Smoke and mirrors: New decarbonisation regulations meet rising emissions

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By Alastair Stevenson, Head of Digital Analytics, Simpson Spence Young


Paradoxically 2021 marks a year featuring increases in both CO2-related shipping regulations and underlying CO2 shipping emissions.


Decarbonisation Regulations

On the regulation front, the IMO and EU have developed new carbon intensity metrics requiring owner compliance from 2023 onward. The IMO released two metrics, one covering vessel design and the second aimed at vessel operations. The new EEXI 1 design index is analogous to the current EEDI 2 that has applied to new vessels since 2013, except that it applies to all vessels. In addition, the IMO has developed an operational CII 3 index based on the Poseidon Principle’s AER4 measure but graded from ‘A’ to ‘E’.

The EEXI and CII share the same unit – CO2 per nautical mile divided by vessel size. The key difference is that the EEXI theoretically measures the vessel emissions at a certain engine rating, while the CII rates the vessel’s CO2 emissions based on actual, annual real-world operations. The EEXI and CII take effect from 2023 and are in addition to the IMO’s overriding goal to halve CO2 emissions by 2050 relative to 2008 levels.

Meanwhile, as part of their FitFor55 package, the European Union has developed the FuelEU Maritime initiative which creates an additional well-to-wake design measure for owners to comply with from 2025 – potentially tighter than the EEXI – and covering additional gas emissions. The FitFor55 package also includes shipping as part of the European Union Emissions Trading System (ETS) from 2023, removes fuel tax exemptions for intra-EU voyages, and initiatives to provide for LNG bunkering infrastructure at European ports.

Against a backdrop of mandatory regulation, 2021 has also seen an increase in voluntary decarbonization activity by charterer and owner alike. At last count 27 shipping companies have signed the Sea Cargo Charter accord, more than treble the eight original signatories in late 2020. The Sea Cargo Charter creates a standard greenhouse gas emissions reporting process for signatories, providing transparency on shipping CO2 emissions not provided by the IMO’s DCS database. Meanwhile RightShip membership continues to increase, with more owners agreeing to voluntary measures to reduce greenhouse gas ratings, while an increasing number of shipping companies are offsetting their carbon emissions in verified voluntary markets.


2021 Shipping Emissions

Despite the intensifying regulatory landscape, global shipping’s 2021 CO2 emissions increased 4.9% from 2020, not only rebounding from the 2020 Covid lows but also surpassing 2019 levels. The key driver was the recovering 2021 world economy where demand for durable goods has remained firm while services demand has increased. Added to this is a trend towards longer ton-mile trade, higher steaming speeds in some segments, and increased port congestion.

source: Marine Benchmark -


Recent global shipping emissions are summarized in the chart relative to 2019 levels. At first glance, the highlight is the decline and now recovery in Cruise ship operations as global lockdowns have eased. Liquid Gas dominates the positive side of the ledger with added gas capacity, strong demand and longer tonmile trade all pushing emissions higher. Container and Bulker emissions, two of the larger segments, have continued to increase as durable goods demand remains firm, but also with a potent combination of faster steaming speeds, longer trade routes and port congestion raising emissions. Lastly, Tanker emissions began to recover in the second half of 2021 as global lockdowns eased and transportation demand moved higher.


IMO Challenges

The increase in 2021 shipping emissions represents an inconvenient truth for the IMO, particularly following the ‘keep 1.5 alive’ commitments emerging from COP26. As the EU Commission noted during the launch of their #FitFor55 package, while the IMO actions are welcome the “measures are insufficient to decarbonise international shipping in line with international climate objectives”. Certainly, the IMOs medium term strategy to lower the energy- and carbon-intensity of global shipping will not meaningfully reduce CO2 emission. SSY estimates that approximately 75% of the tanker and bulker fleets will not comply with the EEXI 2023 requirements without remedial action.

However, for most vessels, achieving EEXI compliance will have little bearing on actual vessel operations and leaves tangible CO2 reductions to a smaller number of heavily affected older vessels that are approaching retirement. The CII ratings system may encourage more slow steaming from 2023 to limit CO2 emissions but, as we have seen in the 2021 bulker fleet, vessel speeds have been more responsive to market conditions than environmental objectives. Ultimately the challenge is maritime decarbonisation and for that we look to new technologies, new fuels, new infrastructure and new ship designs. Economising existing fleet emissions through the EEXI and CII might be a step in the right direction, but it also risks diverting focus from the overriding decarbonisation goal.


IMO MEPC77 Update

The latest IMO Maritime Environmental Protection Committee meeting (MEPC77) in November provided further guidance on the direction of energy regulations.

On the EEXI, the vessel’s design speed – Vref - is measured at 75% of the engines maximum continuous rating at laden draft. A problem facing pre-EEDI vessels is whether, or not, this speed was recorded during sea trials. In its absence, the IMO provides a more conservative Vapp calculation which is used with additional penalty. The problem is that Vapp presupposes those older ships are less efficient, requiring onerous engine power limitations to meet required EEXI levels.

A BIMCO/RINA/Japan proposal to allow Vref to be established in-service is likely to be introduced in 2022, preventing owners of older, efficient, but less well documented vessels to avoid draconian EPLs. The IMO is also looking to slightly reformulate the operational Carbon Intensity Indicator which, in its existing form, effectively ranks a vessel’s Annual Energy Ratio (AER) for ‘A’ to ‘E’. The proposals provide for voyage- and fuel-based adjustments that would see the IMO’s version of the AER deviate from that used in the Poseidon Principles. The fuel adjustments would adjust emissions so that it predominantly reflects fuel used in ship propulsion, rather than auxiliary onboard demands.

The voyage-based corrections would include the removal of excess stationary periods, yard visits and include normalizing factors for some ship types such as ice class vessels. If approved, these changes would improve the introduction of the IMO’s medium term efficiency goals from 2023. The IMO MEPC meeting also discussed a modest bunker levy, accelerating decarbonisation timelines (net zero by 2050), clean arctic fuel initiatives, increasing DCS transparency, as well as introducing carbon levies. Reflecting the difficulty of achieving consensus in a UN body, each of these proposals has been deferred to future discussion through expert working groups or the ISWG-GHG7. Not ideal for a meeting taking place immediately after COP26.


This article was published in the SSY 2022 Outlook report. You can read the full report here -



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