International law firm Clyde & Co LLP on Thursday (8 September) published a market insight as part of a series of articles to examine various IMO and EU regulations which are due to come into force over the next few years with the aim of regulating and reducing shipping’s carbon footprint through various initiatives. 

Associate Kirsten Cottrell-Conacher discusses the key practical and legal considerations they raise for owners, charterers, and other stakeholders:

IMO

There are two upcoming IMO measures directed at reducing greenhouse gas emissions from ships, both added to MARPOL Annex VI in 2021. The two new measures are the Energy Efficiency eXisting ship Index (EEXI), a one-off certification assessing the design, construction, and technical features of the ship; and the Carbon Intensity Indicator (CII), an ongoing measure of how environmentally friendly a ship’s operations are. The IMO’s stated goal is to reduce the carbon intensity of all ships by 40% by 2030 and 70% by 2050 (as against 2008 levels), and EEXI and CII build on existing measures to try and achieve this.

Energy Efficiency Existing Ship Index (EEXI)

EEXI is a one-off classification of the energy efficiency of a ship’s design, construction, and technical features, and seeks to impose a minimum standard on the global fleet. A wide range of ship-types are caught by the EEXI regulations (all existing ships of 400 GT and above falling under MARPOL Annex VI) and existing vessels will be required to have their EEXI technical files prepared by the time of their next International Air Pollution Prevention (IAPP) Certificate Renewal from 1 January 2023. Newbuilds will be required to do so by their initial survey before entering service. Information from various vessel documents is used to assist in preparing the EEXI technical file, including capacity plan/lightweight certificate, the trim and stability booklet, any sea trial reports, NOx technical files, the IAPP and, for newer vessels, the EEDI (Energy Efficiency Design Index) technical file.

There is not a single, universal EEXI figure for all vessels – rather, a “required EEXI” exists based on ship type, capacity, and engine and the “required EEXI” represents the minimum standard for each ship type. Each individual ship is then ascribed a calculated “attained EEXI”. The “attained EEXI” for that ship needs to be less than or equal to the required EEXI for that ship type in order to comply with the regulations.  

The EEXI describes the ship’s anticipated carbon emissions, expressed per cargo ton and mile, taking into account factors like engine power, fuel oil consumption, and cargo capacity. These factors are all added into a formula which calculates the ship’s EEXI value. Improvements to the carbon intensity of the ship’s design and technical features will reduce its EEXI value.

While EEXI compliance does not necessarily require technical modifications to a ship, in practice this is likely to be required for many vessels in order to achieve the minimum required EEXI rating of “C” or above. The regulations do not prescribe any particular modifications or means of achieving compliance. The most popular choice of measures is Engine Power Limitation (EPL) and/or Shaft Power Limitation (SHAPOLI) as these are relatively cheap, quick, and straightforward to implement (though such modifications can have detrimental effects on speed and other performance metrics, with potentially adverse consequences for any warranties given to charterers, an issue which we will consider in greater detail in a future article in this series).

In 2021, BIMCO published a model EEXI transition clause for time charterparties, specifically addressing EPL/SHAPOLI modifications. Major charterers and/or shipowners also have their own bespoke clauses which we have seen being used, more than the BIMCO “standard” clause.

Other options which may enhance a ship’s EEXI classification include increasing cargo capacity, installing more efficient propellers and associated equipment, or potentially more radical (and expensive) alternatives such as switching to carbon-neutral fuel or introducing entirely green power technologies.

It is important to note that EEXI is a theoretical figure, based on a ship’s design and technical features, not an indicator of its actual carbon emissions. This aspect is covered by the CII.

The IMO intends (under MARPOL Annex VI Regulation 25.3) to review the effectiveness of the EEXI measures by 1 January 2026 to assess their effectiveness, and will possibly make amendments to them once there is real-world data available on the effectiveness of the measures and their practical consequences (such as what steps owners take to ensure vessel compliance; what, if any, consequences vessels with poor EEXIs face; and whether the measures result in a significant reduction of shipping’s contribution to global carbon emissions).

Note: The full article can be viewed here while the podcast series accompanying the article series can be found here. 

 

Photo credit: william william on Unsplash
Published: 3 January, 2022