Page 28 - Policy Economic Report - August 2025

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Lessons from Economics

Carbon Intensity Indicator (CII)

A Carbon Intensity Indicator (CII) is an economic concept used in the shipping industry, as defined by
the International Maritime Organization (IMO). It measures a ship's energy efficiency by calculating its
CO2 emissions per unit of transport work (grams of CO2 per cargo capacity per nautical mile) annually. CII
requires yearly data collection, verification, and a resulting environmental rating (A-E) to track
performance and incentivize continuous improvement in reducing carbon emissions, with a particular
focus on existing ships.

Calculating carbon intensity using CII

CII will be used by the IMO to assess how efficiently a ship is operating and is calculated using the following
carbon intensity formula:

Annual Efficiency Ratio (AER) = (Annual Fuel Consumption X CO2 Emission Factor*) / (Annual Distance
Sailed X Design Deadweight of the Vessel**)

*A ship’s CO2 emission factor is calculated based on the type of fuel used to power it.
**A ship’s design deadweight is the maximum amount of cargo plus crew, fuel, etc. that it can carry.

Rating System:

Each ship will get a CII rating of A, B, C, D, or E, with A being the best possible mark. A ship that is rated D
for three consecutive years, or E in one year (e.g. those with the highest carbon intensity) will be required
to submit a “corrective action plan” that outlines how the vessel will be brought to a minimum C rating.

Scope:

It applies to ships above a certain size, specifically 5,000 GT and above. This includes bulk carriers, gas
carriers, tankers, container ships, general cargo ships, refrigerated cargo carriers, cruise ships,
combination carriers, LNG carriers, vehicle carriers, and more.

In January 2023, all ships will be required to submit an enhanced Ship Energy Efficiency Management
Plan (SEEMP) to the IMO. The latest SEEMP requirements include mandatory content related to CII; that
is, each SEEMP will be required to detail the actions that a shipping company will take to improve the
energy efficiency of a vessel in a cost-effective manner.

The SEEMP of every vessel must include the following key information:

• The required Annual Operational CII for the next three years.

• An implementation plan describing how the Required Annual Operational CII target will be
achieved over the next three years.

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