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EEXI and CII- The Factual and Contractual Considerations!

Despite the fact that January 2023 may appear to be a long way off, shipowners and operators must evaluate the impact of the Energy Efficiency Existing Ship Index and the Carbon Intensity Index.

History

For centuries, ships and vessels have been used to move cargo, beginning with self-propelled craft and progressing to sailing ships that harness the power of the wind to propel the vessel. Of course, such modes of transportation have a negligible carbon footprint. Steam-powered ships eventually replaced sailing vessels, giving rise to today’s commercial fleets powered by fuel oil, diesel oil, and, in some instances, LNG. The shipping sector aims to go full circle, at least in terms of minimizing carbon emissions, while also looking for inventive ways to retain efficiency, as the vital issues of climate change and ensuring a low carbon footprint rightfully come to the fore.

EEXI – The Energy Efficiency Existing Ship Index

EEXI – The Energy Efficiency Existing Ship Index is the latest measure to decarbonize shipping, focusing on greenhouse emissions rather than sulphur. The International Maritime Organization (IMO’s) suggests creating a minimum efficiency requirement for current ships based on design parameters. The Energy Efficiency Design Index (EEDI) is a variation of the EEXI that applies to new ships built after 2013. The EEXI is based on CO2 emissions per tonne mile, with the vessel’s installed power and cargo-carrying capacity being the essential components in its computation. When that goes into effect in January 2023, the EEXI will be a one-time ‘pass or fail’ paperwork test conducted at the first annual or special survey and will impact more than half of the world fleet.

Carbon Intensity Index (CII)

Whereas the EEXI is a one-time certification that focuses on design specifications, the Carbon Intensity Index (CII) is an annual examination of a ship’s actual carbon emission performance over the previous year, beginning in January 2023. It measures how effectively a ship delivers products or passengers in terms of grams of CO2 emitted per cargo-carrying capacity and nautical miles.

CII compliance will necessitate extensive planning to develop technical and operational solutions to improve vessel emissions performance. Noncompliance and/or low ratings are unlikely to have severe consequences until 2026, but it will be interesting to observe whether, in addition to remedial action, the market will generate its own practical sanctions in the longer future.

Consequences

The proposed adjustments will affect all ships built before 2010, which burn significantly more fuel than current designs. They will also affect 60-70 percent of bulk carriers, primarily those larger than Panamax, and a considerable percentage of tankers, primarily those larger than Aframax, as well as LNG carriers and 250 steam turbine ships around the world. Slow-steaming, weather routing, optimized port rotation, cargo intake reduction, and the use of alternative fuels such as biofuels and LNG are just a few of the methods owners can use to cut CO2 emissions.

Contractual and Factual Considerations

With the introduction of the EEXI and CII fast approaching, owners and operators should consider the legal issues that may arise. Any first adjustments to satisfy EEXI criteria will almost certainly fall on the shipowner, who must comply with MARPOL and will certainly have contractual duties to ensure compliance with the convention and its regulations under charter parties. Owners and charterers will have to carefully assess their alternatives for time charters that run after 2023 and beyond. Shipowners, for example, may need to make sure that stipulations in their draught contracts allow them to address all technical issues emerging from the new IMO decarbonization obligations imposed by EEXI and CII. Owners may wish to make sure that they have the freedom to upgrade their vessels with new technologies before the new restrictions take effect in January 2023 or that they can take corrective action after that date. Owners may, for example, desire the ability to arrange for dry-docking the vessel during the charter for modifications or an additional dry-dock, so temporarily removing the ship from the charterers’ service without violating the charter.

Conclusion

Like it always does, the shipping sector will adjust to the significant new legislation aimed at reducing carbon emissions, and it is hoped that boats can be operated efficiently in the future from both an environmental and commercial standpoint. Owners and charterers will, as always with the introduction of new legislation, need to carefully evaluate the commercial, legal, and contractual position between themselves in advance to prevent potential problems when the new restrictions take effect.

Contact Frugal to know more about solutions that will help you to comply with these new regulations and make your Sea Journey a non-stoppable voyage.

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