Many people cannot remain in the shipping industry without knowing that the International Maritime Organization (IMO) has set a goal of reducing annual greenhouse gas emissions in shipping by at least 40 % by 2030 and pursue a 70% reduction by 2050.
To achieve this, IMO, through the Marine Environment Protection Committee (MEPC), has adopted amendments to Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL). These changes will implement major new technical rules called the Energy Efficiency Index of Existing Ships (EEXI) and the Carbon Intensity Indicator (CII). The regulation is expected to come into force on January 1, 2023, in just over a year.
Simply put, EEXI is a framework for determining the effectiveness of design vessels in service of more than 400 GT falling under Annex VI of MARPOL. The CII is a operational A measure of the efficiency with which a ship transports cargo or passengers measured, primarily, in grams of CO2 emitted by cargo carrying capacity and nautical miles.
EEXI and CII are both complex and evolving, with much of the detail still unclear. However, they need to be carefully considered and understood now so that those affected can start planning for January 2023.
In this article, we present in an easy-to-use table the main points and explain some of the main issues that owners and charterers should consider.
Table EEXI and CII
Questions to consider
Many business and legal issues are expected before and after the entry into force of the EEXI and CII regulations. An important business question will be who bears the cost and responsibility of meeting EEXI and CII standards between vessel owners and charterers in long-term charters extending beyond January 1, 2023. new arrangements agreed before and after January 1, 2023 will also need to take regulations into account, and travel charters may also be affected.
We expect to see the rapid emergence of model clauses (including from BIMCO) for use in time and travel charter parties. These model provisions should cover the key points and deal with the allocation of risks and costs between owners and charterers. However, some organizations will want clauses tailored specifically to their needs, and these may differ before and after implementation, on which Reed Smith actively advises clients.
Three key points can be highlighted now:
- For EEXI, owners are primarily responsible for ensuring a vessel’s compliance with MARPOL (assuming its flag state is a MARPOL Contracting Country). The terms of most charter parties will say, or at least imply, that engineering changes required to comply with industry regulations are the responsibility of owners as part of their airworthiness obligations.
- For CII, owners of time-chartered vessels must comply with the legal employment orders of the charterers. However, these orders could affect the vessel’s CII rating, which owners must still adhere to. In addition, owners’ decisions to slow down, reduce cargo capacity, or depart to maintain their CII rating could put them in violation of charter and potentially subject to damages.
- Disputes over one-off assemblies could arise if owners take operational steps to maintain an CII rating, resulting in, for example, travel delays. Again, this could put them at risk of defaulting on their obligations to proceed as soon as possible.
With just 13 months from arrival, it is critical that the shipping industry updates with EEXI / CII and that owners / charterers design and invest in appropriate strategies to ensure they are ready to go. be implemented in January 2023.
Effective communication between owners and charterers about what the implementation of new and existing devices will look like could avoid costly disagreements over how compliance will be achieved. An in-depth reflection will have to be carried out on the drafting of new charter-party clauses dealing with the fair distribution of costs and risks of compliance and modifications.