Certain tankers might produce more CO2 while chasing CII rating, Gibson warns

With less than four months until the entry into force of the IMO’s carbon intensity indicator (CII) and Energy Efficiency Existing Ship Design Index (EEXI), fears are being raised that the tanker sector might emit higher CO2 emissions as it adjusts trading patterns to attain the required rating.

With EEXI compliance it is the owner’s obligation to ensure the vessel complies with the reference line and make technical/design amendments to the vessel if compliance is not met. However, CII is commercially more complex as it relates to how the vessel is traded, as explained by Gibson Shipbrokers in a tanker market insight.

Come 2023, all ships will be mandated to have an enhanced Ship Energy Efficiency Management Plan (SEEMP) laying out steps for achieving the required CII, as indicated by the IMO. Carbon intensity links the GHG emissions to the amount of cargo carried over the distance traveled.

The CII determines the annual reduction factor needed to continuously improve the ship’s operational carbon intensity within a specific rating level. A ship that gets a D or E rating for three consecutive years will need to submit a corrective action to obtain a C or above rating.

IMO expects this phased approach would see an annual successive carbon intensity reduction rate of -2% compared to the 2019 reference line from 2023 through to 2026, respectively.

“Under a spot voyage, it is the owner’s obligation to manage the vessel’s performance to attain the CII rating the owner desires. Given that CII ratings are retrospective, a vessel on time charter could be traded inefficiently and returned to the owner with an inferior rating, putting the owner at a commercial disadvantage following the charter,” Gibson said.

“From a charterer’s perspective, whilst CII is an operational measure and can be managed through trading patterns, the CII performance of a ship is linked to other factors, such as design, maintenance and warranted fuel consumption. If any of these factors is not as described in the charter party, then a dispute is likely to arise.”

The fact that the ships will have to adjust their trading patterns to attain the required CII rating may result in unwanted outcomes. Namely, by distorting trading patterns older vessels may end up emitting more CO2 than they would have prior to the regulations.

The distortion is likely to see a non-eco ship, which would typically trade shorter voyages, engaging in longer haul voyages to attain the required CII, while eco ships with much better CO2 emissions could be deployed on shorter voyages where, despite smaller distances, could still attain an acceptable CII rating due to their fuel efficiency.

“Overall, the net effect in these circumstances could be higher total CO2 emissions for the tanker sector and exactly the opposite of what the IMO is trying to achieve, at least in the short term. On a longer-term basis of course, older less efficient vessels will see reduced trading opportunities and may eventually face pressure to scrap, with the replacement leading to improved operational and design efficiency across the fleet. It is also hoped that CII will force owners and charterers to squeeze as much operational efficiency out of their fleets as possible,” Gibson said.

“However, for this to be realised, operational and commercial practices may need to change, notably around sailing speeds, demurrage and scheduling. Ultimately, few question the industry’s need to reduce emissions; however, future regulations must avoid unintended consequences and be sensitive to industry practices, which will take time to evolve. Only steps which lead to a net reduction in emissions should be taken forward and regulation should avoid encouraging non eco vessels to engage in long voyages over eco tonnage.”

Prior to any efficiency modifications, more than 75% of the fleet — bulkers, tankers and containerships — will not be compliant with the EEXI that will enter into force in 2023, according to VesselsValue.

The key ways for attaining compliance will be via using energy-saving devices retrofitted to the main structure or engine power limitations, while for the rest of the vessels that neither of these will be economically-viable scrapping might be the likely solution.