The green transition is accelerating and the impact on the shipping industry is increasingly being driven by new and complex emissions regulation and policies.
The shipping industry accounts for 2.3% of global emissions but remains the most carbon efficient mode of transport. Whilst 2023 has seen two new major regulations from the IMO (EEXI and CII) to help meet 2030 carbon intensity reduction targets, environmental initiatives are not new to the shipping industry. In this article, we look back over the past two decades to recognise the industry’s pathway to cleaner shipping.
Also known as ECAs, these are sea areas where stricter controls around airborne emissions from ships have been established. The IMO has designated several key sea areas to be ECAs, mainly limiting emissions of sulphur and nitrogen oxides from ships’ exhausts, but also particulate matter and other ozone depleting substances. Other countries/regions have also established their own ECAs, for example South Korea. In 2006, the Baltic Sea became the first IMO ECA in effect.
The North Sea becomes the second IMO ECA in effect.
The third ECA comes into effect, covering the US and Canadian coastlines.
The Energy Efficiency Design Index (‘EEDI’) becomes mandatory for new ships. This technical measure promotes more energy efficient equipment and engines. The Ship Energy Efficiency Management Plan (‘SEEMP’) becomes compulsory for all ships. This operational measure provides an approach for management of ship and fleet efficiency performance over time using indicators as monitoring tools.
The fourth ECA comes into effect, covering US Caribbean waters.
International treaty to limit the global average temperature increase in this century to well below 2 degrees above pre-industrial levels through the reduction of global greenhouse gas (GHG) emissions.
In April 2016, the IMO’s Marine Environment Protection Committee (MEPC) welcomes the Paris Agreement and acknowledges the efforts already implemented by IMO to enhance the energy efficiency of ships and that further appropriate improvements related to shipping emissions can and should be pursued. The role of the IMO is recognised as crucial for mitigating the impact of GHG emissions from shipping. In October 2016, the IMO’s roadmap for developing a strategy on emissions reduction is approved, with the strategy fully adopted in 2018.
In April 2018, the IMO’s ‘Initial GHG Strategy’ is adopted, setting out the three key emissions targets for the shipping industry via measures for the short, mid and long-term. The targets are 1) to reduce the average carbon intensity (CO2 emissions per unit of transport ‘work’) of international shipping by at least 40% by 2030 and 2) by at least 70% by 2050, and 3) to reduce total annual GHG emissions from international shipping by at least 50% by 2050, all relative to a 2008 baseline.
Alongside regulation, a number of voluntary commitments have been formalised, including the Poseidon Principles which provides a global framework for integrating climate considerations into lending decisions to promote international shipping decarbonisation. With almost 30 signatories the initiative represents around USD185 billion in shipping finance.
Known as IMO 2020, the global limit on the sulphur content in ships’ fuel was reduced from 3.5% to 0.5%. This resulted in an estimated 77% drop in sulphur oxide (SOx) emissions from ships. To meet this regulation, some ships switched to compliant fuels, including very low sulphur fuel oil (VLSFO), and some vessels were fitted with ‘scrubbers’ to clean exhaust gas.
Developed by a diverse group of cargo owners, this voluntary commitment provides a global framework for assessing and disclosing the climate alignment of chartering activities worldwide. The Charter is consistent with the IMO’s GHG targets for shipping. It is applicable to bulk ship charterers and has commitment from more than 30 leading global charterers and operators.
Entry into force of short-term GHG measures from the IMO involving segment specific minimum ship-by-ship technical energy efficiency standards (‘EEXI’) and an annual carbon intensity reduction ship rating program (‘CII’) based on operational performance. These measures align with the IMO target for the industry to reduce CO2 emissions intensity by 40% by 2030 (compared to 2008).How we can help
Shipping will be included in the European Union Emission Trading System (EU ETS) from 1st January 2024. Commercial operators of ships above 5,000 GT will be required to surrender emission allowances (EUAs) each year (from 2025) to cover their relevant CO2 emissions for the previous year, with costs phased in over 3 years. Offshore vessels 5,000+ GT will be included from 2027. The EU ETS is an emissions ‘cap-and-trade’ system where a limited amount of emission allowances are auctioned each year to be traded, with this cap reduced each year in line with the EU’s target of a 55% net reduction in GHG emissions by 2030 and climate neutrality by 2050.
The Fuel EU Maritime proposal, part of the EU’s “Fit for 55” package of key climate policies, is due to come into effect. The proposed regulation introduces increasingly strict limits on the GHG intensity of the energy used by commercial vessels of 5,000+ GT, at EU ports and on voyages between EU ports, driving the increased use of alternative fuels. The GHG intensity of the energy used will be assessed on a ‘well-to-wake’ basis and the initial proposal requires an improvement of 2% in 2025 relative to 2020, ramping up to 75% by 2050. Recently confirmed, the fifth IMO ECA will cover the Mediterranean Sea.
The MEPC will review the effectiveness of the implementation of the CII and EEXI requirements by 1st January 2026 at the latest and, if necessary, develop further amendments as required to meet reduction targets. Other ‘mid-term measures’ may be adopted to strengthen or replace the CII.
By 2030, the shipping industry’s CO2 emissions intensity must have reduced by at least 40% below 2008 levels, ensuring the industry continues on its progression towards the current 2050 goals.
Pressure continues to mount for the industry to move beyond the current IMO target of a 50% reduction in GHG emissions by 2050, and towards ‘net zero’. Discussions across industry stakeholders are ongoing, including the IMO’s current review of its Initial GHG Strategy (due to be revised later in 2023 at MEPC 80), and potential targets are becoming increasingly ambitious.
What is EEXI and CII?
Understand more about the 2023 regulation that is driving the industry to lower carbon intensity.What is EEXI and CII?
How we're helping clients to navigate the impact of CII
Understand more about our CII services and how we're working closely with clients to navigate impact and mitigate risk.Read more