The IMO’s enforcement of EEXI and CII regulations from January 1, 2023 marks a significant step in reducing greenhouse gas emissions from the maritime industry, reports Drewry.
As the regulations become stricter and the major impact expected post-2024, shipowners must proactively monitor and enhance their fleet’s emission profiles to ensure the commercial viability of their vessels. A gradual shift towards alternative-fuel capable dry bulk vessels is gaining momentum, with an 11% share in the current orderbook, and deliveries expected to peak in 2026-2027.
Figure 1: Share of Alternative Fuel capable vessels in Dry Bulk orderbook
Source: Drewry Maritime Research
IMO initial GHG policy
The Energy Efficiency Existing Ship Index (EEXI) and carbon intensity indicator (CII) regulations have been enforced as part of the IMO’s initial GHG policy from 1 January 2023. These measures will be reviewed by 1 January 2026 and further amendments, if any, will be put into practice.
EEXI is a design parameter that assesses the potential carbon intensity of the vessels. It pertains to the vessel’s design and needs to be assessed in 2023. As per Drewry’s analysis, most vessels will have to undergo Engine Power Limitation (EPL) to comply with the design. EPL will cap the maximum speed at which the vessel can operate. Since the vessel operating speeds in 2022 were lower than the maximum speed after EPL, it is unlikely that the EEXI regulation will have a significant impact on vessel operations.
The CII regulation, on the other hand, evaluates the operational carbon intensity of the vessel. CII will be calculated based on the data submitted to the IMO data collection system. On the basis of CO2 emissions (in g/nm-tonnes), the vessel will be given a rating between ‘A’ and ‘E’. If a vessel gets a ‘D’ rating for three consecutive years or an ‘E’ rating in any single year, the shipowner needs to come up with a corrective plan to improve the rating within a month of the declaration of the rating. As CII ratings for 2023 will be declared after 31 March 2024, which is the deadline for the submission of emission data, a lag is expected in the effect of the CII rating and major changes in operations are not expected till 2023 CII ratings are declared. Most shipowners should proactively calculate and monitor CII ratings and try to stay in the ‘C’ category or above.
The CII regulation gets stringent every year, with the reduction factor increasing from 5% in 2023 to 11% in 2026. Further reduction factors are to be decided in the current review process, which is expected to be complete by 1 January 2026.
Maintaining a low-emission portfolio
Maintaining a low-emission portfolio for existing vessels will help the shipowners obtain finance for purchasing new or second-hand vessels. Many ship finance banks are part of the Poseidon’s principles, which require shipowners to maintain a climate-aligned profile and declare their emissions to the bank.
In the long run, vessels capable of running on alternative fuels will have an advantage over vessels using conventional fossil fuels due to fewer emissions. As per Drewry Maritime Research, around 11% of the dry bulk orderbook is alternative-fuel capable at present, which is expected to increase in the future. More than half of the new orders comprising of alternative fuels, is dominated by Japanese and Chinese shipowners. With the deliveries of these type of vessels starting this year, they are expected to peak in 2026-27 with ~10 million dwt of the alternative fuel capable dry bulk vessels to be delivered by then.
Figure 2: Delivery schedule of Alternative Fuel capable fleet – Dry Bulk (mdwt)
Source: Drewry Maritime Research
The impact of CII will be more visible after 2024. Shipowners will assess the vessel’s cost to comply and consider its commercial viability in the coming years. Some older vessels will be demolished earlier than expected. New vessels with modern electronic engines that are more economical are expected to comply without any additional retrofits depending on their operations, whereas older vessels that run on conventional engines may have to necessarily consider a retrofit to comply.
Did you Subscribe to our daily newsletter?
It’s Free! Click here to Subscribe
Source: Drewry
