert Pedersen, Deputy Secretary General of the shipping association BIMCO, argues that the current calculation rewards ships that travel longer distances without a full load of cargo. In reality, this dynamic could generate more voyages and, ultimately, increased CO2 emissions.
Disagreements aside, forthcoming regulations require that operators take decisive action to decarbonize their fleets. To make immediate progress towards reducing emissions, operators will be wise to trust in existing technologies like shipping route optimization, which is proven to decrease vessel fuel consumption and carbon intensity.