New CO2 rules could cripple feeder and reefer shortsea services
The IMO’s new CO2 reduction measures, including ETS (emissions trading system) and Carbon Intensity Indicator ...
While the implications of the EEXI [Energy Efficiency Existing Ship Index] for the containership fleet are becoming clearer, the full impact of the IMO’s Carbon Intensity Index (CII) remains frustratingly difficult to define.
(Explainer: according to Lloyd’s Register: “The EEXI is a carbon design/technical efficiency indicator which is applicable to most in-service vessels over 400 gross tonnes (GT) and operating internationally. The CII is an in-service/operational efficiency indicator which measures a vessel’s carbon intensity over time.”)
Perhaps the most important aspect is that the CII is a progressive measure, with each vessel’s required CII reference adjusted downwards each year, becoming increasingly stringent in line with the targeted global improvements in CO2 emissions.
For containerships, the calculation underlying the attained and required CII is based on the Annual Efficiency Ratio (AER), which uses the parameters of fuel consumption, distance travelled and cargo-carrying capacity. In April, MSI published indicative AER for 2021 and the equivalent CII ratings for 2023-2026 for over 21,000 ships currently in service across the major shipping markets via our online HORIZON platform.
MSI’s AER calculation follows a simplified methodology to the ‘bottom-up’ estimates created for the IMO’s Greenhouse Gas Study. In summary, using AIS data to track each ship’s operational profile, we have calculated an estimate for individual vessel fuel consumption in 2021 from three sources: the main engine, auxiliary engines and boilers.
Each of these corresponds to associated CO2 emissions. The total emissions are then divided by the relevant measure of transport work for the ship type under consideration, namely the multiple of the ship’s cargo-carrying capacity and the distance it travelled in 2021.
Using these indicative AER figures for 2021 in conjunction with the technical guidelines on carbon intensity published by the IMO and updated at MEPC 78, we can produce provisional attained CII for individual vessels based on their activity and performance in 2021. By comparing these against their required CII for 2023-2026, we can gauge the readiness of the existing fleet under their current operational parameters at both the individual vessel and an aggregate level. The results of this analysis for the current containership fleet are detailed in chart 1, above.
The results are startling. Under current operational parameters, only half of the containership fleet will meet their CII requirements in 2023. Furthermore, the share of CII compliant vessels in the fleet fall to closer to one-third by 2026.
A key factor behind this relatively poor level of overall compliance is the use of 2021 data as a baseline for these projections. Even those with just a passing interest in the containership sector are unable to deny the extraordinary conditions which have characterised the market in recent years. Since the start of the Covid-19 pandemic, port congestion has exerted an oversized impact on the market and will have undoubtedly undermined vessels’ CII performance.
Increased time in port, all else being equal, negatively impacts CII scores given the emissions of auxiliary engines. Given that the proportion of the fleet sat in port at a given point over the past two years has increased by around 5% compared to pre-pandemic averages, this will impact the full-year AER and CII assessments.
There is also the issue of sailing speeds. As the containership market has taken off since the early stages of the pandemic, there has been a notable increase in the average speed of the containership fleet. This has been particularly prevalent on long distance voyages. Moving forwards, as the market normalises from the pandemic highs and regulatory compliance comes increasingly to the fore, slowing down the fleet presents an obvious potential solution to achieving greater levels of CII compliance at an aggregate level, especially given the size of the containership orderbook.
However, it is important to note that this solution may not be open to all market participants. Methods of compliance will vary greatly for different owners and will depend on a range of factors. For example, it is unlikely that containerships deployed on shortsea service rotations that spend a disproportionately large amount of their in-service time at port will be able to achieve CII compliance through operational measures alone. This makes the necessity of forward planning all the more urgent.
Low- or zero-carbon retrofit energy saving technologies (ESTs) are still mainly in ‘testing’ or ‘early-adoption’ phases of development. The science behind many of these technologies is well-established, but commercial and practical realities have so far limited their uptake. However, MSI expects the retrofit landscape to change rapidly towards the middle of this decade, once the relatively low-hanging fruit of near-term operational efficiency gains are exhausted. Assuming some of the commercial and practical issues are addressed in the interim, we expect to see the adoption of ESTs begin to accelerate.
Of course, planning to fit an EST extends beyond practical and technical issues. Commercial considerations need to be assessed, not only on the cost/benefit analysis of fitting the technology, but also issues such as the suitability for evolving trade patterns. In anticipation, MSI has teamed up with UK technical consulting firm BMT to offer a combined solution to address the commercial and technical issues and risks in combination, to help shipowners plan for their route forward.
This is a guest post by Daniel Richards, senior analyst at Maritime Strategies International