In an interview with Poul Woodall (a senior manager with extensive experience in the shipping industry) Julia Swales, Advisory Board Manager for the Foundation for Future Supply Chain, heard how shipping companies are focusing on the EU ETS and the Fuel EU, because the CII consequences for non-compliance, or a ship being in a low category (carbon intensity is rated A-E, where A is best) are less severe.
There’s a lot of criticism of the CII. It came into force in January 2023 – now it’s clear how it works in real life. The IMO Correspondence group has been tasked with more than 20 different amendments to consider, simply because the measurement is not reflecting the intention, which is not a surprise –they use the AER (Annual Efficiency Ratio) as a calculation, and that’s flawed.
Many shipping companies have concerns and have illustrated how meeting the requirements actually go against the intentions of CII. Ships can ballast around releasing emissions, and they are rewarded for this, as they are able to better comply with the CII. One of the other big issues is that time idle, whether that is in dry dock, at an anchorage, or due to congestion in ports, models the whole efficiency picture and drag ships down in performance without the ship really being poor.
CII doesn’t have a monetary consequence for non-compliance. If a ship is in the lower categories, an improvement plan must be formulated, which is then documented in the SEEMP and approved by the flag state (but then there are flag states and flag states) – it is not clear what the time frame is for that and how it’s going to work.
The EU ETS is being recorded this year, then the first payments will take place next year. It will need to be sorted out between the owners and the charterers. The EUAs (EU allowances, which are carbon credits) have to be submitted by the end of March next year.
The EU ETS will be public information. Of course, companies will want to make sure that they perform well, but it’s more the financial implication that will interest the parties here. EUAs are trading at about €65 a tonne right now, which is a lot of money. If a ship burns 15,000 tonnes a year that’s around €3 million per ship. The ultimate measure here, the big stick, is that if a ship has not complied and paid when it comes into an EU port, it will be detained.
The Fuel EU is one of the most complicated pieces of legislation for shipping – the average carbon factor, on a well-to-wake basis, must decline over time. So, for example, if a tonne of diesel emits 3.2 tonnes of CO2 this year, that’s the baseline – next year the average figure has to fall below this baseline, so thresholds have been established for the various types of ships. There is a very complicated mechanism for calculating non-compliance – if ships don’t comply it can cost a lot of money. Many shipping companies are operationally rearranging themselves to minimize the consequences. One way of doing this is sailing on LNG, which by default makes the ship compliant for the next couple of years. The other one is mixing in biofuel, but these are in short supply.
This all calls into question the IMOs reasoning behind the CII – all the collected data will be confidential and there aren’t any financial penalties, so this regulation provides no real incentive for the maritime industry to reduce CO2 emissions.
Source: Foundation for Future Supply Chain
Author: Julia Swales
