How can we improve future energy efficiency regulations in the maritime industry?

Published — August 18, 2023

Insights from Daniel Barcarolo and Octavi Sadó Garriga

Well-designed regulations can make decarbonization a more realistic and attractive goal for the shipping industry by encouraging the uptake of energy efficiency and decarbonization solutions. In the past few years, the International Maritime Organization (IMO) has introduced several regulations that aim to reduce carbon emissions in shipping by improving energy efficiency, as outlined in the Center’s recent report on the role of energy efficiency regulations in the maritime industry.

An example of these regulations is the carbon intensity indicator (CII), which tracks and regulates operational carbon intensity – in other words, looking at the CO2 that a vessel emits in the context of the cargo transport that it does. However, the CII has experienced its share of teething problems since its entry into force at the start of this year.

To find out more about the challenges for the CII and how future energy efficiency regulations can be improved, we spoke to Center experts Octavi Sadó Garriga, Head of Fleet Performance, and Daniel Barcarolo, Head of Regulatory Affairs.

What is the CII currently measuring?

Under the CII, ships’ fuel consumption and distance traveled are reported each year to the IMO, then converted to a carbon intensity rating from A (lowest intensity) to E (highest intensity). Each year, the CII value required to achieve a certain rating decreases, meaning that the regulation becomes more stringent over time.

Summary of the relationship between CII values and carbon intensity ratings (A-E) over time

To understand the idea of operational carbon intensity, imagine that you are buying a new refrigerator, says Daniel. The different fridge models come with different energy efficiency ratings based on their design.

“You can know that, by design, the cooling is more efficient and uses less energy – in theory,” he explains. “But then, if you keep the door of the fridge open all the time, the design doesn’t matter much. So, the operational intensity should cover whether ships are actually being operated efficiently.”

The industry is already preparing for a review of the CII

As part of the Center’s work on future energy efficiency regulations, we are developing recommendations for how to revise and improve regulations like the CII.

“The IMO will review the CII by 2026 to decide what the regulation will look like after 2030, and the data gathering for that has already started this year,” explains Octavi. “We started this project to make sure that by the time that review begins in 2024, we have an opinion on what could be done.”

Timeline of the Center's future energy efficiency regulations project in the context of the IMO CII review process

The project is highly collaborative, with a delivery team including Center experts as well as representatives from 14 other organizations. The project is also supported by a sounding board representing 29 Center partners and three external organizations from across the shipping industry and beyond, including the European Commission.

In a new step for the Center, the team decided to use a sprint-based delivery method for the project. This is a cyclical process based on Agile principles. Each cycle, known as a sprint, incorporates knowledge gained from the previous sprint and informs the next.

“This style of working is a very good way to create engagement across the many organizations in the project, to understand how to work together, and to get continuous feedback on how things are going,” says Octavi.

For the first sprint, the project team gathered information on both the positive impacts and areas of improvement for the CII. These findings were used to define some key challenges for the current form of the CII that the team can work on developing solutions to.

“We want to work with our partners so we can come up with suggestions to make the CII more effective than it is right now,” Daniel says. “And we want to do that on the basis of good data and analysis that demonstrates why these changes are needed.”

CII creating positive momentum, but has room for improvement

Although the CII has only been in place for a short time, the project team found that the regulation had noticeably increased general awareness of energy efficiency across the industry.

“The CII provides a framework that drives stakeholders to work together and invest in initiatives like monitoring and training,” Daniel says. “It’s also helped some companies think through energy efficiency in a more structured way.”

However, team members were concerned that the current method for calculating the CII may be creating some perverse incentives that push shipowners or operators towards unintended methods of maintaining compliance with the regulation. CII calculations are fundamentally based on a relationship between greenhouse gas emissions and distance traveled. These calculations currently do not differentiate between emissions generated on laden and ballast journeys, or during time spent in port or dry dock compared to sea voyages.

For example, port congestion can significantly worsen CII ratings because a vessel’s auxiliary engines continue to emit CO2 as it waits to enter the port – without any corresponding increase in distance traveled. Based on the current regulations, operators or shipowners could maintain a better CII rating by choosing to sail further rather than staying in one place while waiting for the congestion to clear up.

Image credit: James Heming via Pexels

Another concern is the lack of clarity surrounding how the CII will be enforced. Vessels that receive a poor CII rating need to develop a performance improvement plan – however, it is not clear what the consequences will be if a vessel fails to meet the requirements laid out in this plan. There are also no incentives currently offered for good CII ratings. This creates problems when trying to make a business case for investment in projects that would improve a ship’s energy efficiency, such as retrofitting new technology.

“This lack of clarity is also a problem because it means the market takes the lead on enforcement, and the market means everybody – the operators, the charterers, the ship owners, cargo owners, insurance companies, banks, brokers … so enforcement depends on how each of these actors considers the CII rating to be good or bad for their business,” says Daniel. “Then we can get an uneven ‘enforcement’ of the CII.”

Next steps to developing regulatory recommendations

As the project continues, the team will develop potential solutions to these issues, as well as an overall picture of what the industry needs from effective future energy efficiency regulations. Some of the solutions currently being investigated include ideas for better CII enforcement mechanisms and changes to the CII calculation to reduce perverse incentives. These solutions could eventually be recommended to the IMO ahead of the CII review process.

Over the next sprint cycles, the team will focus on understanding what kind of vessel performance data needs to be collected for further analysis to make sure that recommendations to the IMO will be robust and effective. The team is also working on strategies to support data confidentiality and integrity, encouraging partners across all segments to share data for the project.

“What we ultimately want is for people to continuously improve their energy efficiency,” says Octavi. “The more efficient a vessel is, the less dependent we are on new fuels for the transition. So, in the long run, better energy efficiency will save new fuels, it will also save costs, and in the short run, it will emit less CO2. So no matter which way you look at it, it’s a very positive thing for the industry and for the planet.”

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