According to a recent study, energy efficiency measures are a dormant potential for the shipping industry. The reason for this latent potential is due to the shipping sector paying attention to energy efficiency during high oil price periods and neglecting efficiency measures when oil prices drop. Therefore monitoring and enforcement mechanisms become essential to ensure compliance with energy efficiency measures carried out by the IMO.
The focus of this article is the short-term regulations to be imposed from 2023 onwards such as the Carbon Intensity Indicator (CII), how this new regulation will impact container carriers, and the role of Just-in-Time arrivals to improve their CII ratings.
Before diving deeper into the CII regulations as a mechanism to reduce emissions, it is necessary to zoom in and understand the regulatory landscape implemented by the IMO to achieve its emissions reduction goals by 2050.
What is the carbon intensity indicator (CII)?
The CII is a measure of a vessel’s operational efficiency or how efficiently that vessel is operated based on the actual amount of fuel consumed in a year. This new regulation will impact all cargo, RoPax, and cruise vessels above 5000 gross tonnages. In rating their operational efficiency, ship owners must document and verify their annual operational CII for the carbon intensity rating to be determined.
How is the CII calculated? Difference between AER and cgDist
The CII is calculated as a score and can be measured in two potential ways:
- Annual Efficiency Ratio (AER) which measures all the carbon emissions from port stays, anchorage, ballast, and laden voyages. All these emissions are summed up and divided by the deadweight and distance sailed in a year, measured as grams of CO2 per DWT mile. The AER measure is used for segments where cargo is weight critical.
- Capacity gross-tonnage Distance (cgDist) which is an alternative calculation used for volume-critical cargo such as passenger and non-cargo carrier vessels.
This score is calculated from the consumption and distance travel data provided to the IMO DCS, the IMO data collection system for fuel oil consumption of ships. Ships of 5000 gross tonnage and above are required to collect and report consumption data every year and this is a requirement that’s been enforced since 2019.
Based on the outcome of these calculations, ships will receive a carbon intensity rating on an annual basis. The ships will be classified into categories from A to E and receive incentives or sanctions depending on their contribution to generating CO2 emissions.
Understanding the CII and EEXI
The EEXI is a technical measure meant to improve the energy efficiency of a vessel’s design and CII is an operational efficiency measure. For some ship owners that means they need to start getting EEXI certified and calculate their CII rating at the same time.
As for what the calculations concern, the unit of the score used by the CII is the same as the one used for the EEXI, which is grams of CO2 per ton-Nautical mile (gCO2/t.Nm). This is effectively measuring the amount of CO2 created per unit carried a certain distance.
The difference between EEXI and CII is the theoretical amount of CO2 a vessel might produce based on its design and the actual amount based on the fuel consumed. While the EEXI only considers the technical aspects of a ship in its calculation is not an expression of the whole ship’s energy efficiency it is more a design and a theoretical measure, whereas the CII represents a better reflection of the ship’s energy performance.
Why AER/cgDist are used to calculate the CII instead of the EEOI?
The CII is based on the AER calculation, this formula shares similarities with the Energy Efficiency Operational Index which has been around since 2009. In their calculations, both the CII and EEOI consider fuel consumed, fuel type, and distance traveled, which are supplied by the IMO DCS.
However, a key difference between the two measures is the EEOI utilization of the actual amount of cargo carried as its capacity, whereas the CII uses the vessels’ deadweight. The difference in formulas means that the EEOI obtains a more accurate result in terms of carbon produced, but the CII is easier to calculate as it assumes the vessel is loaded during the whole voyage. This might not be true and it has certainly raised concerns and discussions, which will be tackled later in this article.
The EEOI is in use as a measure of the efficiency with non-regulatory organizations and bodies and is not a statutory requirement whereas the CII is a statutory requirement and is an enforced requirement from the IMO through the flag states and the recognized organizations.
Which vessels are affected?
From 2023 onward, vessels will have to implement their operational carbon reduction measures throughout the whole year, thus they can start preparing before the year starts, knowing the requirements of this measure and achieving the desired score.
The output of the calculations will result in a score that will be qualified in a band from A to E. Each band will come with incentives such as reduced port dues fees, green investments from the port authorities, or sanctions depending on the qualification.
Only the A and B bands will benefit from incentives, whereas the bands D and E are required to make improvements to be able to avoid sanctions. As an example, when a vessel holds band D for three consecutive years the vessel must develop an approved carbon reduction plan detailing how the vessel will improve the CII score. Following the same example, vessels in band E are required to develop this plan for one year and to show improvements.
What the IMO is trying to accomplish is to push vessels to continuously improve their rating and reduce emissions at the same time. While complex to implement, this operational measure will ensure that a vessel remains compliant for years once the plans are achieved.
The pathway to becoming CII compliant
There are different ways to improve the CII score and not all of them have the same impact on the CII rating but also on the commercial impact of a vessel. This means that to improve your CII score, you must improve your fuel consumption using operational improvements that increase your vessel’s efficiency. Ship owners can achieve this by:
1. Slower speeds will result in higher fuel savings. This is considered to be one of the most impactful measures. When a vessel has an engine power limiter fitted to comply with the EEXI, this will also have a positive impact on the attained CII. In addition, slower speeds will improve some of the ineffective practices the industry has been adopting for a long time such as hurry-up and wait.
2. Using fuels with a lower emission factor. This is a high-cost measure that will certainly result in an improvement in the CII score. Implementing new fuel types is a long-term compromise that needs to be accepted at the industry level.
3. Installing energy-efficient technologies onboard utilizing other energy sources such as wind power or machinery working at an optimum level contributes to fuel consumption.
4. Implementing social energy measures. These are easy-to-implement measures to have that small reduction (e.g. turning on the heating at home).
Just-in-Time arrivals to optimize the CII rating
An independent assessment of more than 40.000 vessels on their CII rating has determined that 22% of the vessels analyzed have an E rating and 13% of them have a D rating, which puts ship owners at risk of having dead assets in their fleet.
This finding leaves many ship owners and operators unsatisfied and concerned about the outcome of the CII rating and its repercussions on their business performance. As an example, one of the biggest container lines, MSC, confirmed that “Compliance with the IMO’s Carbon Intensity Indicator will affect 7 to 10% of its global container fleet”.
Speed reduction is the less resource-intensive way to reduce congestion in ports which ensures timely arrivals of ships and may offset the slow steaming impact in supply chains.
In this scenario, the hurry-up-and-wait phenomenon will hopefully decrease with the enforcement of the CII rating which will lead in turn to an increase in the adoption of Just-in-Time arrivals. In the recent white paper, we estimate that is possible to reduce emissions by 18% from container shipping if Just-in-Time arrivals are optimally achieved.