Global shipping industry is seeking greater clarity on the implementation of the new ship ratings’ norms on carbon emissions from next year amid apprehensions that it can lead to several complications and disruptions at the ground level.
The practical issues associated with trade flows may not necessarily make it easy for an owner to get the top three ratings under the new regime, said Su Yin Anand, head of shipping at South32, a mining and metals company headquartered in Perth, at the Asia Pacific Petroleum Conference 2022 in Singapore.
With less than 100 days to go for the upcoming Carbon Intensity Indicator, or CII, to be implemented by the International Maritime Organization or IMO, industry players worldwide are skeptical on its compliance and operational success, unless these complexities are unraveled at the earliest.
From January, all ships over 5,000 GT will be rated based on historical data. CII measures carbon dioxide emitted per cargo-carrying capacity and nautical mile. The ship is then given an annual rating ranging from A to E, and the parameters will be tightened in a phased manner.
Ships that achieve either a ‘D’ rating for three years or an ‘E’ rating for a single year, will have to implement an enhanced Ship Energy Efficiency Management Plan, or SEEMP to reduce their emissions. IMO aims that majority of the global merchant fleet of over 85,000 ships be ‘A’ rated by 2025, with only a few exceptions in the ‘B’ or ‘C’ categories.
CII is even more complex than the Energy Efficiency Existing Ship Index, or EEXI, and its implementation will require some adjustments between the owners and charterers on the terms and conditions of contracts, Rakhi Rastogi, global shipping, and energy analytics lead at Cargill said during APPEC.
Owners, operators, and charterers typically engage in deals to charter ships over a span of several years. Anand said there is no clarity on whether some of these ships will lose their license to operate if they do not meet their emission goals and are below the rating threshold.
So far, the trajectory does not look steep enough and there will not likely be much consequence of not being able to meet the top three ratings, Rastogi said. “The shipping industry must see more before it can say this is meaningful.”
In 2025, the IMO will conduct a review to adjust or correct CII, to ensure that the marine industry is in line to reduce its carbon emissions by 70% from current levels by 2050. However, maritime and shipping industry has only 2% share in the global carbon emissions from all sectors.
Carbon in chartering contracts
The methodology to measure carbon intensity when there is a transfer of ships from one party to other is not clear and there might be some problems that have not been thought through yet, said Rastogi.
According to Anand, more contractual clauses in charter party agreements are required because the charterers will be expected to return the ship to the owner with a similar rating to which it had taken in the first place. More clarity is also needed around how an owner claims damages if the ship is redelivered with a lower rating, making the company susceptible to penalties, she said.
To be sure, CII is the right step forward to introduce a standardized marine carbon rating system, but “in its pursuit of simplicity, it is inherently flawed”, Anand said. This is because CII cannot be applied equitably across all vessel sizes as those ships that do regional trades or have historically adopted a business model with very short ballast legs, will likely be penalized by this ratings system, she said.
Echoing similar sentiments, John Baptist, global director for VLCCs and PCS at AET, said at the APPEC that the proposed ratings put smaller ships at a disadvantage, but he was hopeful as “there are technologies that can take a ship from an E to D, from a D to C rating”.
The key to get lower carbon emissions is to do optimization by choosing the right vessel for the right trade, Eva Birgitte Bisgaard, CCO, Maersk Tankers said on the sidelines of the Marine Money conference last week. This is because all ships have different emission levels depending on their engine type and age, among others, she said.
However, it is not simple for any shipping company to instantly change the design of the vessel and the way it is traded in the spot market, to maintain a rating just because such changes are not possible on the customers’ side, Anand said.
She pointed out that the company for which a cargo is moved by the ship, is not able to change overnight where its assets are located, and it might not also be possible to change the way customers source their raw materials.
Charterers hire ships to move iron ore from mines to smelters across the globe and their locations will not change just because marine industry needs to undertake voyages in a manner to reduce carbon emissions, she added.
“Not everybody in the market is ready for it yet and we need to see it in action to see how well it will work,” another industry source at APPEC said.
Source: Platts
