Global shipping is governed by a number of regulations designed to encourage decarbonisation. These regulations mainly affect ship owners who trade to, from, or within the EU.
In this post we will look at the current decarbonising rules, and assess how they are set to change from early 2025.
Carbon Intensity Indicator (CII)
The International Maritime Organisation’s Carbon Intensity Indicator (CII) came into force in early 2023. This initiative is designed to reduce the carbon intensity of all ships by 40% by 2030. It requires ship owners to calculate their ship’s CII rating, which is a measure of the total carbon emissions compared to the amount of cargo transported over the distance travelled.
All ships have a carbon intensity rating from A to E based on their efficiency, with A being the most efficient. A, B, or C ratings are acceptable. But if your ship gets a D rating for three years running, or an E rating for even one year, then you will have to submit a Ship Energy Efficiency Management Plan to outline how you intend to further decarbonise your operations.
What are the changes to Carbon Intensity Indicator?
The CII initiative is set to be reviewed in 2025, and the requirements are expected to tighten from 2026. This means that if your ship currently has an A, B, or C rating, in just a few short years you could get a D or E rating for shipping the same routes and the same distances.
EU Emissions Trading System
The EU Emissions Trading System (EU ETS) has applied to shipping since the start of 2024. Under these new rules, there is a cap on the total amount of greenhouse gases that ship owners can emit over the course of the year. The plan is to decrease this cap annually, in line with the EU’s climate goals.
One “allowance” is the right to emit one tonne of CO₂eq (carbon dioxide equivalent). Ship owners can buy and sell allowances through the European Energy Exchange. Any ship owner that generates more greenhouse gases than their allowance will face heavy fines. The idea is that ship owners can either work to reduce their emissions, or else continue as is, but pay for any emissions they produce.
Up-coming eeview of EU Emissions Trading System
Like the CII, the EU ETS system is up for review in 2026. Currently, all cargo and passenger ships of 5,000 gross tonnes and over must use monitoring, reporting, and verification (MRV) systems to track their CO₂ emissions. It is projected that, by 2027, ship owners will also be required to use MRV systems to track other types of emissions, including nitrous oxide and methane.
Extension to monitoring, reporting and verification (MRV) requirements
From 2025 the MRV requirement will extend to offshore vessels and cargo ships between 400 and 5,000 gross tonnes. By September 2025, 40% of a ship’s recorded emissions will have to be covered by allowances. This will rise to 70% in 2026, and 100% in 2027.
Fuel EU Maritime regulation being introduced on 1 January 2025
Finally, the Fuel EU Maritime regulation is due to come into force from 1 January 2025. This regulation sets maximum limits for the total average greenhouse gas emissions of all ships above 5,000 gross tonnes that call at EU ports.
The regulations apply to nitrous oxide and methane emissions, as well as CO₂ emissions. Plus, they account for the entire lifecycle of the fuels, on a Well-to-Wake basis.
Under this regulation, ships will have to abide by certain zero-emission requirements while at port. This includes the mandatory use of onshore power supplies, or alternative zero-emission technologies while berthed.
You can read the full text of Fuel EU Maritime regulation, including the forecast emission targets.
Worried about meeting these decarbonisation regulations?
These regulations are all geared towards encouraging ship owners to switch to renewable fuels of non-biological origin (RFNBO). Alongside these new regulations the EU is imposing Alternative Fuels Infrastructure Regulations, which set mandatory targets for the deployment of an adequate alternative fuel infrastructure.
However, ship owners may still need to make a significant investment to switch to these alternative fuels, while also potentially dealing with higher purchase prices. Many ship owners and operators, particularly those who run small fleets with limited resources, may also feel daunted by the potentially increased administrative demands and running costs that these regulations will bring.
Speed and routing optimisation, along with thorough hull cleaning to reduce drag, will help many ship owners reduce their carbon footprint. Yet the fact remains that many ship owners and operators will likely struggle to meet these new regulations.
Everard Insurance Brokers are the specialist marine trading division of James Hallam Limited who are accredited Lloyd’s brokers. While we cannot help you decarbonise your fleet, we can help you understand the numerous legal obligations you may have to meet. We can then design a cost-effective insurance package to help you ensure you at least have the right cover in place to meet all the risks you face both at port and at sea.
Find out more about our specialist marine insurance services.