How Carbon Emission Control is Influencing the Regulatory Regimes on the Shipping Industry
Transport & Insurance Focus
Adam GraySenior Counsel,Transport & Insurance
Laureen FredahTrainee Solicitor,Transport & Insurance
The United Arab Emirates (UAE) hosted the 28th Conference of Parties (COP28) in Dubai from November 30th till December 12th, 2023. COP28 was a critical opportunity for the global community to accelerate the implementation of the Paris Agreement and to enhance the ambition and action on climate change. The shipping industry, which plays a substantial role in global trade and accounts for nearly 3% of the world's greenhouse gas (GHG) emissions, was under increased scrutiny and pressure at COP28 to align with the global climate goals. The UAE as the host country and a regional leader in the maritime sector, was, like many other prominent maritime countries, presented with an opportunity to showcase its commitment and contribution to the transition to a low-carbon and resilient economy.
In 2018, the International Maritime Organization (IMO) agreed to a strategy on the reduction of GHG emissions from ships that required ships to improve their energy efficiency and thereby reduce their GHG emissions. This article will provide an overview of the regulations on the carbon intensity of international shipping, specifically in relation to the requirement of ships to calculate their attained Energy Efficiency Existing Ship Index (EEXI) and the reporting of their annual operational carbon intensity indicator (CII) and CII rating as implemented in the Amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI (the ‘Amendments’).
The UAE has enacted several federal laws to protect and conserve the environment and natural resources, such as Federal Law No. 24 of 1999 on the Protection and Development of the Environment (Environment Law) and Federal Law No. 43 of 2023 (Maritime Law). The Environment Law prohibits any intentional disposal of pollutants or wastes from ships, aircraft, or any other means into the marine environment. This law aims to protect and conserve the environment and natural resources by setting out criminal and civil penalties for acts that contribute to soil, water, and air pollution.
While the Maritime Law, which comes into force on 29 March 2024, does not address GHG emissions from ships, Article 2(1) provides that the provisions of this law shall apply to all seagoing watercrafts, ships, and maritime means that engage in activities in relation to freight forwarding and maritime navigation, in a manner that does not conflict with provisions or relevant international agreements, treaties and protocols ratified by the UAE. The most significant and relevant international convention in question is MARPOL, which regulates air pollution from ships. The UAE has ratified and is a signatory and a party to MARPOL and as such, a party to the Amendments to the MARPOL Annex VI that entered into force on 1 November 2022.
The adoption of Annex VI occurred through a Protocol established in 1997. Subsequent amendments to Annex VI have been implemented through the "tacit acceptance" procedure, whereby they become effective on a predetermined date unless a specified number of Parties raise objections. As of November 2022, MARPOL Annex VI counts 105 Parties among its signatories.
According to the Amendments, from 1 January 2023 it is mandatory for all ships to calculate their attained EEXI to measure their energy efficiency and to initiate the collection of data for the reporting of their annual operational CII and CII rating. EEXI is a technical framework to improve the energy efficiency of an applicable vessel’s design. EEXI extends to all existing ships above 400gross tonnage. The calculated attained EEXI value for each individual ship must be below the required EEXI, to ensure the ship meets a minimum energy efficiency standard.
On the other hand, the CII framework regulates the operational carbon intensity of a vessel (i.e., the carbon emissions per unit of ‘transport work’ or the operating mileage in a given year). The regime will apply to all vessels above 5,000gt whereby the actual annual operational CII achieved must be documented and verified against the required annual operational CII. Based on a ship’s CII, its carbon intensity will be rated A, B, C, D or E (where A is the best). The rating indicates a major superior, minor superior, moderate, minor inferior, or inferior performance level. The performance level will be recorded in a “Statement of Compliance” to be further elaborated in the ship’s Ship Energy Efficiency Management Plan (SEEMP). A ship rated D or E for three consecutive years, will have to submit a corrective action plan to show how the required index of C or above will be achieved. Administrations, port authorities and other stakeholders as appropriate, are encouraged to provide incentives to ships rated as A or B. Administration means the Government of the Contracting Party under whose authority the ship is operating. With respect to a ship entitled to fly a flag of any State, the Administration is the Government of that State, or any organisation duly authorised by it. The IMO's Marine Environment Protection Committee is to review the effectiveness of the implementation of the CII and EEXI requirements by 1 January 2026 at the latest. The Committee will develop and adopt further amendments as required. As it has been one year since these amendments came into force, we review how the EEXI and CII requirements can or should be implemented.
UAE ratified and is a party to the Annex VI of the MARPOL in 2019. Amendments to the MARPOL since then have been adopted under the "tacit acceptance" process as mentioned above. Under Regulation 1 of the MARPOL Annex VI, the regulations apply to "all ships except where otherwise stated". The regulations on carbon intensity of international shipping in Chapter 4 of Annex VI which is the focus of this article apply to all ships of 400gt and above (Regulation 19). It is imperative to note that the provisions in this chapter do not apply to ships solely engaged in voyages within waters subject to the sovereignty or jurisdiction of the State the flag of which the ship is entitled to fly. For instance, the provisions would not apply to a UAE-flagged ship solely voyaging within the waters of UAE. However, each Party should ensure, by the adoption of appropriate measures, that such ships are constructed and act in a manner consistent with the requirements of Chapter 4 of this Annex, so far as is reasonable and practicable. Ships at or above 400 gross tonnage will need to be surveyed and issued with the appropriate certificates. The ships covered include bulk carriers, gas carriers, tankers, containerships, general cargo ships, refrigerated cargo carriers, combination carriers, LNG carriers, ro-ro cargo ships, ro-ro passenger ships, and cruise passenger ships.
To attain the required compliant certificates, the ships are subject to the following surveys: an initial survey before the ship is put into service or before the certificate required for EEXI and CII compliance is issued for the first time, a renewal survey at intervals specified by the Administration but not exceeding five years and an annual survey within three months before or after each anniversary date of the certificate. The attained EEXI shall be specific to each ship and shall indicate the estimated performance of the ship in terms of energy efficiency and be accompanied by the EEXI technical file which contains the information necessary for the calculation of the attained EEXI and which shows the process of the calculation. The attained EEXI shall be verified, based on the EEXI technical file, either by the Administration or by any organization duly authorized by it.
Additionally, each ship shall keep on board a ship specific SEEMP. In the case of a ship of 5,000 gross tonnage and above, the SEEMP shall include a description of the methodology that will be used to collect the data required and the processes that will be used to report the data to the ship's Administration. The SEEMP shall include a description of the methodology that will be used to calculate the ship's attained annual operational CII and the processes that will be used to report this value to the ship's Administration for the next three years, an implementation plan documenting how the required annual operational CII will be achieved during the next three years, and a procedure for self-evaluation and improvement.
Per Regulation 10 of the Annex and in compliance with Article 5 of the Convention, a ship, when in a port or an offshore terminal under the jurisdiction of another Party, is subject to inspection by officers duly authorized by such Party concerning operational requirements where there are clear grounds for believing that the master or crew are not familiar with essential shipboard procedures relating to the prevention of air pollution from ships. Any inspection is to be limited to verifying that there is on board a valid certificate unless there is reason to believe that the condition of the ship does not correspond with the particulars of that certificate. In such circumstances, it is imperative that the Party takes steps to ensure that the ship shall not sail until the situation has been resolved. Additionally, in relation to Chapter 4 of the Annex, any Port State inspection may verify, when appropriate, that there is a valid Statement of Compliance related to fuel oil consumption reporting and operational CII rating, an EEXI certificate and an SEEMP on board. Therefore, since EEXI and CII compliance requirements came into force on 1 January 2023, any ship bound under Chapter 4 of the Annex can be subjected to inspection of these certificates by any authorized Party’s port authorities. It is important therefore, that State Parties and/or shipowners monitor and report on the progress and performance of their shipping industry in relation to the emission reduction targets and the CII ratings.
The shipping industry, being a significant player in global trade and emissions, is facing heightened scrutiny and pressure to adhere to international climate objectives. Countries with prominent maritime sectors, such as the UAE amongst others, will encounter both challenges and opportunities to demonstrate their dedication and involvement in the transition. Adaptation to evolving regulations, integration of sustainable methods, and investment in technological advancements will be crucial for the competitiveness and compliance of the shipping industry on a global scale.
For further information,please contact Adam Gray, Laureen Fredah and Omar N. Omar
Published in March 2024
