Shipping needs to smarten up its emissions rules if it is to decarbonize effectively, with the International Maritime Organization's new carbon metrics a prime candidate for review given the potential for unintended consequences, Eman Abdalla, global operations and supply chain director at Cargill Ocean Transportation, told S&P Global Commodity Insights on the sidelines of the Posidonia shipping industry event in Athens June 9.

The next tranche of emissions-related regulations to hit the industry include the IMO's carbon intensity indicator (CII), which is an operational efficiency measure designed to increase fuel efficiency and decrease carbon emissions.

The CII will be calculated by dividing a vessel's total fuel consumption by the number of nautical miles, based on which an annual rating ranging from A to E will be assigned to the vessel. First annual reporting will be completed in 2023, with the first ratings given in 2024.

The potential problem with this system is that any means of lengthening the voyage can improve a vessel's CII, Abdalla said.

Broadly speaking, a vessel's CII could be improved by installing energy efficient technology but also by reducing cargo volume intake, slow steaming, diverting from the shortest or quickest route on a voyage, or increasing the distance sailed, including ballast voyages.

This is one of Cargill's chief concerns about the forthcoming international shipping regulations.

Playing on the mathematics and increasing voyage time, such as ballast voyages, is a good example of a bad consequence of environmental legislation, Abdalla said.

"Instead, we want regulations that are focusing on carbon intensity per ton-mile," she said.

The effectiveness of the CII, along with the Energy Efficiency Existing Ship Index or EEXI, which measures the environmental credentials of the design of a ship, will be reviewed by the IMO before the start of 2026, based on which further amendments will be made.

Levelling up on carbon reporting

Creating a level playing field for reporting emissions is also an important area to work on, Abdalla said, noting that being able to accurately measure something is an essential step to being able to do something about it.

"First of all, we are trying to bring greater transparency into the industry, through unifying methodologies and having regular reporting in place, through the Sea Cargo Charter," she said.

The Sea Cargo Charter provides a global framework for aligning chartering activities with responsible environmental behavior to promote international shipping's decarbonization.

Currently there is a range of different ways to report and to price carbon.

Sticks and carrots

Market-based measures to make polluters pay for the negative externalities they bring to shipping are also being discussed by the IMO and the European Union.

Such measures are sticks that some market players believe will give an important push to cleaning up the shipping industry. But Abdalla said a more positive incentive would be clear regulations for renewable fuels, which could encourage more investment in these fuels.

Ship owners currently have to think about investing in assets that could still be in use in 2050, despite the uncertain regulatory and commercial environment that far ahead.

"I think once the right regulations are in place and there is more visibility of the right kind of regulatory frameworks then the energy companies are going to be incentivized to make the right investments in the new green fuels," she said.