The IMO’s EEXI and CII Regulations: Decarbonisation Gets Serious

10 February 2023

On 1 January 2023, two of the most significant regulatory measures in the history of international shipping entered into force. The Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) now apply to the vast majority of the world’s commercial fleet, marking the beginning of a new chapter in shipping’s long road towards decarbonisation.

What the Regulations Require

The EEXI is, in essence, a one-time technical assessment of a vessel’s energy efficiency. Ships of 400 gross tonnage and above must calculate their attained EEXI and demonstrate that it falls below the required threshold for their type and size. For many older vessels, compliance will require engine power limitation, the fitting of energy-saving devices, or the use of alternative fuels.

The CII, by contrast, is an operational measure. Ships of 5,000 gross tonnage and above must calculate their annual carbon intensity—that is, the ratio of CO2 emissions to cargo carried and distance sailed. Each vessel will be assigned a rating from A (best) to E (worst). A ship rated D for three consecutive years, or E in any single year, must submit a corrective action plan. While there is no immediate penalty beyond mandatory corrective planning, the reputational and commercial consequences of a poor CII rating may prove significant.

Charterparty Implications

The CII regime has the potential to cut directly through the fundamental rights and obligations of owners, charterers, and commercial operators under traditional charterparties—most notably time charters. Under a time charter, the charterer directs the employment of the vessel, including speed and routing, while the owner is responsible for the vessel’s regulatory compliance. The CII creates an inherent tension: a charterer’s commercial decisions directly affect the vessel’s carbon intensity rating, but the regulatory consequences fall on the owner.

BIMCO has published its CII Operations Clause for Time Charter Parties 2022 to assist the market, though the clause has not proved universally popular. The allocation of CII risk between owners and charterers is likely to become one of the most heavily negotiated aspects of time charter fixtures in the years ahead, and disputes are already beginning to emerge. The interaction between CII obligations and a charterer’s duty under English law to employ the vessel in a manner consistent with the terms of the charter—considered, for instance, in the classic authorities on legitimate last voyage orders—will require careful analysis.

Industry Reaction

The regulations have been met with a mixture of resigned acceptance and pointed criticism. On the one hand, the industry broadly recognises the imperative to address its environmental footprint—shipping accounts for approximately 2.5 to 3 per cent of global CO2 emissions. On the other hand, there are legitimate concerns about the bluntness of the CII as a regulatory instrument.

Critics note that the CII penalises vessels that operate at slower speeds or carry lighter loads—perversely, some of the very measures that reduce absolute emissions. A vessel waiting at anchor for a berth, or sailing in ballast, will see its CII deteriorate despite consuming less fuel than one making a fully laden voyage. The interaction between CII compliance and commercial reality is, at best, imperfect.

The Broader Decarbonisation Trajectory

The EEXI and CII form part of a broader decarbonisation trajectory. The IMO’s revised Greenhouse Gas Strategy, expected to be adopted later this year at MEPC 80, is anticipated to set a target of a 40 per cent reduction in carbon intensity by 2030, with zero or near-zero GHG emission fuels representing at least 5 per cent of the energy used by international shipping by the same date. The ultimate goal is net-zero emissions by or around 2050.

These are ambitious targets, and the gap between aspiration and the current state of technology, infrastructure, and regulation remains substantial. The transition fuels debate—LNG, methanol, ammonia, hydrogen—continues to generate more heat than light, and the availability of genuinely zero-emission fuels at the scale required by international shipping remains a distant prospect.

Practical Implications

For shipowners and charterers, the immediate priority is compliance. Understanding the EEXI and CII requirements, documenting compliance, and integrating carbon intensity considerations into voyage planning and commercial negotiations are now essential aspects of fleet management. The regulations are imperfect, but they represent a genuine step forward. The direction of travel is clear: shipping must decarbonise, and the regulatory framework—however blunt its early instruments—will only tighten in the years ahead.