In a nutshell:  EEXI and CII will come into force on 1 January 2023 in a further attempt to effec­tively reduce green­house gas emissions of seagoing ships. Both measures require close colla­bo­ration between owners and charterers. In this newsletter, we offer a quick roundup of the measures coming into force at the turn of the year and of BIMCO’s CII Opera­tions Clause, which is hot off the press having been published by BIMCO on 17 November 2022.

A. Intro­duction

New mandatory rules which attempt to effec­tively reduce green­house gas emissions are just a step away from coming into force. The rules – commonly known as EEXI and CII – may well be clearly defined, but the ways to comply with them are still evolving.

BIMCO’s EEXI Transition Clause provides a contractual framework for allocating respon­si­bi­lities between owners and charterers regarding the design efficiency of existing tonnage. It was a highly welcomed clause for charter­parties when intro­duced in November last year. And on 17 November 2022, BIMCO published its much antici­pated CII Opera­tions Clause to facilitate CII compliance in a manner which distri­butes the burden of compliance equitably between owners and charterers.

In this newsletter, we offer a quick roundup of the measures coming into force at the turn of the year and BIMCO’s suggested approach on both.

B. EEXI

What is EEXI?

The Energy Efficiency eXisting ship Index (EEXI) is a measure intro­duced by the IMO to reduce the green­house gas emissions of ships. EEXI is a measure purely related to the technical design of a ship. It does not require any measu­rement or reporting of true CO2 emissions while the ship is in operation. In simple terms, EEXI measures CO₂ emissions calcu­lated on a ship’s design parameters divided by transport work and is expressed as grams-CO₂ / ton mile.

A ship will require an “attained EEXI”, which is specific to each ship and indicates the estimated perfor­mance of said ship in terms of energy efficiency. The attained EEXI value must be accom­panied by an EEXI technical file, containing the necessary infor­mation for the calcu­lation. A ship will also be given a “required EEXI” value, which is deter­mined by the ship type, the ship’s capacity and principle of propulsion and is the maximum accep­table attained EEXI value.

EEXI can be considered the sister of the Energy Efficiency Design Index (“EEDI”). EEDI, which has been in force since 2013, applies to newbuilds whereas EEXI, as the name suggests, applies to existing ships. EEXI comes into force on 1 January 2023 and will apply to most ships over 400 GT which are operating inter­na­tio­nally and otherwise captured by MARPOL Annex VI.

Both EEXI and EEDI indices aim to improve the global fleet’s energy efficiency by stipu­lating a maximum threshold level that each index must fall below. Having newbuilds and existing ships subject to similar regula­tions should speed up this process as regulating energy efficiency solely through EEDI is too slow given the speed with which the global fleet is renewed.

Who is respon­sible for compliance and how is this achieved?

If a ship’s attained EEXI is greater than its required EEXI, an owner will need to take measures to meet the required EEXI. The IMO does not prescribe what measures an owner could or should take, although lowering the EEXI may involve engine power limitation (EPL), shaft power limitation (SHAPOLI), other technical modifi­ca­tions and/​or the use of alter­native fuels.

Generally, owners bear primary respon­si­bility for compliance with MARPOL (provided the ship’s flag state is a MARPOL contracting nation), and the ship will be subject to MARPOL when trading to a MARPOL state. Additio­nally, the standard terms of most charter­parties envisage that owners are respon­sible for technical modifi­ca­tions to a ship as a result of either their seaworthiness/​due diligence obliga­tions (as modified by the Hague or Hague Visby Rules) or their legal fitness obligations.

BIMCO’s approach

In November 2021, BIMCO published its EEXI Transition Clause for Time Charter Parties, which allocates respon­si­bility and costs for imple­menting EPL and SHAPOLI modifi­ca­tions under a time charter party (BIMCO having deter­mined that EPL or SHAPOLI will probably be the most suitable means to lower the EEXI).

BIMCO’s clause makes it clear that even though the owner is respon­sible for making any required modifi­ca­tions the owner and the charterer will need to colla­borate to ensure the ship obtains compliance. Within this, the clause affords the owner flexi­bility when it seeks to modify the ship’s EPL or SHAPOLI (always at its cost and expense) and restricts a charterer’s ability to hinder any modifi­cation or simply ignore any subse­quent EPL or SHAPOLI. If an owner decides to modify the ship in a manner which is not strictly limited to EPL or SHAPOLI, it does not have the same flexi­bility and would need to obtain the charterer’s consent.

C. CII

What is CII?

EEXI addresses the technical efficiency of a ship and is a one-time certi­fi­cation focused on design. Conversely, the Carbon Intensity Indicator (CII) addresses opera­tional efficiency and actual emissions of ships over 5,000 GT of certain ship types, including tankers, bulkers and contai­ner­ships. CII measures the CO₂ emissions (in grams of CO₂) of a ship per unit of “transport work” or the operating mileage in a given year. Each ship is given an annual carbon intensity rating (“CII Rating”). This CII Rating is deter­mined by monitoring the actual emissions of the ship in a given year (“attained annual opera­tional CII”) and verifying this against the “required annual opera­tional CII” a ship must have as deter­mined by the MARPOL VI framework. The CII Rating is given on a scale from A to E, indicating, respec­tively, a major superior, minor superior, moderate, minor inferior, or inferior perfor­mance level. The perfor­mance level must be recorded in the ship’s Ship Energy Efficiency Management Plan (SEEMP) and will be verified by the ship’s flag state.

The regula­tions build in an annual reduction factor (specific to each category of ship) to ensure the conti­nuous impro­vement of a ship’s CII within a specific rating. Furthermore, a ship rated D or E for three conse­cutive years would have to submit a corrective action plan, showing how the required index (C or better) will be achieved. The IMO also encou­rages adminis­tra­tions, port autho­rities and other stake­holders as appro­priate, to provide incen­tives to ships rated as A or B.

How does an owner comply?

The SEEMP is key to compliance. Each ship will need to maintain on board a SEEMP, which may in practice form part of the Safety Management System (SMS). The SEEMP needs to include the following:

• A description of the metho­dology that will be used to calculate the attained annual opera­tional CII and the processes that will be employed to report this value;

• The annual required opera­tional CII value; and

• an imple­men­tation plan documenting how the required annual required opera­tional CII will be achieved during the next three years.

Impli­ca­tions

An owner may improve a ship’s attained annual opera­tional CII in a number of ways. As with the EEXI, an owner could try to slow steam, use alter­native fuel and/​or install energy efficient technology. Additio­nally, an owner could consider reducing the cargo volume and optimise route planning. However, factors outside an owner’s control will signi­fi­cantly impact on a ship’s CII Rating. These include charterers’ orders in relation to the ship’s employment (discussed below) and other external factors such as bad weather or delays at port stays.

The potential opera­tional measures which an owner may look to employ to ultim­ately better a ship’s CII Rating by improving its attained annual opera­tional CII may place an owner in breach of certain obliga­tions under a charter­party. For example, owners are usually required to proceed on voyages with utmost/​due despatch and comply with a charterer’s orders, but should an owner opt to slow steam or divert the ship from the shortest or quickest route it may find itself in breach of these obliga­tions. Similarly, this measure may place an owner in breach of any speed and consumption warranties. It could even constitute a wrongful deviation, which could give rise to an off-hire claim. If instead of, or, in addition to, slow steaming or prolonging a voyage, an owner reduces the ship’s cargo capacity, it could find itself in breach of any cargo capacity warranties as well as the charterer’s orders.

BIMCO’s approach on CII

These were all factors which BIMCO considered in its delibe­ra­tions to produce a balanced clause that will assist owners comply with CII requi­re­ments and allay concerns that charterers may have. On 17 November 2022, BIMCO published its CII Opera­tions Clause for Time Charter Parties 2022 (“CII Opera­tions Clause”) after more than eight months of discussions,

The CII Opera­tions Clause has been drafted on the premise that a charterer should take respon­si­bility for a ship’s carbon emissions because it is the charterer that makes the relevant opera­tional decisions. Here is a brief summary of the clause which you can also find in full here.

(1) Owners and charterers should cooperate in good faith to develop best practices and share data to assess a ship’s compliance with MARPOL carbon intensity regulations.

(2) Owners and charterers should agree on a specific CII to be achieved each year (“Agreed CII”).

(3) Charterers shall operate the ship in a manner compliant with MARPOL carbon intensity regula­tions and ensure that the attained annual opera­tional CII does not exceed the Agreed CII. Additio­nally, although a time charter’s existing warranties as to despatch, speed and consumption, and description continue to apply (as do charterers’ rights to pursue claim relating to them), charterers cannot rely on a breach by owners as a basis to avoid meeting their obliga­tions under the CII Opera­tions Clause.

(4) Although charterers may give the master orders to adjust a ship’s speed or revolu­tions per minute (RPM) or proceed at a specified main engine fuel consumption, this is subject to (1) the complying with their obliga­tions under the CII Opera­tions Clause (2) the master’s obliga­tions via-a-vis the safety of the ship, crew and the marine environment (3) operating the ship within the manufacturer’s recommendations.

(5) Owners will need to (1) “exercise due diligence” to ensure their ship is operated in a manner which minimise fuel consumption, (2) monitor and calculate the ship’s actual consumption on a daily basis and provide charterers with the data (3) comply with SEEMP provided that the charterers comply with their obliga­tions under SEEMP.

(6) If the trajectory of the attained annual opera­tional CII deviates from the Agreed CII, owners should give charterers advance warning. If the deviation continues and this indicates that there is a reasonable likelihood charterer will fail to meet their obliga­tions under (3) above, owners may request that charterers provide a written plan of any proposed commercial operation of the ship for at least the next voyage. If, having considered the written plan, owners can reasonably show to charterers that the Agreed CII will be exceeded, the parties will “cooperate and work together in good faith” to agree on an adjusted written plan. Importantly, until an adjusted written plan has been agreed, owners are entitled not to follow the charterers’ order and reduce the ship’s speed or require charterers to provide all orders which would bring the ship’s attained annual operation CII in line with the Agreed CII.

(7) Compliance with the charterers’ orders or written plan as described above under (6) (adjusted or not) will not be deemed a breach by owners of their obliga­tions under a charter.

(8) Owners are entitled to claim for losses suffered as a result of charterers’ failure to comply with their obliga­tions under the CII Opera­tions Clause.

Of course, it remains to be seen how widely the CII Opera­tions Clause will be adopted. However, it is clear from the above that the way owners and charterers cooperate will have to change to enable owners to meet CII requi­re­ments. As EEXI compliance calls for colla­bo­ration and trust between owners and charterers, the same will be key for any contractual adjus­t­ments that are required as a result of CII measures.

If you have any further questions, please do not hesitate to contact your regular contact person at EHLERMANN RINDFLEISCH GADOW or Adam Parmenter or Hendrik Brauns.