Regulations to improve energy efficiency of ships
One of the ways to reduce GHG emissions is to reduce the energy needed for the same transport activity – in other words, the energy efficiency of a fleet. The International Maritime Organization (IMO) has developed regulation to improve the energy efficiency of new ships. This has taken the form of the Energy Efficiency Design Index (EEDI), which was established in 2011 and applies to all ships built from 2013 onwards. It sets a mandatory minimum design (i.e. technical) level for energy-efficiency improvements, per capacity mile (e.g. tonne-mile), for various ship types and sizes. The mandatory levels of improvement increase with time, in five-year phases from 2013 to 2030: they go from 0% (having an EEDI of at least the same level as ships on average between 1999 and 2009) to 30% (having an EEDI at least 30% lower). The choice of technology used to achieve the desired levels is left to the ship’s owner. The EEDI focuses on the ship’s design-and-building phase and is tightened regularly after reviews of progress and technological developments.
Following the adoption of the Initial IMO GHG Strategy in 2018, it was decided in 2019 to accelerate the implementation of the third phase of the EEDI (starting from 2022 instead of 2025) and to tighten its requirements for five ship types including containerships (up to 50% energy efficiency improvement). Moreover, new and existing ships must also have a ship-specific Ship Energy Efficiency Management Plan (SEEMP) on board, which serves as a framework for measuring the actual energy efficiency of the ship in operation and for planning and improving measures to reduce its carbon intensity.
In June 2021, the IMO amended Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL), introducing an Energy Efficiency Design Index for existing ships (EEXI). The requirements will enter into force on 1 January 2023. The EEXI is applicable to all vessels above 400 gross tonnes (GT) falling under MARPOL Annex VI. The required EEXI is based on the EEDI, with reduction factors applied by ship type. This is in most cases equivalent to the required EEDI in Phase 2 or Phase 3. The various possible improvement measures include engine-power limitation, shaft-power limitation, engine derating, propulsion optimisation, and energy-saving devices.
In practice the implementation and decarbonisation potential of regulations has been limited: Ship owners do not have the right incentives for choosing high-cost but highly-efficient technologies and operational changes, and instead choose low-cost, low-gain designs. The market is pushing for design improvements without the need for regulations, which has decreased the marginal advantage of regulated vs. non-regulated scenarios. Efficiency gains could also generate adverse effects, such as increased speeds, which could have negative CO2 mitigation consequences.
Regulations for improving the energy efficiency of new ships were initially seen as a having a high potential for maritime transport decarbonisation. In 2011, initial studies of future impacts of regulations estimated potential emissions decreases of up to 23% of CO2 emissions of shipping activity by 2030. More recent estimates, however, put the contribution of regulations at only around 3% of CO2 emissions compared with scenarios without any regulation.
The limited impact can be due to a number of reasons. Regulations, in particular EEDI, have previously only affected new ships. At the same time, beyond regulatory effects, market incentives have seemingly pushed for fleet improvements more quickly than regulations estimated or mandated. By 2016, a substantial share of the new-build fleet already complied and over-complied with current and future (2025) design efficiency requirements. Notably, 71% of containerships, 69% of general cargo ships, 26% of tankers and 13% of gas carriers already comply with the 2025 EEDI requirement (i.e. a 30% reduction compared to the baseline). Strengthening EEDI and SEEMP regulations could bring about additional emission mitigation gains. Likewise, putting in place annual operational efficiency improvement targets in SEEMP could be linked to potential CO2 reductions from 5% to up to 43% by 2030, also compared to 2013. The implementation of the energy efficiency index for existing ships (EEXI) will increase the mitigation gains obtained from implementing the regulation exclusively on new ships by 2030, relative to 2013. However, according to modelling carried out by the International Council on Clean Transportation (ICCT), the EEXI is expected to make only a small contribution to IMO’s climate goals and would reduce CO2 from the 2030 fleet by 0.8% to 1.6% from a baseline without the EEXI. This is due to the widespread use of slow steaming, whereby many ships already operate more slowly than what would be required by energy-saving devices such as engine power limitation (EPL).
Enforcing regulations also requires having the human resources to enforce, investigate and prosecute breaches. For ship owners and operators, costs vary according to the type of technology and operational practices adopted. Costs of compliance with phase 0 and 1 of EEDI (increasing ship energy efficiency by at least 10% compared to the baseline) have been seen as marginal: it could be achieved by low-cost decisions, such as hull-form design and main-engine optimization, and this cost can rapidly be offset by a reduction in fuel oil consumption/expenses. The costs of compliance with phases 2 and 3 are higher. Nonetheless, enterprises could also benefit from gains in terms of fuel cost decreases.
Finally, the distribution of costs between ship owners and operators for covering technology and operational improvements should also be taken into consideration. When the ship owner has too few opportunities to share investment with charterers, this leads to a split incentive: a ship owner may invest the up-front capital to put in energy-efficient technology but not receive the benefits. This is typically a problem for investments with a high payback time.
Overall, energy efficiency gains from new ships brought about by combined EEDI and SEEMP could result in annual fuel-cost savings of around USD 50 billion in 2020, and USD 200 billion by 2030. A study from the European Union has found that regulations can be mutually beneficial: setting operational efficiency standards could bring indirect technologically-related energy efficiency gains of up to 34% compared to 2008 data.
In functional terms, regulations could have negative externalities in terms of CO2 emissions reductions. Efficiency gains could lead to a potential increase in operating speeds in response to the improved technical energy efficiency.
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