IMO’s EEXI and CII regulations drive maritime emissions reduction

The International Maritime Organization (IMO) began enforcing the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) regulations on January 1, 2023. This significant step aims to reduce greenhouse gas emissions from the maritime industry. With stricter regulations anticipated post-2024, shipowners must proactively monitor and enhance their fleet’s emission profiles to maintain commercial viability.

The shift towards alternative-fuel-capable dry bulk vessels is gaining momentum, currently making up 11% of the order book, with peak deliveries expected in 2026-2027.

The EEXI, a design parameter, assesses the potential carbon intensity of vessels and must be evaluated in 2023. According to Drewry’s analysis, most vessels will need to implement Engine Power Limitation (EPL) to comply. EPL will cap the vessel’s maximum operating speed, but since 2022 operating speeds were already below this limit, the EEXI regulation is unlikely to significantly impact operations.

The CII regulation evaluates the operational carbon intensity of vessels, calculated based on data submitted to the IMO data collection system. Vessels receive a rating from ‘A’ to ‘E’ based on CO2 emissions (in g/nm-tonnes). A vessel rated ‘D’ for three consecutive years or ‘E’ in any single year must implement a corrective plan within a month. Since CII ratings for 2023 will be declared after March 31, 2024, major operational changes are not expected until then. Shipowners should aim to maintain a ‘C’ rating or higher.

The CII regulation will become stricter each year, with the reduction factor increasing from 5% in 2023 to 11% in 2026. Additional reduction factors will be determined in a review process expected to conclude by January 1, 2026.
Maintaining a low-emission profile is crucial for shipowners seeking financing for new or second-hand vessels. Many ship finance banks, part of the Poseidon Principles, require shipowners to maintain a climate-aligned profile and declare their emissions.

In the long run, vessels capable of running on alternative fuels will have a competitive advantage due to fewer emissions. According to Drewry Maritime Research, 11% of the current dry bulk order book is alternative-fuel capable, with more than half of new orders from Japanese and Chinese shipowners. Deliveries of these vessels are set to start this year, peaking in 2026-2027 with approximately 10 million dwt of alternative fuel-capable dry bulk vessels expected.

The impact of CII will become more apparent after 2024 as shipowners assess compliance costs and commercial viability. Some older vessels may be retired earlier than expected, while newer vessels with modern engines will likely comply without additional retrofits. Older vessels with conventional engines may need retrofits to meet the new standards.