Shipping Insight

Why is CII topical again?

The CII ("Carbon Intensity Indicator") regulation came into force on 1 January 2023. It is topical again because following the first year of operation, ships will have now calculated their first "required annual operational CII" and implementation plan as part of the Ship Energy Efficiency Management Plan (SEEMP), to document how the required annual operational CII will be achieved over the next three years. This information is then reported to flag state administrations, which are currently in the process of issuing ship's CII ratings A-E. If a ship is rated D for three consecutive years, or rated E, a corrective action plan, also forming part of the SEEMP, must be developed and approved.The CII regime is being currently reviewed at IMO level and it is hoped that it will be amended in 2026. Much has been said about why it does not work: the Annual Effiiciency Rating (AER) formula which is calculated as (annual fuel consumption X CO2 emission factor) divided by (annual distanced sailed X deadweight) penalises (without corrections) vessels that are engaged in short voyages, or that use fuel for cargo operations (self-discharging vessels, heating, inerting) or that have experienced prolonged idle times because of congestion in ports. The risk of the CII creating a double tear chartering market is yet to be seen probably because sophisticated charterers are tracking other energy efficiency indicators such as the voluntary use of EEOI (energy efficiency operational indicator). Conversely what is much evident is the so-called perverse factor, namely the most inefficient vessels being used for longer voyages and sister ships having a different CII rating if operated in different trades. The CII regime currently has no immediate financial penalty for an owner and with investments on technology, whether smart technology, flow meters, proactive fouling cleaning and coating, remaining exclusively an owners' decision, it is hard to see the CII regime actually promoting the much-needed cooperation between charterers and owners which is required to help the industry to transition towards decarbonisation. We will report further, watch this space!