Accurate data can ensure optimum outcomes for both shipowners and charterers 

Having access to accurate information about vessel emissions enables shipowners to share the burden of compliance fairly with charterers, says Fuetrust CEO Jonathan Arneault.

Shipowners’ pleas to have charterers share the burden of the EU’s upcoming emissions trading scheme (ETS) have fallen on deaf ears. Owners are struggling to convince them to rewrite charters – either on their own terms or by including the new standard clause proposed by shipowner organisation BIMCO. 

The BIMCO clause states that since charterers are operating the ship and paying for the fuel, they become stakeholders in the ETS scheme. The clause states that owners must monitor and report the ship’s emissions and provide charterers with actual emissions data so that charterers can reimburse them for any ETS costs. 

CII bringing changes

Another upcoming financial challenge for shipowners is establishing which of the parties are liable if, based on the level of emissions it produces each year, a vessel receives a poor Carbon Intensity Indicator (CII) rating.

The CII determines the annual reduction factor needed to ensure continuous improvement of a ship's operational carbon intensity within a specific rating level from A to E (where a D or E could decommission a vessel). The rating is a measure of operational performance calculated and reported annually to the International Maritime Organization (IMO).

When chartering the use of a vessel, a shipowner essentially gives the charterer the right to dictate where the ship goes and at what speed. However, like the ETS, the CII initiative challenges the traditional shipowner-charterer relationship where charterers pay for fuel but not any measures designed to improve fuel efficiency. To avoid a low CII rating, shipowners would need some influence over vessel speed, route, and sometimes even destinations.

Furthermore, the CII rating system will provide charterers with another option for assessing ships they potentially charter. It offers a new source of performance data, which the IMO encourages charterers use, to choose high-ranking vessels that help accelerate emissions reductions.

Charterers may be concerned about the inevitable change to their relationship with shipowners that will come with the ETS and CII. They share responsibility for getting shipowners to act on emissions as they are partially responsible for the results. Charterers need proof, in the form of accurate data, before they can reasonably be expected to share in the associated financial burdens.

The dilemma is that both parties need greater transparency than they have traditionally shared in the past – but exactly how to achieve this has yet to be worked out by regulators or the industry itself.

New technologies enhance accuracy

Current emissions models offer only rough estimates, based on generic models, that don’t account for chemical interactions, source fuel data, or supply/delivery chain impacts. Additionally, many also require massive amounts of manual input, or the installation of costly devices aboard vessels.

Using blockchain and AI technology to trace the provenance of marine fuels and provide an exact measure of a fuel’s chemical make-up can help tackle this issue. Such technology will calculate a vessel’s emissions by analysing the fuel it uses – providing transparency about vessel performance and voyage characteristics.

With the right digital solutions, requiring no physical sensors or generic calculations, fuel suppliers and buyers can ascertain where a batch of fuel came from, what changes happened to it over its lifecycle and how it will operate in a particular engine under specific conditions.

This insight will help shipowners and charterers more easily reach a fair agreement on how to manage emissions responsibly. Blockchain aids transparency by allowing owners to give permissioned access to information about a vessel’s emissions performance that might not normally be available to potential charterers, and for charterers to request it.

Additionally, a multi-year carbon baseline can be performed to provide a detailed and verified assessment of historical vessel and fleet emissions – in weeks, not months. This means the industry can have the data it needs to validate and support decarbonisation requirements and ensure more favourable financial terms.

Along with charterers, financiers and insurers are forging new relationships with shipowners driven by carbon performance.

The Poseidon Principles provide a framework for financial institutions and marine insurers to measure and publicly report the climate alignment of their sectors against climate action goals. Members have recently committed to adopting an emissions reduction trajectory in line with net-zero by 2050 commitments once a science-based trajectory becomes available.

With this new ambition, beyond current IMO targets of 50% reduction in emissions by 2050, and the demand for scientific rigour, the ability to provide accurate, certified data that facilitates easier, more productive discussions on decarbonisation between shipowners and charterers is critical.