Energy Efficiency Existing Ship Index (EEXI) Regulations

The EEXI Regulations are aimed at bringing the efficiency standard of the existing global fleet up to a minimum level, subject to ship type and size. The Regulations apply to ships of and over 400 gross tonnes (subject to some exceptions) and require that a ship’s ‘attained EEXI’ is calculated. Importantly, the Regulations are a one-time only measure intended to set the industry baseline, which means a ship’s EEXI does not have to be calculated on an ongoing basis.

A ship’s attained EEXI is essentially a measure which considers the engine power and specific fuel consumption of the ship by reference to its speed in fully laden condition at 75% engine power. Correction factors may then be applied to the calculation. Importantly, as this calculation looks only at the technical features of the ship, this is a desktop calculation and does not require any onboard measurements to be taken.

The EEXI Regulations are aimed at bringing the efficiency standard of the existing global fleet up to a minimum level, subject to ship type and size.

Energy Efficiency Design Index (EEDI)
The EEXI Regulations are related to the pre-existing Energy Efficiency Design Index (EEDI) Regulations, which set efficiency standards for new build ships.

The EEXI regulations effectively transpose the standard of efficiency for new build ships to existing ships of the same size and type, subject to a reduction factor. The standard for existing ships pursuant to the EEXI Regulations is the ‘required EEXI’.

If, the attained EEXI is worse than the required EEXI the ship will be required to take corrective action to improve its efficiency to the required standard. As the EEXI is a technical measure of efficiency it may be impacted by changing the technical features of the ship, such as by installing energy efficiency technologies, changing the ship’s fuel or limiting its engine power.

Impact on the charterparty

As the EEXI Regulations are concerned with the ship itself, and the factors influencing compliance fall squarely within the shipowners’ control, the EEXI regulations should have relatively little impact on the relationship between owners and charterers.

Most charterparties will include as standard a requirement that the ship will have all necessary certificates on board and will comply with MARPOL, the international convention which accommodates the EEXI Regulations. This means that there is likely to already be a contractual as well as regulatory obligation on owners to comply.

Furthermore, most charterparties will include a requirement for owners to maintain and restore such certificates, along with provision that time lost due to maintenance be time off hire. Therefore, whilst it may be prudent to agree express terms relating to EEXI compliance, it is likely that most charterparties already provide a framework which will accommodate EEXI, albeit that speed and performance warranties may need to be adjusted where engine power is limited, or vessel speed is otherwise restricted.
The position, however, is rather different when it comes to the Carbon Intensity Indicator (CII) Regulations.

Carbon Intensity Indicator (CII) Regulations

The CII Regulations are aimed at continuously improving the efficiency of the global fleet, and at differentiating between ships of greater and lesser efficiency. The Regulations apply to ships of and over 5,000 gross tonnes (with some exceptions) and provide for the annual rating of ships from A to E based on the carbon intensity of their operation in the previous year.

Shipowners are obliged to aim for a C rating. More efficient ships will be rated A and B, and less efficient ships D and E, with the owners of ships which receive a D rating for three consecutive years, or an E rating, being required to take corrective action. Year on year, the parameters of the rating will be altered, such that the efficiency of ships and operations must be improved if a particular rating is to be held over time.

The CII rating of a ship is based upon its actual fuel consumption and is calculated using data which owners are already required to collect and submit each year under the IMO Data Collection System for Fuel Oil Consumption of Ships (IMO DCS) Regulations. Additionally, the CII calculation takes account of the distance the ship has travelled in the relevant year and its carrying capacity by either weight or volume, subject to which measure is most relevant for that type of ship. Correction factors may then be applied to the calculation.

The CII rating of a ship is based upon its actual fuel consumption and is calculated using data which owners are already required to collect and submit each year under the IMO Data Collection System for Fuel Oil Consumption of Ships (IMO DCS) Regulations.

Impact on the charterparty

The CII Regulations are fundamentally concerned with fuel consumption, and so the CII rating will be influenced by the technical efficiency of the ship, type of fuel used, and the way in which the ship is traded, including the ship’s speed and the efficiency of its operations. As a result, the decisions of both owners and charterers will impact the ship’s CII rating.

The obligation to comply with the CII Regulations falls on shipowners.

Accordingly, it is likely that owners (at least initially) will bear the brunt of any sanctions imposed by states where adequate corrective action is not taken to raise the rating of ships rated D or E. Those sanctions might include financial penalties or even denial of entry or detention of ships. Even where a ship achieves a rating of C, if its rating has dropped from a higher A or B rating the owners may find themselves prejudiced as the ship may no longer meet the requirements of certain trades or charterers and, consequentially, may not be able to obtain desired employment or command preferential rates.

Impact on shipowners

In a long-term charter, the impact on shipowners of a drop in rating, or a D or E rating is likely to be limited, although the risk of reputational damage, damage to the ship if detained and potential loss of future fixtures is certainly not to be overlooked.

However, where the ship is chartered regularly on short term contracts the issue is more acute. The actions of several charterers in one annual period will cumulatively affect the CII rating for that year, creating a significant risk that decisions of charterers will impact the owners prospects in the following year. If the owners are monitoring the CII rating on an ongoing basis, one Charterers’ actions may even impact Owners’ prospects within the same year if a proposed fixture would cause the vessel to drop its rating.

Impact on charterers

Meanwhile, if the ship’s rating drops due to technical factors (such as the efficiency of equipment on board) the charterers may find themselves negatively impacted. They may be unable to trade the vessel freely if she does not meet the criteria of the charterers’ customers or required to pay higher port charges and other rates if preferential rates for more efficient ships are lost.