The European Union (EU) has implemented a tougher than IMO emission intensity indicator requirement for shipping. Under the FuelEU Maritime regulations a penalty applies where vessels are non-compliant to set greenhouse gas emission limits. In this Policy Briefing we outline why the penalty calculation is problematic – that it introduces distortions and undermines regulation objectives.

This policy briefing argues that:

• The current formula calculates a penalty that is weaker for higher emitters, causes unequal treatment for fleets with the same level of non-compliance balance, and complicates the pooling mechanism.
• Proposed modification would be to replace the Actual GHG Intensity with the Target GHG Intensity in the penalty payment calculation.
• For the UK Government, in the expected fuel standard consultation and implementation, we recommend that such distorting effects are avoided rather than harmonising with the EU.

This policy briefing is based on the research and policy expertise of Professor Dongping Song, and Dr Claire Copeland.

The Carbon Intensity Indicator (CII) is one of the short-term measures introduced by the International Maritime Organization (IMO) to reduce greenhouse gas emissions from shipping. This policy brief reviews the measure and provides improvement recommendations, focusing on how emission standards at sea and at port should be dealt with.

Key Highlights:

• CII is currently insufficient for capturing emissions accurately at sea and at port and incentivising emission reduction
• A range of revision options could be considered such as excluding port emissions, adjustments for time at port, or separate metrics for at sea and at port
• Other areas that could be considered include allowance for actual cargo, well- to-wake emissions, and pilot fuel

Recommended revision for CII is to use separate metrics for at sea and at port emissions.

This policy briefing is based on research undertaken by Dr Ioannis Moutzouris, Dr Yao Shi, and Dr Claire Copeland.