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Carbon Intensity Indicator – Upcoming Environmental Regulations as described by Capt. Kostas Kanellopoulos

Cpt Kostas K. Kanellopoulos, Managing Director, Nereus Shipping SA

The maritime industry faces challenges in adopting new technologies and operational practices to comply with increasingly strict international, national, local regulations aimed at reducing the below emissions from ships :

Sulfur Oxides (SOx)

(using low Sulphur fuels – distillates –, installing scrubber, retrofitting to use another fuel  say LNG).

Nitrogen Oxides (NOx)

(using SCR Selective Catalytic Reduction for exhaust gas after – treatment, EGR Exhaust Gas Recirculation, switching to use another fuel, say LNG, Methanol).

Particulate Matter (PM)

(using distillate low Sulphur fuels or switch to LNG, Methanol, Filters suitable for high speed engines).

Carbon & Greenhouse Gas (GHG)

(EEDI, EEXI, CII)

Who introduced the regulations?

  • IMO
  • European Union
  • United States Environmental Protection Agency (EPA)
  • California Air Resources Board
  • Others

IMO being obliged to address the GHG emissions from international Shipping placed as baseline the 2008 emissions and set goals to reduce CO2 emission per transport work (carbon intensity) by at least 40% by 2030 and reduce the total annual GHG emission by at least 50% by 2050.

The most recent estimates included in the IMO Fourth (4th) GHG Study 2020 show that GHG emissions of total shipping increased from 977 million tons in 2012 to 1.076 million tons in 2018 (9.6% increase).

This is because of the continuous increase of global maritime trade.

Meantime, the share of shipping emissions in global anthropogenic GHG emissions has increased from 2.76% in 2012 to 2.89 in 2018.

The same study (4th IMO GHG Study 2020) includes estimates of carbon intensity and outlines that overall carbon intensity as an average across international shipping, was approximately 20 to 30% better in 2018 than the baseline year 2008.

If no additional measures are taken, the shipping emissions are projected to increase from about 90% of 2008 emissions in 2018 to 90-130% of 2008 emission by 2050.

Whilst further improvement of the carbon intensity of Shipping can be achieved, it will be difficult to achieve IMO’s 2050 GHG reduction ambition only through energy-saving technologies and speed reduction of ships.

Thus, under all projected scenarios, in 2050, a large share of the total amount of CO2 reduction will have to come from the use of low-carbon alternative fuels.

 

How the reduction of GHG emissions from Shipping will be achieved?

Current rules require ships to be designed and built being more energy efficient than a base line, based on the Energy Efficiency Design Index (EEDI).

Operators are also required to have a plan to improve energy efficiency through various ship-specific measures based on Ship Energy Efficiency Management Plan (SEEMP).

Prior to continue with the new environmental regulations it is good to better understand what the aforementioned EEDI is.

The IMO agreed in 2011 on a design standard, known as Energy Efficiency Design Index (EEDI), to apply to new ships built from 2013. The standard has a baseline – the average efficiency of ships built between 1999 to 2009 – and sets the maximum amount of CO2 permitted per ship type and size in order to carry a unit of transport work (i.e. grCO2/ton-mile). To incentivize the future design efficiency of new ships, the IMO regulation sets 3 targets, known as phases, each progressively requiring less energy,(and thus less CO2), to perform the same amount of transport work.

EEDI targets for new ships:

  • Phase 0 – ships build between 2013 – 2015 are required to have a design efficiency at least equal to the baseline.
  • Phase 1 – ships built between 2015 – 2020 are required to have a design efficiency at least, 10% below the reference line.
  • Phase 2 – ships built between 2021 – 2025 are required to have a design efficiency, at least, 20% below the reference line.
  • Phase 3 – ships built after 2025 are required to have a design efficiency, at least, 30% below the reference line.

In one phrase we may say EEDI provides a newbuilding Standard, assuring that ship designs achieve a certain level of efficiency and decrease carbon emissions.

It is verified during sea trials (attained EEDI).

It reflects the ship’s design characteristics.

It is not influenced by the ship’s actual operating conditions.

 

What changes for the shipping industry?

The IMO’s EEDI regulation also includes a clause, requiring the periodic review of achieved efficiencies and, if appropriate, to revise the required targets. The first review began in 2015.

The two major new environmental regulation agreed by IMO/MEPC (Marine Environment Protection Committee) come to affect the way shipping works and how the Ship Operators manage their ships commercially.

The first one is the Energy Efficiency Index for Existing Ships (EEXI), which will limit the operational power of existing vessels in an attempt to make them environmentally “Equivalent” to new ships complying with the current phase 2 of EEDI.

EEXI was the result of a long debate at IMO on whether to apply speed limits to ships or to regulate their emission in a different way. Finally the concept of a power limit, instead of a speed limit agreed.

The ship’s normal operating power will be restricted by mechanical or software means on the main engine, to the point that makes it compliant with EEDI Phase 2 (two). Apparently it will result in lower operational speeds than normal.

In general, older ships will see less allowed power available for normal operations than newer ships, however every ship will have a different maximum allowable power, thus different maximum operating speed.

For emergency situations or bad weather a “by-pass” will be available to enable the use of Engine’s full power.

Since we shall deal with power restrictions, remains to be seen the respective speed restriction.

We may however assume form now that older ships, less efficient ships will be in commercial disadvantage to compete with newer ships.

EEXI is required for all ships and is not verified by sea trials. Similarly with EEDI, reflect the ship’s design characteristic and is not influenced by the ship’s actual operating conditions.

 

The second major regulation is the Carbon Intensity Indicator (CII)

The annual operational Carbon Intensity Index (CII) is expressed as grCO2 per ton/miles.

The regulation is still under discussions though it is expected that the CII will be part of existing SEEMP (Ship Energy Efficiency Management Plan). The first few years of application the CII results will be reported for reference only without consequences, while thereafter it will be mandatory.

An acceptable limit of carbon emissions (grCO2) per transportation work (ton/miles) will be set for each type – size of ship. Each ship will be given an annual CII rating from A to E for its operations during the previous year.

CII =   CO2 Emission

Transport Work

Hearing that a ship will be given an A,B,C,D or E rating we assume that this has to do with the ship’s quality of efficiency.

Looking at ways to improve the CII of a ship we realize the CII formula’s optimization is beyond the Owner’s / Management control.

 

Why?

Because the CO2 emission is the amount of fuel consumption times a constant fuel factor, about 3.16 for fuel, divided by the transport work (cargo times the distance travelled).

Practically, speed, route, cargo utilization are crucial to CO2 emission and the CII.

It has been agreed that the indicator for the regulation will be the Annual Efficiency Ratio (AER) which is the emitted CO2 divided by the distance travelled and ship’s Deadweight.

The annual AER of each ship will be calculated – reported every year.

Then, it will be compared against a baseline which represents the average AER of all ships of the same type – size. The baseline will be for year 2008 (IMO reference year) adjusted for 2019 being the first year IMO database complete using the mandatory IMO fuel oil Data Collection System (DCS) of each ship.

A ship will be considered having “good” operation efficiency if its AER falls below the baseline and the opposite. Letter “C” will be the band around the baseline – average, “A” & “B” bands below, “D” & “E” bands above.

Ships that will achieve a “E” rating for one year or a “D” rating for three years must submit corrective actions into their SEEMP in order to raise – improve the rating the subsequent year.

The classification societies will audit – verify the data at an additional cost.

Meantime, since we talk about corrective actions and the SEEMP / Ship Energy Management Plan), there will be an additional work / bureaucracy during the annual ISM audits in the office as well as the ISM audits on board the ships, in order the auditors verify the effectiveness of corrective actions.

 

What is the weakness of the regulation? 

A new ship, designed – build with the latest EEDI will be rated “E” if she performs voyages at high speed & limited cargo work, while an old ship will be rated “A” or “B” if the voyage, speed, route are optimized.

While the factors that determine the CII are speed, route and cargo, (all being Charterers responsibility matters or in broad terms commercial matters), the ship / Owner is the obliged party to monitor the CII and be accountable to Authorities.

Frankly speaking it is one more regulation that renders ships accountable for Charterers decisions similar to the supply by the Charterers of Compliant fuel which the ship’s engines can’t burn.

When the CII become compulsory, (2023), it is expected that the charter parties will be amended to include a clause to ensure that ships will be operated within the acceptable emissions level. Moreover it is expected that Charterers will prefer using ships A,B,C rated rather than D or E.

It has now been defined, ( MEPC 76), the CII will be calculated as AER, (grCO2/DWT miles), with the DWT in the equation instead of the actual cargo.

The use of DWT simplifies the calculations and allows the same emission levels regardless of the actual cargo transported. Instead EEOI promote voyages of fully laden ships connecting the actual quantity of cargo on board with the consumption during the voyage.

It is good to quote below the meaning of AER/EEOI:.

 

Annual Efficiency Ratio (AER):

The ratio of a ship’s carbon emissions per actual capacity distance (e.g., dwt/nm sailed). The AER uses the parameters of fuel consumption, distance travelled, and design deadweight tonnage.

Energy Efficiency Operational Index (EEOI):

EEOI is the amount of CO2 emitted by the ship per ton-mile of work. It is the ratio of the CO2 emitted to the ton-mile (amount of cargo x nm sailed). The total operational emissions to satisfy transport work demanded, this is usually quantified over a period of time which encompasses multiple voyages. It measures the ratio of a ship’s carbon emissions per unit of transport work

To sum up, the use of the transportation work / actual cargo ton-miles is the denomination of EEOI, while in AER the use of a potential theoretical transportation work. (Summer DWT x total distance run).

Both EEOI and AER are influenced, (but not with the same impact) by the actual ship operating condition (main engine, propeller, hull), environmental conditions, (weather, current), and commercial trade (speed, draft), reflecting the laden and ballast distribution over time.

To make our thoughts practical, it is a fact that the cap on CO2 emissions set by CII is actually a cap on the quantity of fuel consumed during each voyage.

Applying the conversion factor of the fuel to CO2 emission (c=3.114 for HFO) Operators can calculate the consumption that will result in the desired CII for each voyage.

Example:

  • Assuming a ship type-size required CII is 6gr CO2/ton/mile to achieve “C” rating.
  • To carry a cargo of 50.000 tons
  • For a voyage Durban to Kaohsiung distance 6.500 n.m
  • All ships of same size-type and amount of cargo should consume 622 tons of HFO to meet “C” rating.
  • More consumption than 622 ton of HFO will rate the ship “D” of “E” while less consumption will rate the ship as “A” or “B”.

From the commercial point of view under the two new changes of the environmental regulation it is expected the voyages will lengthen, the utilization of ships will increase and consequently may increase the demand for tonnage.

We may see Shipping Companies choosing the next business of their ships not lay-can basis, not on offered freight rate or trading location but on how the intended trip will affect the ship’s environmental index / rating!!

No good news, more bureaucracy, difficult to overcome by a small – size shipping company.

On the other hand the CII has indisputable environmental benefits. Efficient ships have an advantage, no modification required, while no ship will become obsolete, but apparently not advantageous, because of the CII.

It is also encouraging that IMO adopted an environmental regulation addressing the impact of ship operations, cargo, speed and route as the root cause of excessive emission.

Trust a good picture of the two (2) new environmental requirements provided by the aforementioned.

 

What is the plan for a prudent ship-owner to set up for compliance?

  1. As the EEXI implementation

Each post EEDI vessel with Attained EEDI < Required EEXI and each pre-EEDI vessel will have to be provided with a Class approved EEXI technical file and the Attained EEXI would have to be less than the required EEXI.

The study can provide a preliminary EEXI calculation, both Attained and Required EEXI, for the Owners to have a good idea where vessel stands in terms of Compliance with the forthcoming requirement and what would be the required propulsion power limitation to achieve such compliance. Once Guidelines, after June 2021, of IMO have been approved, the final EEXI Technical File will be prepared. (MEPC76 of June 2021 is pending clarifications).

Soon the Final EEXI Technical file is prepared / approved, then the EPL (Engine Power Limitation), mechanism must be installed on board, approved by Makers/Class and the EPL Management Plan should be prepared / approved.

By end 2022 (last quarter) the EEXI Technical File and the EPL Management Plan approved by Class, should be placed on board and will be verified by the First annual survey after 1st January 2023 by attending Class surveyor. The Ship’s IEEC (International Energy Efficiency Certificate) will be re-issued at the time to include the Attained and Required EEXI.

  1. As the CII Estimation:

The ships’ CII will be estimated, based on the data verified/submitted to IMO Data Collection System (DCS) date, for the year 2019 and 2020. (Vessel, type, size, fuel oil type / quantity consumed, hours underwater, distance travelled).

As of January 2019, Owners collect each ship’s fuel consumption, hours underway distance travelled, fuel quality and through a data verification process approved by Flag State submit the data to IMO database for further analysis. It is called “IMO DCS”.

As of January 2018, Owners collect emission data for the European voyages (more data than IMO DCS), submit same to an accredit verifier to upload into European THETIS – MRV database, though ships carry on board a valid document of Compliance.

Based on the DCS data the Attained Annual Operational CII will be calculated. This is due to lack of verified CII at this stage.

The CII regulation states that a vessel rated “E” or rated “D” for three consecutive years will need to prepare a plan of corrective actions to achieve the Required Annual Operation CII.

The study will estimate the required speed reduction, the required propulsion power savings and their combination with reference point the verified DCS data year.

Thereafter Owners have to monitor the ship’s performance and apply corrective measures when / where required.

Written by Cpt Kostas K. Kanellopoulos, Managing Director, Nereus Shipping SA