Shipping | EEXI and CII – Prepare for 1 January 2023

On 1 November 2022, amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI entered into force. The amendments include the Energy Efficiency Existing Ship Index (EEXI), Carbon Intensity Indicator (CII) and CII rating.

From 1 January 2023 it will be mandatory for vessels to calculate its attained EEXI to measure the vessel’s energy efficiency and to establish the vessel’s annual operational CII and CII rating. The first annual reporting will be completed in 2023, and first CII ratings given in 2024.

The introduction of EEXI and CII is part of IMO’s initial GHG strategy of reducing the carbon intensity of international shipping by at least 40% by 2030 compared to 2008 levels.

Relevant stakeholders should consider how the EEXI and CII requirements should be implemented in charter contracts and other agreements. BIMCO has published certain standard EEXI and CII clauses to be used as a basis for time charter parties.

Introduction

In 2018, IMO adopted an initial strategy for reduction of GHG emissions from vessels. The initial GHG strategy envisages a reduction in carbon intensity of international shipping (at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 levels); and that total annual GHG emissions from international shipping should be reduced by at least 50% by 2050 compared to 2008. The initial GHG strategy is expected to be revised during 2023.

IMO has adopted follow-up actions under the initial GHG strategy which include short- mid- and long-term measures. The introduction of EEXI and CII is part of such measures.

To stimulate a reduction in carbon intensity of international shipping of 40% by 2030, vessels will be required to calculate (i) their attained Energy Efficiency Existing Ship Index (EEXI) to determine their energy efficiency; and (ii) their annual operational Carbon Intensity Indicator (CII) and associated CII rating.

Energy Efficiency Existing Ship Index (EEXI)

EEXI is supplementing the Energy Efficiency Design Index (EEDI) which has been in force since 2013. While EEDI is applied to new vessels, EEXI will apply to existing vessels.

Each applicable vessel must calculate its existing (attained) EEXI. The vessel’s attained EEXI will then be compared to a required EEXI based on an applicable reduction factor expressed as a percentage relative to the EEDI baseline.

The calculated attained EEXI for a vessel shall be below the required EEXI to ensure that the vessel meets the minimum energy efficiency standard. Provided the vessel complies with its required EEXI, the vessel will obtain the statutory International Energy Efficiency Certificate (IEEC).

If a vessel does not have the required IEEC, this may i.a. result in a breach of relevant charter contracts, the vessel being denied entering a port and breach of insurance terms and financing.

The EEXI for a vessel must be approved at the first survey after 1 January 2023 for the International Air Pollution Prevention Certificate.

EEXI applies to the following vessels of 400 gross tonnage and above: bulk carrier, gas carrier, tanker, containership, general cargo ship, refrigerated cargo carrier, combination carrier, LNG carrier, Ro-ro cargo ship, ro-ro passenger ships and cruise ships.

Carbon Intensity Indicator (CII)

Each applicable vessel must calculate its annual operational CII. The actual annual operational CII will then be compared to the required annual operational CII. This will enable a CII rating to be determined, and the carbon intensity will be rated on a scale of A to E (where A is the best).

The required thresholds will be stricter each year towards 2030 resulting in a requirement to reduce the carbon emissions for a vessel for each year.

The CII rating will be recorded in a “Statement of Compliance” in the vessel’s Ship Energy Efficiency Management Plan (SEEMP).

If a vessel is given the rating D for three consecutive years, or E for one year, a corrective action plan will need to be submitted to show how the required index of C or above will be achieved.

Administrations, port authorities and other stakeholders are encouraged to provide incentives to vessels with rating A or B.

The first reporting of the vessel’s CII based on 2023 data shall be submitted no later than 31 March 2024.

CII applies to the following vessels of 5 000 gross tonnage and above: bulk carrier, gas carrier, tanker, containership, general cargo ship, refrigerated cargo carrier, combination carrier, LNG carrier, Ro-ro cargo ship, ro-ro passenger ships and cruise ships.

Charter Contracts and BIMCO Standard Clauses

Relevant stakeholders should consider how EEXI and CII requirements should be implemented in charter contracts and other relevant agreements. Charter contracts and other relevant agreements should reflect i.a. the agreed allocation of responsibilities, risk and costs.

BIMCO has published certain standard clauses for EEXI and CII to be incorporated into current or new charter parties. These standard clauses will likely be a natural starting point for negotiations between an owner and the charterer as to the obligations and responsibility with respect to  EEXI and CII. The end result will however be subject to negotiations and agreement between the parties.

In December 2021, BIMCO published the EEXI transition clause for time charter parties. The clause addresses compliance with the EEXI and allocates responsibility and costs for implementing certain modifications with respect to in particular engine power limitation or shaft power limitation under a time charter party. In general, the owner has the right to take the vessel out of service to complete modifications with respect to engine power limitation or shaft power limitation, but the cost for the work and the loss of time is for the owners account. Other modifications requires charterers consent.

In  November 2022, BIMCO adopted the CII operations clause for time charter parties. CII clauses for voyage charter parties and contracts of affreightment are also being considered. The standard CII clause for time charter parties sets out i.a. a cooperation obligation on the owner and the charterer to share information and identify improvements to the vessel’s energy efficiency and an obligation on the charterer to operate and employ the vessel in a manner consistent with the carbon intensity regulations and not permit the attained CII to exceed the therein agreed CII.

The Way Forward

There is a high focus on reduction of emissions in shipping both globally and locally.

IMO adopted its initial strategy for reduction of GHG emissions from vessels in 2018, and this strategy is expected to be revised during 2023.

EU presented the European Green Deal in 2019, and followed up with the presentation of the “Fit for 55 Package” in 2021, which includes several proposed regulations governing the shipping sector. FuelEU Maritime Regulation was adopted in 2022, and the inclusion of shipping in the EU Emissions Trading System (ETS) is expected to be adopted in December 2022.

There is currently not full alignment between the various initiatives and regulations, but there is an ambition to coordinate the initiatives and regulations further.

IMO’s Marine Environment Protection Committee is to review the effectiveness of the implementation of the EEXI and CII requirements by 1 January 2026 at the latest and develop and adopt further amendments as required.

It is important that relevant stakeholders, including owners and charterers, take into consideration the new regulation, as well as contemplated future amendments and requirements with respect to emission reduction from shipping, when entering into contracts.

Further details on EEXI and CII are available here.

Do not hesitate to contact any of BAHR’s shipping team members for further information.

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