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Impacts of Energy Efficiency Design Index (A Thesis for the degree of Master of Science in Marine Transport with Management)

Kanu Priya Jain (109248343) School of Marine Science and Technology Newcastle University Newcastle upon Tyne United Kingdom

Supervisor: Mr Paul Stott Submission date: Aug 09, 2012

MSc Marine Transport with Management

Kanu Priya Jain

Abstract International shipping, despite being the most efficient mode of commercial transport in terms of amount of CO2 emitted per tonne-km of cargo carried, accounted for about 3.3% of the global CO2 emissions in 2007 (Buhaug et al., April 2009) and in the absence of effective policy measures, by 2050 CO2 emissions from international shipping are likely to become two to three folds of 2007 levels (Buhaug et al., April 2009). Thus, International Maritime Organization (IMO) considering its responsibility to reduce the impact of shipping on climate change, adopted mandatory measures in July 2011, making the Energy Efficiency Design Index (EEDI) and Ship Energy Efficiency Management Plan (SEEMP) mandatory for new ships and all ships above 400 GRT respectively. The EEDI formula is the measure of total CO2 emission per tonne mile. The amount of CO2 emitted depends upon fuel consumption and fuel consumption depends upon the total power requirement which means the EEDI formulation eventually has certain impact on ship design parameters which are closely related to the economic performance of the ship. This work analyses the concept of EEDI by studying all the components of EEDI formula separately in order to quantify the impact, on the ship owners, of the changes adapted to ship design to meet the EEDI requirements. This work also reviewed the feasible options available to ship owners to meet the EEDI requirements and assessed available methods and approaches which can be used to measure the cost effectiveness of CO2 abatement options. Outcome of this dissertation is intended to help ship owners in measuring the impact of EEDI and is based on the critical review of EEDI formula on the basis of available literature and studies carried out by different organizations.

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Preface This dissertation is a part of the requirements for the degree of MSc Marine Transport with Management at Newcastle University, Newcastle upon Tyne, United Kingdom. It has been carried out under the supervision of senior faculty Mr Paul Stott at School of Marine Science and Technology, Newcastle University. I would like to acknowledge and thank my supervisor Mr Stott and Professor Ian Buxton and Professor John Mangan for their effort, support, suggestion and guidance during the course of this thesis. I would like to give special thanks to Mr James Ashworth of Tri-Zen for providing invaluable data and Mr Tristan Smith of University college of London for his initial guidance and suggestions. Special thanks to my friends and family members. Newcastle upon Tyne August, 2012 Kanu Priya Jain

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List of Figures Figure 1: Greenhouse effect ....................................................................................................... 4 Figure 2: CO2 emissions from shipping compared with global total emissions ........................ 8 Figure 3: Comparison of CO2 emissions between different modes of transport ....................... 8 Figure 4: Shipping as compared to major CO2 emitting countries ............................................ 9 Figure 5: Projected growth of CO2 emissions from shipping ................................................. 10 Figure 6: Anatomy of EEDI formula ....................................................................................... 17 Figure 7: EEDI regulatory concept .......................................................................................... 21 Figure 8: Framework to study EEDI formula .......................................................................... 24 Figure 9: Shipping cash flow model ........................................................................................ 25 Figure 10: EEDI vs Speed curve for a 17,000 dwt General cargo ship ................................... 28 Figure 11: Air Lubrication ....................................................................................................... 40 Figure 12: Specific fuel consumption of various engines ........................................................ 45 Figure 13: IMO Sulphur limits ................................................................................................ 47 Figure 14: Price comparison of LNG, fuel oil and gas oil ....................................................... 48 Figure 15: Towing kite system and wing shaped sails ............................................................ 54 Figure 16: Magnus effect and E-ship 1 .................................................................................... 56 Figure 17: MV Auriga Leader (left) with solar panels (right) installed on deck ..................... 57 Figure 18: CATCH values ($/T) for various emissions reduction measures ........................... 61 Figure 19: Average marginal abatement cost per reduction measure for the fleet in 2030 ..... 63

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List of Tables Table 1: International Trade in terms of percent of GDP (year 2010). .................................... 11 Table 2: Reduction factors (in %age) for the EEDI relative to the EEDI Reference line ....... 20 Table 3: Parameters for determination of reference values for the different ship types .......... 21 Table 4: Values of conversion factor CF .................................................................................. 34 Table 5: Power and costs for different kite areas ..................................................................... 55 Table 6: Impacts and constraints of applying various measures.............................................. 70

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Contents Abstract ......................................................................................................................................ii Preface...................................................................................................................................... iii List of Figures ........................................................................................................................... iv List of Tables ............................................................................................................................. v Contents .................................................................................................................................... vi 1.

Introduction ........................................................................................................................ 1

2.

Background ........................................................................................................................ 4 2.1

3.

Greenhouse Effect ....................................................................................................... 4

2.1.1

Impact of Greenhouse effect ................................................................................ 5

2.1.2

Global Warming................................................................................................... 5

2.1.3

Consequences of Global Warming ...................................................................... 6

2.1.4

Inference .............................................................................................................. 7

2.2

Shipping Industry and Global Warming ..................................................................... 7

2.3

Projected CO2 emissions from ships ........................................................................... 9

2.4

World GDP, Trade and CO2 emissions ..................................................................... 11

2.5

Reduction of GHG emissions.................................................................................... 12

2.6

CO2 emissions regulations ........................................................................................ 12

EEDI and SEEMP ............................................................................................................ 15 3.1

EEDI Formula ........................................................................................................... 16

3.2

EEDI regulatory concept ........................................................................................... 19

3.3

EEOI formula ............................................................................................................ 22

3.4

Analysis of EEDI formula ......................................................................................... 22

4.

Methodology .................................................................................................................... 24

5.

Change in denominator variables..................................................................................... 26

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5.1

Factors affecting design speed ........................................................................... 27

5.1.2

Relation between design speed and EEDI ......................................................... 27

5.1.3

Discussion .......................................................................................................... 28

Factors affecting change in deadweight ............................................................. 30

5.2.2

Relation between deadweight and EEDI ........................................................... 31

5.2.3

Light weight reduction ....................................................................................... 31

5.2.4

Discussion .......................................................................................................... 32

Change in numerator variables ........................................................................................ 34 Main engine emissions‟ parameters .......................................................................... 35

6.1.1

Engine power ..................................................................................................... 35

6.1.2

Specific fuel consumption.................................................................................. 44

6.1.3

Conversion factor CF.......................................................................................... 46

6.2

8.

Change in deadweight ............................................................................................... 30

5.2.1

6.1

7.

Change in design speed ............................................................................................. 26

5.1.1

5.2

6.

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Energy efficient technologies .................................................................................... 52

6.2.1

Waste heat recovery ........................................................................................... 52

6.2.2

Wind power ........................................................................................................ 53

6.2.3

Solar Power ........................................................................................................ 57

Cost effectiveness of EEDI reduction measures .............................................................. 59 7.1

CATCH ..................................................................................................................... 59

7.2

MACC ....................................................................................................................... 62

7.3

Discussion ................................................................................................................. 64

Summary and Conclusions .............................................................................................. 65 8.1

Summary ................................................................................................................... 65

8.2

Conclusions ............................................................................................................... 66

8.3

Future work ............................................................................................................... 72

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9. 10.

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References ........................................................................................................................ 73 Appendix 1 (Communication to Tri-Zen) ..................................................................... 79

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Chapter 1 1. Introduction In Jul 2011 International Maritime Organisation (IMO) adopted technical measures for new ships and operational measures for all ships over 400 GRT and above making Energy Efficiency Design Index (EEDI) and Ship Energy Efficiency Management Plan (SEEMP) mandatory for new ships and all ships above 400 GRT respectively. The EEDI requires a minimum energy efficiency level in terms of CO2 emissions per capacity mile for different ship type and size segments. Due to these regulations ship design is required to get affected and any changes to basic design features such as speed and deadweight have an impact on shipping economics. There are various measures which can be used to meet EEDI requirements. It is very important to study financial and economic impacts of EEDI regulations on ship owners and charterers because ship owners and charterers operate in the industry to maximize their profits out of the shipping business and any negative impact of these regulations on ship‟s earnings potential may put them out of the business. This dissertation aims to find out how exactly EEDI regulations would impact costs and revenue associated with ships due to the implementation of various measures affecting ship design features to meet EEDI limits by analysing the concept of EEDI by studying all the components of EEDI formula separately. This work also aims to review the feasible options available to ship owners to meet the EEDI requirements and assess different approaches available to find out how a ship owner can decide which measure is cost effective. This work, in general, aims to find out if EEDI is beneficial to ship owners commercially or it is a regulation developed by IMO to reduce CO2 emissions which would burden ship owners with extra costs. This dissertation is based on the critical review of EEDI formula on the basis of available literature and studies carried out by different organizations. Key studies relevant to the issue are discussed below.

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The IMO led an International consortium to study greenhouse gas emissions from ships and the report was published in 2009 as Second IMO GHG study 2009 (Buhaug et al., April 2009) while first report on this topic was published in the year 2000 as Study of Greenhouse Gas Emissions from Ships (Skjølsvik et al., Mar 2000). On the basis of these reports, IMO adopted EEDI and SEEMP regulations and guidelines for which were adopted at MEPC 63 in March 2012 under different resolutions such as resolution MEPC.212(63) – 2012 as Guidelines on the Method of Calculation of the Attained Energy Efficiency Design Index (EEDI) for New Ships; Resolution MEPC.213(63) – 2012 as Guidelines for the Development of a Ship Energy Efficiency Management Plan (SEEMP); Resolution MEPC.214(63) – 2012 as Guidelines on Survey and Certification of the Energy Efficiency Design Index (EEDI); and Resolution MEPC.215(63) as Guidelines for Calculation of Reference Lines for use with the Energy Efficiency Design Index (EEDI). Other important studies relevant to the topic include report on greenhouse gas emissions submitted by AEA group to the committee on climate change (Kollamthodi et al., Sep 2008), report on EEDI tests and trials submitted by Deltamarin to European Maritime Safety Agency (EMSA) (DeltamarinLtd, Dec 2009), study carried out by Oceana on the impacts of shipping on climate (Harrould-Kolieb, July 2008), report submitted by DNV and Lloyds register to IMO assessing the emissions reduction potential of EEDI and SEEMP regulations (Bazari and Longva, 2011), and study carried out by CE Delft for European Commission as a technical support for European action for reducing greenhouse gas emissions from international maritime transport (Faber et al., 2009b). Engine manufacturers such as Wartsila (Wartsila, Sep 2008) and MAN (MANDiesel&Turbo, Jul 2010) and classification societies such as DNV and Lloyds register (Lloyd'sRegister, May 2012) have carried out various studies to explore available technology related to ship design and machinery which can be used to increase the efficiency of ships to reduce CO2 emissions. Various authors have studied the relationship between design and economic performance of the ship. Notable work includes (Veenstra and Ludema, 2006; Chen et al., 2010). Most of the work regarding the assessment of cost effectiveness of various measures is carried out by M.S. Eide (Eide et al., 2009; Eide and Endresen, 2010; Eide et al., 2011). Other important study related to the cost effectiveness of various measures is the one commissioned by IMO which is published as report MEPC 62/INF 7 (IMO, Apr 2011).

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This dissertation is divided into eight chapters. Chapter 2 gives the background information about this work which includes explaining greenhouse effect, global warming and its impact on our planet, contribution of shipping industry in global warming, projected CO2 emissions from ships and an overview of CO2 emission regulations. Chapter 3 explains EEDI formula in detail explaining how it was conceived by IMO and this section of the thesis further explains the regulatory concept of EEDI in detail analysing the EEDI formula discussing various measures affecting different components of the formula. Chapter 4 gives the methodology used and framework developed for this work to study the impacts of EEDI. Chapter 5 and 6 forms the major part of this work explaining the impact of different CO2 abatement measures on different numerator and denominator components of the EEDI formula and impact of those measures on cost an revenue associated with ships. Chapter 5 deals with denominator components while chapter 6 deals with the numerator components of the formula. Chapter 7 details the studies and approaches available to study the cost effectiveness of various CO2 abatement measures. This dissertation ends with Chapter 8 dealing with summary, conclusion and future work.

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Chapter 2 2. Background Melting glaciers, rising sea levels, depleting forests and reducing wildlife shows that earth‟s climate is changing. These climate changes, according to IPCC (Pachauri and Reisinger, 2007), are mainly due to the human activities such as deforestation and burning fossil fuels which increase the concentrations of greenhouse gases in the atmosphere. This increased concentration of greenhouse gases such as CO2 lead to greenhouse effect and in turn global warming and related consequences. This phenomenon of global warming can be explained by studying greenhouse effect.

Source: Redcar and Cleveland Borough Council

Source: US Environmental Protection Agency

Figure 1: Greenhouse effect

2.1 Greenhouse Effect The greenhouse effect is the warming caused by heat trapped into the greenhouse gases. Greenhouse gases are the gases which allow the light to get-in but do not allow the heat to escape just like the glass walls of a greenhouse. A greenhouse is a house made of glass walls and a glass roof. It is used to grow vegetables, flowers and other plants in them. A greenhouse remains warm inside because as the sunlight shines in, it warms the plants and air

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inside but the heat is trapped by the glass and can't escape. So during the daylight hours, the greenhouse gets warmer and warmer from inside and stays warm at night too. Earth's atmosphere acts in the same way as the greenhouse. Gases in the atmosphere such as carbon dioxide do what the roof of a greenhouse does. During the day, the sun shines through the atmosphere and sun‟s energy thus warming up the earth‟s atmosphere. At night, earth's surface cools, releasing the heat back into the air but some of the heat is trapped by the greenhouse gases in the atmosphere which keeps the planet earth warm and habitable at 59 degrees Fahrenheit (15 degrees Celsius), on average. But the problem is, if the greenhouse effect is too strong, earth gets warmer and warmer. This is what is happening now.

2.1.1 Impact of Greenhouse effect Excessive carbon dioxide and other greenhouse gases in the air are making the greenhouse effect stronger leading to rise in average temperature of earth's atmosphere and oceans (NASA). This rise in temperature is termed as Global Warming. As per the data given in the IPCC fourth assessment report (Pachauri and Reisinger, 2007), earth‟s average surface temperature has increased by 0.74 degrees Celsius between 1906 and 2005, and the warming trend over the 50 years from 1956 to 2005 is nearly twice that for the 100 years from 1906 to 2005. Also, eleven of the twelve warmest years were recorded between 1995 and 2006 since 1850, when the thermometer readings became available. It is thus clear that earth‟s atmospheric temperature is increasing at an alarming rate.

2.1.2 Global Warming It is clearly explained above that global warming is caused by greenhouse effect and there are two factors leading to global warming, natural and anthropogenic. Natural factors aren‟t much of a concern as said by lead researcher and director of NASA‟s Goddard Institute for Space Studies James Hansen “The fact we still see a positive imbalance despite the prolonged solar minimum isn't a surprise given what we've learned about the climate system...But it's worth noting, because this provides unequivocal evidence that the sun is not the dominant driver of global warming.” (Parry, 2012). Other natural factors such as volcanic eruptions and El Nino cycles also do not have long lasting impacts on climate change as they are fairly short and predictable (NationalGeographic).

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According to IPCC (Pachauri and Reisinger, 2007) “Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic GHG concentrations.” and “It is likely that there has been significant anthropogenic warming over the past 50 years averaged over each continent (except Antarctica)”. The report continues to say that global atmospheric concentrations of greenhouse gases have increased remarkably since 1750 due to human activities and in the year 2005 atmospheric concentrations of CO2 and CH4 exceeded by far the natural range over the last 650, 000 years. The report suggests that global increase in CO2 concentrations is primarily due to fossil fuel use with smaller contributions due to agriculture and land use. The maximum growth in GHG emissions between 1970 and 2004 has come from energy supply, transport and industry, while residential and commercial buildings, forestry (including deforestation) and agriculture sectors have been growing at a lower rate (Pachauri and Reisinger, 2007). To sum up, earth‟s atmospheric temperature is rising at an alarming rate by greenhouse effect caused due to excessive concentrations of greenhouse gases such as CO2, which are increasing rapidly as a result of human activities such as burning fossil fuels and agriculture.

2.1.3 Consequences of Global Warming According to the facts and figures provided by IPCC in 4th assessment report plants and animal species are at increased risk of extinction if increase in global average temperature exceeds 1.5 to 2.5 0C. Crop productivity is expected to decrease above 3 0C increase in global average temperature. By the 2080s, many millions more people than today are projected to experience floods every year due to sea level rise. “The health status of millions of people is projected to be affected through, for example, increases in malnutrition; increased deaths, diseases and injury due to extreme weather events; increased burden of diarrhoeal diseases; increased frequency of cardio-respiratory diseases due to higher concentrations of ground-level ozone in urban areas related to climate change; and the altered spatial distribution of some infectious diseases.” (Pachauri and Reisinger, 2007).

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The report suggested that if planet earth continues to get warmer, its impact is going to be enormous. It classified the impacts related to global average temperature change in five broad categories namely water, ecosystems, food, coasts and health. The ferociousness of these impacts differs with the rate of temperature change. The report says that change in frequency and intensity of extreme weather, together with sea level rise (due to global warming) will certainly have adverse effects on natural and human systems. Anthropogenic warming could lead to abrupt and irreversible impacts which include major changes in coastlines and inundation of low-lying areas.

2.1.4 Inference It is thus pretty clear that impacts of global warming and climate change are tremendous and something needs to be done quickly to save the planet and to maintain its sustainability for life. IPCC, in its report on climate change suggests that climate change can be responded by adapting to its impact and by reducing greenhouse gas emissions and thus reducing the rate and magnitude of the change. It is obvious that to remove greenhouse gases from the atmosphere, it is important to identify their sources. As explained earlier, most of the damage is done by CO2 emission due to burning of fossil fuel (56.6% of total GHG emission in terms of CO2 equivalent in the year 2004) (Pachauri and Reisinger, 2007). Normally, greenhouse gases emitted in the atmosphere are naturally absorbed by carbon sinks such as plants and oceans but since present greenhouse gas concentrations are so high, these sinks are not enough to mitigate global warming and thus extra efforts are required (Pachauri and Reisinger, 2007).

2.2 Shipping Industry and Global Warming Shipping industry is also the contributor of CO2 emissions and thus plays a part in global warming. According to IMO‟s second greenhouse gas study, shipping is measured to have emitted 1046 million tonnes of CO2 in the year 2007 which accounted for about 3.3% of the global emissions during 2007 (Buhaug et al., April 2009). Emissions of CO2 from shipping as compared with global CO2 emissions from other sectors are shown in the figure 2.

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Other Transport (Road) 21.3%

International Aviation 1.9% International Shipping 2.7%

Kanu Priya Jain

Manufacturing Industries and Construction 18.2%

Other Energy Industries 4.6%

Other 15.3%

Rail 0.5%

Electrical and Heat Production 35% Domestic Shipping and Fishing 0.6%

Figure 2: CO2 emissions from shipping compared with global total emissions Source: Second IMO GHG Study 2009 (Buhaug et al., April 2009) Even though CO2 emissions from the shipping industry accounts for about 3.3% of the global emissions, international shipping is, by far, most carbon efficient mode of commercial transport as a cargo vessel of over 8000 dwt emits only 15 grams of CO2 per tonne-km while a heavy truck with trailer would emit about 50 grams of CO2 per tonne-km and an aircraft would emit a whopping 540 grams of CO2 per tonne-km of cargo, as shown in the figure 3 as calculated by The Network for Transport and Environment (NTM), Sweden, a non-profit organisation (ICS, 2009).

Air freight

540

Heavy Truck with trailer

50

Cargo vessel 2000-8000 dwt

21

Cargo vessel over 8000 dwt

15 0

100

200

300

400

500

600

Grams CO2 per tonne-km

Figure 3: Comparison of CO2 emissions between different modes of transport Source: Swedish Network for Transport and Environment

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1046 million tons of CO2 emitted by shipping in the year 2007 (Buhaug et al., April 2009) is comparable to that emitted by some of the major economies of the world. It is argued that if shipping were a country it would be the sixth largest producer of CO2 emissions (HarrouldKolieb, July 2008) as clearly shown in the graph below prepared by plotting CO2 emissions data of various countries collected for United Nations by the Carbon Dioxide Information Analysis Centre (CDIAC) of United States Department of Energy. The CO2 emissions data for shipping is collected from IMO second greenhouse gas study 2009.

6.79 CO2 emissions (billion metric tons)

7 5.58

6 5 4 3

1.66

2

1.61

1.25

1.05

0.79

1 0 China

USA

Russia

India

Japan

Shipping

Germany

Figure 4: Shipping as compared to major CO2 emitting countries Source: United Nations Statistics Division and IMO

It can certainly be concluded from the above data that although shipping is more efficient mode of transport as compared to truck or aeroplane, it is no doubt a major emitter of CO2, making it comparable to the major CO2 emitting countries of the world including China, USA, Russia, India etc.

2.3 Projected CO2 emissions from ships Maritime transport is comparatively favourable to other modes of transport in terms of GHG emissions (per unit/ton-kilometre) but its global carbon footprint is projected to grow in view of the heavy reliance of ships on oil for propulsion and the expected growth in world trade, driven by expanding global population, world economy and demand for shipping services (UNCTAD, 2011).

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Projected CO2 emissions growth from shipping in different scenarios as explained in IMO‟s second greenhouse gas study can be depicted by the following graph where A1FI, A1B, A1T, A2, B1, and B2 are different scenarios based on global differences in population, economy, land-use and agriculture (Buhaug et al., April 2009).

Figure 5: Projected growth of CO2 emissions from shipping Source: International Maritime Organization (Buhaug et al., April 2009) According to IMO‟s second greenhouse gas study, mid-range emissions scenarios show that by the year 2050, in the absence of policies, as a result of the growth in shipping, carbon dioxide emissions from international shipping may grow by a factor of 2 to 3 as compared to the emissions in 2007, which would constitute between 12% and 18% of the global total CO2 emissions in 2050 (Buhaug et al., April 2009). “IMO‟s second greenhouse gas study predicts that without any policy measures international shipping emissions will lie between 6% and 22% (925–1058Mt of CO2 emissions) higher in 2020 than emissions in 2007. By 2050 emissions are predicted to even lie between 119% and 204% (1903-2648 Mt of CO2 emissions) higher than in 2007.” (Heitmann and Khalilian, 2011).

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2.4 World GDP, Trade and CO2 emissions As we all know that shipping is the primary carrier of the world trade and international shipping is responsible for the 80% of the world trade by volume and almost 60% by value (UNCTAD, 2011) thus it plays a vital role in the functioning of the world economy. The international trade to GDP ratios for different countries, developed and developing are shown in the following table (table 1) which proves that international trade has become an important component of the GDPs of most nations (U.S.EPA, 2012). As the world economy grows, trade grows; demand for shipping grows; number of ships increases and contributes to the CO2 emissions more than ever before. Countries Brazil Russia India China Indonesia Malaysia Germany Canada USA UK

International Trade (% of GDP) (year 2010) 18.8 43.8 31.7 50.2 41.0 152.9 71.2 50.1 22.3 42.9

Table 1: International Trade in terms of percent of GDP (year 2010). Source: The World Bank (WorldBank, 2012)

According to The Platou Report (Platou, 2012) world GDP growth in the year 2011 was about 3.8 per cent and the tonnage demand grew at the rate of 6.7 per cent and the total fleet growth was at about 8.2 per cent. The relationship between world GDP growth and seaborne trade growth follows the ratio of 1:2, according to (Platou, 2012). Since world GDP is expected to grow at the rate of about 3.5 per cent in the coming years (Source: World Economic Outlook, International Monetary Fund), world seaborne trade is also likely to grow and thus it would certainly contribute to the growing CO2 emissions if effective measures are not taken.

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2.5 Reduction of GHG emissions A significant potential for reduction of GHGs through technical and operational measures has been identified by IMO‟s second greenhouse gas study 2009. The study says that these measures implemented together could increase efficiency and reduce the emissions rate by 25% to 75% below the existing levels. The study further finds that market-based instruments are cost-effective policy instruments with a high environmental effectiveness. These instruments allow both technical and operational measures in the shipping sector to be used, and can offset emissions in other sectors (Buhaug et al., April 2009). The report submitted by AEA Technology plc to the Committee on Climate Change (CCC) concluded that there is availability of various CO2 abatement options that could be applied to ships which include design improvements and upgrades, operational improvements, alternative fuels, and the use of renewable energy. The report identifies that optimising the design of the underwater hull and propeller, recovering energy from the propeller and engines and after body flow control systems are the options to improve the design of the ships. Operational improvements could be strategic measures such as use of larger ships or sailing at reduced speeds, optimal hull maintenance and the upgrading of propellers and engines, and improved operations on board the ship such as energy management and voyage optimisation. The report identifies liquefied natural gas and wind power (e.g. sails) as the most promising alternative fuels available, although other sources of energy, such as biofuels and solar energy have been identified as having limited potential of use on board ships (Kollamthodi et al., Sep 2008).

2.6 CO2 emissions regulations As discussed above, there are various CO2 abatement options available which can be used to reduce CO2 emissions from ships. But, here a question arises, who is going to implement rules and regulations relating to it. Shipping industry is a global industry involving multiple nationalities. Laws pertaining to a particular country cannot be applicable to entire industry because a significant part of the emissions caused by ships takes place on high seas outside the jurisdiction of any country. “Often ships are registered in one country – their flag state – but

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their owners may be citizens of another country while the operating company is based in a third country. Regulating this global business therefore needs a global inclusive approach that limits free-riding.” (Heitmann and Khalilian, 2011). Moreover, The Kyoto Protocol, a protocol to United Nations Framework Convention on Climate Change (UNFCCC), which aims at fighting global warming, does not apply to international shipping mainly because of the global nature of shipping industry. The Kyoto Protocol acknowledges that emissions from international shipping cannot be attributed to any particular country, thus a collaborative action is required to address the issue of CO2 emissions from shipping industry (ICS, 2009). This collaborative action will be best achieved by a recognised body which can direct entire shipping industry to follow a common set of rules and regulations to curb CO2 emissions. Only such agency which can regulate the entire shipping industry is IMO. Recognizing its responsibility IMO has been seeking the control of GHG emissions from international shipping. IMO‟s Marine Environment Protection Committee considered a range of measures aimed at reducing emissions of GHG from international shipping, including technical, operational and market-based measures. In July 2011, IMO‟s Marine Environment Protection Committee (MEPC) adopted a package of specific technical measures for new ships and operational reduction measures for all ships over 400 GRT. The adopted measures are added to MARPOL Annex VI with a new Chapter 4 named “Regulations on energy efficiency for ships”, making the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Management Plan (SEEMP) mandatory for new ships and all ships respectively. Such measures are considered to be the first ever mandatory GHG reduction regime for an entire economic sector. The aim of such measures is to improve the energy efficiency for new ships through improved design and propulsion technologies and for all ships, both new and existing, primarily through improved operational practices. The measures are expected to come into force on 1 January 2013 (IMO, 2011a).

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IMO‟s MEPC recognized that technical and operational measures would not be sufficient to limit CO2 emissions from shipping in view of the growth in the international trade driven by population and economic growth (IMO, Nov 2010). Thus, MEPC is considering the implementation of some market based measures (MBMs) that would serve two main purposes providing a fiscal incentive for the maritime industry to reduce emissions even further, and off-setting of growing ship emissions. The revenue generated by an MBM would be used for climate change purposes in developing countries (IMO, 2011a). The MBMs are still under developing stage at IMO. Thus, this topic has been kept away from the scope this dissertation. The first phase CO2 reduction level in grams of CO2 per tonne mile is set to 10 per cent which will be strengthened every five years to keep up with technological developments of new efficiency and reduction measures. This means that the EEDI will require ships built between 2015 and 2019 to improve their efficiency by 10 per cent, rising to 20 per cent for those built between 2020 and 2024 and 30 per cent for ships delivered after 2024. These reductions are calculated from a baseline which represents the average efficiency for ships built between 2000 and 2010 (IMO, Oct 2011).

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Chapter 3 3. EEDI and SEEMP The EEDI is a non-prescriptive, performance-based tool that allows ship designers and builders to choose from various available cost effective technologies that can be used for a specific ship design. Ship designers are only expected to attain the required energy efficiency level as prescribed by the regulation. The EEDI provides a specific figure for an individual ship design, expressed in grams of CO2 per ship‟s capacity-mile (the smaller the EEDI the more energy efficient ship design) and is calculated by a complex formula defined by IMO, based on the technical design parameters for a given ship (IMO, Oct 2011). The SEEMP is an operational measure that assists a shipping company to improve the energy efficiency of its ship operations in a cost-effective manner. It provides an approach for monitoring ship and fleet efficiency performance over time using the Energy Efficiency Operational Indicator (EEOI) as a monitoring tool which acts as a benchmark tool. The guidance on the development of the SEEMP for new and existing ships incorporates best practices for fuel-efficient ship operation (IMO, Oct 2011). According to IMO, the adoption of mandatory reduction measures for all ships from 2013 and onwards will lead to significant emission reductions and also a cost saving for the shipping industry. IMO predicted that by the year 2020, annual CO2 reductions would lie between 100 and 200 million tonnes due to the introduction of the EEDI for new ships and the SEEMP for all ships in operation and by 2030 reductions will increase to between 230 and 420 million tonnes of CO2 annually which in terms of percentage is approximately between 10 and 17 per cent below business as usual by 2020 and between 19 and 26 per cent below business as usual by 2030. The reduction measures will also result in a significant saving in fuel costs to the shipping industry. The annual fuel cost saving estimate gives an average figure of US$50 billion by 2020 and of US$200 billion by 2030 which is a huge amount of savings at a little extra cost required to implement these measures (IMO, Oct 2011).

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3.1 EEDI Formula The basic idea of creating the index is to represent CO2 efficiency of ship at design point. The simplest way of representing the EEDI formula is thus

CO2 emission on ship comprises of emission from main engine, emission from auxiliary engines at certain power, defined by ships operation speed. Transport work is the product of ship capacity (deadweight) and speed (Vref). So, the above formula can more precisely be mentioned as below.

The main- and auxiliary engine emissions can be calculated by multiplying fuel consumption (FC) of the main and auxiliary engines with the carbon conversion factor (CF), which connects the fuel consumption to the amount of CO2 emissions. Thus, the formula becomes as mentioned below. (

)

(

)

Fuel consumption of an engine can be calculated as a product of produced power (P) and specific fuel consumption (SFC). Considering these factors, EEDI formula can be mentioned as follows. (

)

(

)

Some ships are fitted with energy saving technologies, such as waste heat recovery system, sails, solar panels etc. which reduce the power required either from main or auxiliary engines (Peff and PAEeff). Power take in electrical motors (PPTI) on propeller shaft are installed in some ships and the impact of these devices on the environment should also be included in the formula. These factors are taken care of in the formula by subtracting the emission reduction

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due to innovative technologies. The EEDI formula with such additional elements can be written as.

(

)

(

)

((

(

)

) )

Some ships with special design elements may require additional installed main engine power (e.g. ice-class ships). This is taken care of by introducing a power correction factor (fj) which normalizes the installed main engine power. A capacity correction factor (fi) is included in the formula because capacity of the ship may be limited due to technical or regulatory reasons. A weather correction coefficient (fw) is also included to normalize the speed of the ship as ships are designed for various operation conditions of wave height, wave frequency and wind speed. A cubic capacity correction factor (fc) is included to normalize the capacity for chemical tankers and gas carriers. When these non-dimensional correction factors are added to the formula, the expression is

(

)

(

)

((

(

)

)

)

Finally, as mathematical symbols for taking into consideration multiple engines and factors are included, the formula can be written as it has been presented in IMO MEPC. resolution 212(63), Annex 8. (∏

) (∑ ((∏

()

∑

()

(∑

( ))

()

∑ ()

()

(

)

( ))

()

) )

Figure 6: Anatomy of EEDI formula Source: International Maritime Organization (IMO, 2012)

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where Main engine emissions Auxiliary engine emissions Shaft generators/motors emissions and energy saving technologies (auxiliary power) Energy saving technologies (main power) Transport work And meaning of the various denotations is as follows: Engine Power (P) (Individual engine power at 75% of Max. Continuous Rating) Peff(i) Main engine power reduction due to individual technologies for mechanical energy efficiency PAEeff(i) Auxiliary engine power reduction due to individual technologies for electrical energy efficiency PPTI(i) Power of individual shaft motors divided by the efficiency of shaft generators PAE Combined installed power of auxiliary engines PME(i) Individual power of main engines CO2 Emissions (C) (CO2 emission factor based on type of fuel used by given engine) CFME Main engine composite fuel factor CFAE Auxiliary engine fuel factor CFME(i) Main engine individual fuel factors Specific fuel consumption (SFC) (Fuel use per unit of engine power, as certified by manufacturer) SFCME Main engine (composite) SFCAE Auxiliary engine SFCAE* Auxiliary engine (adjusted for shaft generators) SFCME(i) Main engine (individual) Correction and Adjustment factors (f) (Non-dimensional factors that were added to the EEDI equation to account for specific existing or anticipated conditions that would otherwise skew individual ships' rating) feff(i) Availability factor of individual energy efficiency technologies (=1.0 if readily available) fj Correction factor for ship specific design elements. E.g. ice-classed ships which require extra weight for thicker hulls fw Coefficient indicating the decrease in ship speed due to weather and environmental conditions fi Capacity adjustment factor for any technical/regulatory limitation on capacity (=1.0 if none)

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Ship design parameters Vref Ship speed at maximum design load condition Capacity Deadweight tonnage (DWT) rating for bulk ships and tankers; a percentage of DWT for containerships Section 3.1 is developed on the basis of the information collected from (ICCT, Oct 2011), (DeltamarinLtd, Dec 2009) and (IMO, 2012). The current EEDI formula is suitable for oil and gas tankers, bulk carriers, general cargo and container ships, refrigerated cargo and combination carrier (IMO, Jul 2011).

3.2 EEDI regulatory concept Having understood that CO2 emission control regulations are implemented by IMO on ships with the help of EEDI formula explained in the previous section in detail, this section would explain how exactly these regulations came into existence and how would they be implemented. EEDI formula calculates the CO2 emission efficiency of a vessel at the design stage in terms of grams of CO2 emitted per tonne-nautical miles (gCO2/tonne-nm) (DeltamarinLtd, Dec 2009). In order to implement CO2 emission regulations in a step by step manner, making emission criteria rigorous over time; IMO first developed the EEDI baseline from the data collected for existing ships using Lloyd‟s Register Fairplay (LRFP) database (IMO, Dec 2009). These baselines are developed for each category of the ship, differentiated by IMO as bulk carrier, gas carrier, tanker, container ship, general cargo ship, refrigerated cargo carrier, and combination carrier (IMO, Jul 2011). The EEDI reference lines refer to statistically average EEDI curves derived from data for existing ships (Lloyd'sRegister, May 2012). CO2 emission regulations aim to reduce the emission of new buildings with respect to existing ships, thus the EEDI value of new ships is required to be less than these baselines representing existing ships by a certain factor which keeps on increasing over time from 0% to 30%, as explained in chapter 2. Regulation 21 of chapter 4 of MARPOL annex VI defines how EEDI regulations are implemented. For each new ship, attained EEDI should be less than or equal to required EEDI and required EEDI is calculated as (

Impacts of Energy Efficiency Design Index

)

, where X is the

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reduction factor (specified in the table below) for the required EEDI compared to the EEDI reference line (IMO, Jul 2011).

Ship Type

Bulk Carrier

Gas Carrier

Tanker

Container ship

General Cargo ships

Refrigerated Cargo ships

Combination Carrier

Size

Phase 0: 1 Jan 201331 Dec 2014

Phase 1: 1 Jan 201531 Dec 2019

Phase 2: 1 Jan 202031 Dec 2024

Phase 3: 1 Jan 2025 and onwards

20,000 DWT and above

0

10

20

30

10,000 - 20,000 DWT

n/a

0-10*

0-20*

0-30*

10,000 DWT and above

0

10

20

30

2,000 - 10,000 DWT

n/a

0-10*

0-20*

0-30*

20,000 DWT and above

0

10

20

30

4,000 - 20,000 DWT

n/a

0-10*

0-20*

0-30*

15,000 DWT and above

0

10

20

30

10,000 - 15,000 DWT

n/a

0-10*

0-20*

0-30*

15,000 DWT and above

0

10

15

30

10,000 - 15,000 DWT

n/a

0-10*

0-15*

0-30*

5,000 DWT and above

0

10

15

30

3,000 - 5,000 DWT

n/a

0-10*

0-15*

0-30*

20,000 DWT and above

0

10

20

30

4,000 - 20,000 DWT

n/a

0-10*

0-20*

0-30*

* Reduction factor to be linearly interpolated between the two values dependent upon vessel size. The lower value of the reduction factor is to be applied to the smaller ship size. n/a means that no required EEDI applies

Table 2: Reduction factors (in %age) for the EEDI relative to the EEDI Reference line Source: International Maritime Organization (IMO, Jul 2011)

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The reference line values are calculated using the following formula.

Values of a, b and c defined by IMO are given in the following table. Ship type

a

b

c

Bulk carrier Gas carrier Tanker Container ship General cargo ship Refrigerated cargo ship Combination carrier

961.79 1120.00 1218.80 174.22 107.48 227.01 1219.00

DWT of the ship DWT of the ship DWT of the ship DWT of the ship DWT of the ship DWT of the ship DWT of the ship

0.477 0.456 0.488 0.201 0.216 0.244 0.488

Table 3: Parameters for determination of reference values for the different ship types Source: International Maritime Organization (IMO, Jul 2011) At the beginning of phase 1 and at the midpoint of phase 2, IMO will review the status of technological developments and, if required amendments can be made to the time periods, the EEDI reference line parameters for relevant ship types and reduction rates set out in this regulation (IMO, Jul 2011). The regulatory concept of EEDI can be depicted by the following graph extracted from the guidance notes for implementing EEDI developed by Lloyd‟s Register.

Figure 7: EEDI regulatory concept Source: Lloyd’s Register (Lloyd'sRegister, May 2012)

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3.3 EEOI formula The formula for Energy efficiency operational indicator (EEOI) is similar to that of EEDI formula, only difference is that EEOI is the measure of actual CO2 emissions of a ship and it acts like a monitoring tool. The EEOI formula developed by IMO is as follows (IMO, Oct 2011).

EEOI is the measure of CO2 emission from a ship in terms of grams per tonne mile.

3.4 Analysis of EEDI formula As understood from the above mentioned EEDI formula, there are five main components of the

formula

namely main

engine

emissions,

auxiliary engine

emissions,

shaft

generator/motors emissions, efficiency technologies and transport work. In order to meet the EEDI regulations, main aim of a ship builder is to reduce the EEDI value. This can be done in different ways which include firstly the reduction of individual emissions of main engine, auxiliary engine and shaft generator/motor, secondly by using efficient technologies as it reduces (subtracts) CO2 emissions from the overall emissions, and finally by increasing the transport work. Considering the first option of reducing the individual emissions of main engine, auxiliary engine and shaft generator/motor means instalment of highly efficient engines i.e. engines with lesser specific fuel consumption or use of engines that uses low carbon fuel such as LNG. Another option is to reduce the designed power of the main engine because at less power, fuel consumption is less and thus CO2 emissions are reduced. But, as per IMO guidelines a ship owner cannot reduce the power of the ship to such an extent which would limit its manoeuvrability under adverse conditions. Considering the second option of making use of efficient technologies means use of energy saving technologies such as waste heat recovery systems and solar power. Design measures that can be used to improve ship‟s EEDI include optimized hull design, hydrodynamic

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modification to hull, advanced hull coatings, light weight construction, improved propeller design such as contra rotating propeller etc. (Hughes, Nov 2011). Considering the third option i.e. increasing transport work, a ship owner who wants to improve EEDI of his vessel has two main options, first to increase the deadweight (capacity) of the ship and second to reduce the design speed of the ship because at a reduced speed, power required by the main engine will be reduced considerably as power is the cubic function of the speed. In short, a ship owner has a number of options available at his disposal that can be used to improve EEDI of the ship. But the question is which of these options is cost effective because from ship owners point of view, cost effectiveness of implementing such measures is of paramount importance, because if a ship owner does not make profit out of shipping, there is no point for him to remain in the business. Various studies have been carried out to compare and prioritise different options available to be applied to improve the EEDI of the ship. One such method is marginal abatement cost comparison developed by DNV on the basis of second IMO greenhouse gas study 2009. Such methods are a helpful tool for ship owners to select the potential measures for their own ship (Eide and Endresen, 2010). Having understood the various components of the EEDI formula, now let us study the impact on the ship owners of considering different options to reduce the EEDI value by studying all the available options individually. For an easy approach, study has been carried out separately for numerator and denominator component of the formula. Main components of numerator that can be varied are power, carbon factor, specific fuel consumption and efficient technologies while the main components of denominator that can be changed are deadweight (capacity) and design speed of the ship.

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Chapter 4 4. Methodology In order to study the impacts of EEDI formula on ship owners, each component of EEDI formula must be studied separately. Every component of the formula has different variables those can be changed in order to meet the EEDI regulations. There can be various ways and technologies that can be used to meet the emissions regulations. Following framework has been developed as part of this dissertation to study the impacts of EEDI regulations on ship owners.

Figure 8: Framework to study EEDI formula EEDI regulations call for the changes in technical specifications of the ship. There is a relation between the technical specification of the ship and its economic performance which has been extensively studied by Chen et al (Chen et al., 2010) for bulk carriers. Thus, implementation of EEDI regulations would have some impact on the economic performance

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of the ships. Ship owners are concerned with economic performance of the ship and any negative impact on that may force them out of business. Martin Stopford, in his book Maritime Economics (Stopford, 2009) has explained shipping cash flow components as shown in the following figure 8. These components are used as the basis of this study. In this dissertation, economic impact of complying EEDI regulations on ship owners has been studied using the framework developed as shown in figure 8 by relating the impact of change in those components on the cash flow components explained by Martin Stopford. Annual costs of operating fleet. Operating Costs Crew wages Stores & Lubricants Repair & Maintenance Insurance Administration

 



Voyage Costs Fuel Consumption Fuel price Speed Port & Canal dues Main & Aux Engine

Cargo Handling Costs

Ship Revenue Cargo Capacity Ship size Bunkers and Stores Productivity Operating Speed Operational Planning Backhauls Off hire time Deadweight utilisation Port time Freight rates

Free cash flow

Annual costs of maintaining and financing fleet. Figure 9: Shipping cash flow model Source: Maritime Economics (Stopford, 2009)

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Chapter 5 5. Change in denominator variables The key to survival in the shipping market is financial performance of the ship (Stopford, 2009). This is the reason why ship owners prefer ships which can either minimize costs or maximize earnings potential (Chen et al., 2010). Veenstra and Ludema show that the earnings potential of a ship depends on the technical variables such as cargo carrying volume (capacity/deadweight) and speed (Veenstra and Ludema, 2006). Thus, changes in the technical specifications of a ship have a substantial impact on ship owners. IMO‟s EEDI formula calls for the changes in the technical specification of the ship in order to meet the prescribed regulations. Traditionally, desired earnings potential has been an important factor in determining the technical specifications of the ship. “The relation between technical specifications and earnings potential is fairly direct: desired earnings potential influences the design specifications, and the specification of the finished ship determine the earnings potential.” (Veenstra and Ludema, 2006). In this section we will discuss what technical design changes can be made to meet the EEDI regulation and in what way those changes will have an impact on ship owners. Firstly, studying the denominator of the formula, speed reduction and deadweight enlargement can be used as the options to reduce the EEDI value (IMO, Jan 2010).

5.1 Change in design speed The design speed of a vessel is of great concern to ship owners because it determines the ship‟s transport capacity. Determining the design speed of a vessel seems to be a technical issue but it is also an economical issue as it is related to fuel consumption, building costs, and revenues (Chen et al., 2010). Therefore, it is of great importance for ship owners to determine the optimal design speed of a vessel. “Optimal speed, from an economical point of view, may be defined as the speed that maximises the difference between income and expenses (per time unit) of the ship.” (Skjølsvik et al., Mar 2000).

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5.1.1 Factors affecting design speed The analysis of the optimum speed in operation carried out by (Chen et al., 2010) established that two significant factors affecting the optimum speed are the bunker costs and the market price level, which will be considered by ship owners in making a decision about the design speed. Chen et al. justified this by explaining that the average design speed of bulk carriers built during the early 1980s to the end of the 1980s was relatively lower than that in other periods due to the high oil prices from mid-1979 to 1986, together with lower time charter rates during the period from 1981 to 1986. Many ship owners preferred vessels with low speed, so as to reduce costs during hard times (Chen et al., 2010). Other important factor which determines the design speed as explained by Stopford is the type of cargo carried by the ship (Stopford, 2009). Typically, ships have been built to operate at a specific design speed, for example, large dry bulk vessels have speed in the range of 13– 16 knots, while service speeds of large container vessels are in the range of 24–26 knots (Lindstad et al., 2011). Container ships have high speed because they carry high-value cargo and the shipper is normally willing to pay for faster transport because faster speed reduces the transport time which in turn reduces the inventory cost of cargo in transit which can be enormous for high value cargoes such as television sets are worth around $44,000 per tonne (Stopford, 2009). On the other hand, bulk commodities such as iron ore and coal have low inventory costs, for example, iron ore has inventory cost of about $35 per tonne while coal has inventory cost of about $47 per tonne (Stopford, 2009).

5.1.2 Relation between design speed and EEDI The design speed of the vessel determines the required engine power. The engine power is approximately the cubic function of the speed thus lowering the speed would reduce the necessary engine power considerably which makes speed reduction an effective option to improve the EEDI value (IMO, Jan 2010) and (DeltamarinLtd, Dec 2009). Effect of speed on EEDI value for a 17,000 dwt general cargo ship is explained in the report prepared by Deltamarin Ltd. for EMSA. Effect can be explained by the following graph as obtained from the report. The graph illustrates that the EEDI value at 11 knots is 5 and if the speed is increased to 14 knots and 18 knots, the index is nearly doubled and tripled respectively. It can be clearly seen that the curve gets steeper for higher speeds and the

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difference in index value between 19.5 knots and 20.5 knots is about 20% (DeltamarinLtd, Dec 2009).

Figure 10: EEDI vs Speed curve for a 17,000 dwt General cargo ship Source: (DeltamarinLtd, Dec 2009)

5.1.3 Discussion Design speed of the vessels affects the required engine power as there is a cubic relation between the design speed and the power required. Engine power being on the numerator of the EEDI formula directly affects the EEDI value. This means that lower the design speed lower would be the engine power required and consequently, lower would be the EEDI value. In other words, theoretically, reduction of design speed can be used to meet the EEDI regulation. On the other hand, as we have seen above, a ship owner decides upon the design speed of the vessel considering various factors such as market level, fuel price and type of cargo to be carried. Container ships have design speed greater than that of bulk carriers and tankers. High fuel prices and low charter rates have forced ship owners in the past to reduce the design speed of ships as shown by Chen et al. with the data related to bulk carriers as discussed above.

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During the period of low charter rates and high fuel prices, another measure used by ship owners is slow steaming i.e. ships are operated at a speed lower than the maximum speed or design speed. This measure reduces the operating costs for ship owners and various studies have shown that slow steaming would certainly reduce the CO2 emissions as well (Kollamthodi et al., Sep 2008) but it does not affect the EEDI value. In this discussion we are concerned with the effect of change in design speed on EEDI and its implications on ship owners. So, the topic of slow steaming has been kept out of the discussion. Reducing the design speed does help in reducing the EEDI value but it is an irreversible approach i.e. if a ship owner needs to operate the ship at higher speed, suppose in a market with high charter rate and low fuel prices in order to increase the earnings potential, a ship owner is left with no option to run the ship at higher speed. This way, a ship owner is likely to lose the profit which he would have otherwise earned at higher speed. Moreover, reduced design speed comes at a cost as it directly affects the amount of cargo transported over a particular time period and a greater number of ships are required to maintain the annual transport capacity. Other important disadvantage of lower design speed is the effect on ship‟s manoeuvrability in extreme weather conditions. But, this issue has been addressed by IMO by regulation 21.5 stating “For each ship to which this regulation applies, the installed propulsion power shall not be less than the propulsion power needed to maintain the manoeuvrability of the ship under adverse conditions, as defined in the guidelines to be developed by the Organization.” (IMO, Oct 2011) Altogether, reduced design speed reduces the EEDI value but it affects the earnings potential which are of great concern to a ship owner. Reduced design speed reduces the engine power and thus lesser fuel consumption. Savings in fuel consumption must offset the revenue lost due to less volume of cargo carried and cost of adding extra ships to maintain the supply chain, in order to convince the ship owners to opt for the reduced design speed. Considering the implications a ship owner is likely to have due to a reduced design speed in the form of reduced earnings potential, it can be concluded that it is highly unlikely that ship owners will order the ships with lower design speed. There are other available options that can be used to meet the EEDI regulations which are discussed below.

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5.2 Change in deadweight The concept of economies of scale plays an important part in keeping sea transport costs low. The unit costs generally fall with increased size of the ship due to the fact that capital, operating and cargo-handling costs do not increase in proportion with the cargo capacity (Stopford, 2009). “Over the past decades, the size of dry bulk carriers has been increased due to reasons of „„economy of scale.” (Chen et al., 2010). Lindstad et al. studied the importance of economies of scale in reducing the greenhouse gas emissions from shipping and found that that emissions can be reduced by up to 30% at a negative abatement cost per ton of CO2 by replacing the existing fleet with larger vessels (Lindstad et al., 2011). But there are various factors which limits the increase in ship size.

5.2.1 Factors affecting change in deadweight Even though economies of scale keep low unit cost of transportation, there are various factors that determine the maximum size of the ship which can be used. A bulk ship owner is faced with the challenge of building a ship that fits into the bulk transport system used by the cargo shippers. This challenge primarily affects the size of bulk carrier (Stopford, 2009). Other factors that determine the maximum size of the ship which can be used include the depth of water and berth length at the loading and receiving end of the operation. Storage capacity at ports also determines the size of the ship, as there is no point in shipping the quantity of cargo that cannot be handled either at loading or discharge port (Stopford, 2009). Plant size is another important factor that puts the constraint on the size of the ship. The amount of raw material a manufacturing plant can process in a year determines the size of the cargo required by the plant, placing a constraint on the ship size. This is well explained by Martin Stopford by the following two examples. A steel mill which produces 5 million tons of steel a year needs about 700,000 tons of iron ore and 200,000 tons of coal each month. For such volume of cargo use of 180,000 dwt ships would make sense because using large number of handy bulk carriers each month would be troublesome. On the contrary, a sugar factory which needs 42,000 tons of raw sugar monthly is unlikely to use 180,000 dwt ships; instead two 25,000 dwt ships each month can be used (Stopford, 2009).

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For an oil tanker, parcel size of the cargo to be shipped, typically determines the size of the vessels. For example, crude oil is shipped in very large parcel sizes of over 100,000 tonnes while oil products are shipped in parcels of 30,000 to 50,000 tonnes. Large vessels require dedicated port infrastructure and their deep draught restricts their use of key shipping lanes such as the Suez Canal, the Dover Straits and the Straits of Malacca (Stopford, 2009). The economies of scale is also generated for the container ships by the three main elements of the ship cost calculation i.e. capital cost, operating expenses and bunker costs. Stopford explained that an 11,000 TEU vessel halves the cost of container transport as compared to a 1200 TEU vessel. “Beyond 2600 TEU economies of savings are roughly 5 % for each additional 1000 TEU capacity” (Stopford, 2009). But economies of scale diminishes after a certain increase in size and finally there may be diseconomies and using very big ships requires deep dredging of hub ports and introduction of feeder services to the ports which cannot accommodate large ships. These feeder costs may reduce the savings made by using bigger ships on the deep-sea leg (Stopford, 2009).

5.2.2 Relation between deadweight and EEDI Since deadweight is part of the denominator in the EEDI formula, theoretically, index value is inversely proportional to the deadweight i.e. increase in deadweight would reduce the EEDI value. It can be argued that larger deadweight may need larger engine power thereby increasing the EEDI value but as explained by IMO MEPC 60/40/35 deadweight enlargement can improve the efficiency thereby reducing the EEDI value because increase in the necessary engine power in proportion to the deadweight increase is powered by two-third, and therefore the increase of the denominator (deadweight) outweighs that of the numerator (engine power) (IMO, Jan 2010).

5.2.3 Light weight reduction Another option that can be looked at, in order to increase the deadweight of the ship, is reduction in lightweight (Lloyd'sRegister, May 2012). This means that displacement of the vessel remains constant, so does the engine power i.e. same engine power can be used to carry a greater amount of cargo increasing the vessel efficiency and thus reducing EEDI value.

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Impact of change in lightweight was examined by Chen et al and it was concluded that it has a great impact on the economic performance of a ship because by keeping total displacement of a ship constant, reduced lightweight can always result in more deadweight. Increased deadweight means increased cargo carrying capacity and in turn greater earnings. Increasing deadweight has a long-term effect on the earnings owning to the life of a ship being in the range of 25-30 years (Chen et al., 2010). Ship‟s lightweight can be reduced in two ways first by using aluminium or other lightweight construction material for structures that does not contribute to ship‟s global strength and second by reducing the weight of the steel structure using high tensile steel which can lower the weight by 5% to 20% (Wartsila, Sep 2008). Since high tensile steel is already used to some extent on some ships, reduction in steel weight is thus estimated to give fuel saving of about 5% annually (Wartsila, Sep 2008). Lightweight materials are expensive as compared to steel and since most shipyards are not used to build ships with lightweight materials, there are certain costs associated with building ships using lightweight materials (IMO, Apr 2011). According to the report submitted by Deltamarin Ltd. to EMSA (DeltamarinLtd, Dec 2009) research conducted on 11,350dwt Ro-Ro case ship showed that use of aluminium and composite structures resulted in 10% lightweight reduction which translated into 9% increase in the deadweight of the ship and 8.3% of EEDI reduction. On this particular ship lightweight construction costs about 5 million euro (US$ 6 million) (DeltamarinLtd, Dec 2009).

5.2.4 Discussion Deadweight enlargement is one of the options that can be used to meet the EEDI requirements as explained by IMO MEPC 60/4/35. Increase in deadweight helps ship owners to squeeze more profit out of a ship due to the economies of scale but there are certain factors that limit the increase in size of the ships. Due to those factors as explained above, ship owners cannot opt for a bigger ship where there is a requirement of a smaller ship. Size of the ship is related to the type of the trade and the requirements of the particular trade. “Since ship is always designed for certain transportation task, capacity of the ship could be considered as a fixed parameter which cannot be affected unless the whole concept is redesigned.” (DeltamarinLtd, Dec 2009). Thus it is unlikely that a ship owner will order bigger ships to meet the EEDI value.

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Reduction in lightweight keeping the constant displacement provides with two-fold benefits to the ship owners. One, it reduces the EEDI value due to increased deadweight and other, it increase the earnings potential of the vessel. Thus, ship owners will always support a ship with less lightweight at constant displacement in order to increase the earnings potential of a vessel. However, ship owners may be required to pay more for building such a vessel due to advanced technology involved in ship design and construction. It is thus important for them to evaluate how much increase in building prices is acceptable for a new vessel with less lightweight at the same displacement. As evaluated by Chen et al., if a standard new panamax vessel costs US $60 million, it is not profitable to build an alternative ship with 5% reduced lightweight, if the building price is increased by 2.11% (Chen et al., 2010). Altogether, increase in deadweight by reducing lightweight seems to be a good option from ship owners‟ point of view to meet the EEDI regulation subjected to the economic and technical feasibility. On the other hand, increasing deadweight of the vessel to get benefits of economies of scale and at the same time to reduce the EEDI value doesn‟t seem to be a viable option due to the constraints which the option of economies of scale is subjected to.

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Chapter 6 6. Change in numerator variables In this section we will study what parameters of numerator of EEDI formula can be changed to meet the EEDI regulations and in what way those changes will affect ship owners. As explained before, numerator of EEDI formula consists of Main engine emissions, Auxiliary engine emissions, Shaft generator/motor emissions and energy saving technologies related to auxiliary and main power. Calculation of the CO2 emissions from main engine, auxiliary engine and shaft generator/motor is carried out by using the following basic formula as explained in section 3.1. (

)

(

)

(Hughes, Nov 2011)

where SFC means specific fuel consumption and CF is a non-dimensional conversion factor between fuel consumption measured in g and CO2 emission also measured in g based on carbon content (IMO, 2012). According to IMO MEPC 63/23 annex 8 resolution MEPC.212(63) the value of CF is as follows.

Type of fuel 1 Diesel/Gas Oil 2 Light Fuel Oil (LFO) 3 Heavy Fuel Oil (HFO) 4 Liquefied Petroleum Gas (LPG)

Reference ISO 8217 Grades DMX through DMB ISO 8217 Grades RMA through RMD ISO 8217 Grades RME through RMK Propane Butane

5 Liquefied Natural Gas (LNG)

Carbon content

CF (t-CO2/tFuel)

0.8744

3.206

0.8594

3.151

0.8493

3.114

0.8182 0.8264 0.7500

3.000 3.030 2.750

Table 4: Values of conversion factor CF Source: International Maritime Organization (IMO, 2012) The carbon di-oxide emissions by main engine will be studied and analysed using the above mentioned formula as defined by IMO while the emissions from shaft generator/motor are

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not studied separately because those are taken care of by studying the emissions from main engine because shaft generator generates electricity using the power from main engine. Similarly, emissions from auxiliary engine are not studied separately because the basic approach in EEDI calculation for cargo ships is to derive PAE directly as certain percentage of PME so there are practically no chances to have an impact on this value independently (IMO, 2012; DeltamarinLtd, Dec 2009). Another aspect of numerator components is the effect of energy efficient technologies (auxiliary and main power), which will be studied separately for various technologies those can be used to meet EEDI requirements and impact of using such innovative technologies on ship owners will also be examined in this section.

6.1 Main engine emissions’ parameters As explained above, for the purpose of EEDI formula, carbon di-oxide emissions from main engine are calculated as the product of engine power, specific fuel consumption and conversion factor based on carbon content of the fuel used. Thus, there are basically three things that can be done to reduce the EEDI value i.e. reduce engine power, reduce specific fuel consumption of the engine by using efficient engines and lastly reduce the conversion factor by using the fuel with less carbon content.

6.1.1 Engine power The installed engine power to some extent determines the capital cost of the ship and it greatly affects the fuel consumption thus influences the bunker costs which are of great concern to ship owners with such high fuel prices. “The power installed determines the height of the investment in the diesel engine and influences the operational costs like fuel costs.” (Chen et al., 2010). Reduced engine power not only helps in reducing EEDI value but also helps ship owners with reduced capital and operational costs (fuel saving). The component of engine power being in the numerator of the EEDI formula has a great impact on the EEDI value. Reduced engine power will certainly reduce the EEDI value but the question is can a ship owner afford to have a reduced engine power. As we have seen in chapter 4, engine power is the cubic function of the speed; it means that if the design speed of the ship is reduced, required engine power would also be reduced thereby reducing the EEDI

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value. But, as already discussed, design speed of a ship is a fixed parameter from ship owners‟ point of view; there is no chance that a ship owner is likely to reduce the speed to have reduced EEDI. Another option to have reduced engine power without sacrificing design speed or deadweight is to optimise the ship‟s speed power performance (DeltamarinLtd, Dec 2009). This can be done by reducing ship‟s resistance by optimised hull form and propeller design because power

requirement

depends

on

the

ship‟s

hull

form

and

propeller

design

(MANDiesel&Turbo, Dec 2011). This way power required by the ship would be reduced keeping the design speed constant or in other way ship can move faster at the same power. There are different ways of doing the optimisation of ship‟s speed power performance which are discussed later in this section. According to IMO (IMO, Oct 2011) easiest way to reduce power would be to “de-rate” the same engine by limiting the maximum rpm which would increase propeller efficiency (if the exact same propeller is installed) which in turn will reduce the power required by main engine and thus reduced EEDI value. This is because of the fact that propeller efficiency generally improves as rpm decreases. De-rating in simple words means operating the engine at less than its rated maximum power. Another way by which power installed can be reduced is to install an engine with one cylinder fewer. This would not have any impact on specific fuel consumption or rpm (IMO, Oct 2011). 6.1.1.1 Optimisation of speed power performance The power required to run the ship depends on the resistance offered by the ship i.e. the force working against the ship propulsion and the resistance offered by the ship is related to ship‟s speed, displacement and hull form (MANDiesel&Turbo, Dec 2011). This implies that for a given design speed and displacement of the ship, which are considered constant parameters from ship owners‟ point of view due to their ability to affect revenue; if power required to run the ship is to be lowered, ship‟s hull form must be optimised to reduce the resistance offered by the ship which in turn would lower the main engine power requirement. Speed power performance can thus be optimised by reducing the resistance offered by the ship.

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The total resistance offered by the ship can be sub-divided into three main parts namely frictional resistance, residual resistance and air resistance (MANDiesel&Turbo, Dec 2011). Frictional resistance for given speed depends mainly on the wetted surface and the surface roughness of the hull (Hochkirch and Bertram, 2010) while residual resistance is influenced by the area of ship‟s hull below the waterline and it comprises of wave resistance and eddy resistance (Stokoe, 2003). Wave resistance is the energy loss due to the waves created by the ship during its propulsion through the water, while eddy resistance is the loss of energy caused by flow separation which creates eddies at the aft end of the ship (MANDiesel&Turbo, Dec 2011). Air resistance depends on the cross-sectional area of the ship above the waterline and it is proportional to the square of the ships speed (Molland et al., 2011). The power P necessary to move the ship at speed V against total resistance RT is called as effective power and is calculated as

(Molland et al., 2011). Theoretically,

effective power should be equal to the power that must be developed by main engine to propel the ship, but this is not the case. Actually, power required to be developed by main engine is much more than the effective power due to various power losses. The power produced by the engine is the indicated power (ip) but the mechanical efficiency of the engine is between 80% and 90%, therefore power transmitted to the shaft is certain percentage of the indicated power, which is called as shaft power (sp) (Stokoe, 2003). Power delivered to the propeller by the shaft, the delivered power (dp) is calculated after deducting shaft losses and is about 95% of the shaft power (Stokoe, 2003). The efficiency of the propeller, which is about 60% to 70%, determines the thrust power (tp) developed by the propeller (Stokoe, 2003). The thrust power should theoretically be equal to the effective power (ep), the power required to run the ship (as explained before) but the propeller action to accelerate the water creates a suction on the aft end of the ship which results in certain amount of power loss calculated by hull efficiency (Stokoe, 2003). Thus, effective power is certain percentage of thrust power and is calculated after taking hull efficiency into account. In this section, we are considering various ways to reduce the power required by the main engine at the same speed (speed power optimisation). In a nutshell, power required by the main engine can be lowered either by reducing any of the resistance components such as frictional resistance, residual resistance, and air resistance or by reducing the power losses

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determined by mechanical efficiency, transmission efficiency, propeller efficiency and hull efficiency. There are various techniques which can be used to reduce power required by the main engine by optimisation. Such measures which can be used to reduce main engine power and thereby EEDI value as defined by IMO (IMO, Apr 2011) include hull optimisation, hull coatings, propeller-hull interface optimisation, air lubrication. Other options as defined by the report submitted by AEA group to the committee on climate change (Kollamthodi et al., Sep 2008) include optimisation of the superstructure and propeller and rudder design optimisation. 6.1.1.1.1 Hull Optimisation Hull optimisation is well known, easily available technique that can be used to reduce main engine power requirement by reducing the resistance offered by the ship‟s hull to its propulsion. This requires investing in ship design including tank trials etc. and it also include cost associated with building the optimised ship (IMO, Apr 2011). It is applicable to all ship types and gives EEDI reduction potential of maximum 9% depending on the ship type (Wartsila, Sep 2008). The cost of optimising the hull shape is in the range of US$ 50,000 to US$ 200,000 (Skjølsvik et al., Mar 2000). Main advantages for ship owners in considering this option is in fuel savings and its payback time is less than a year (Wartsila, Sep 2008). According to the report submitted by Deltamarin Ltd to EMSA (DeltamarinLtd, Dec 2009) research conducted on 11,350dwt Ro-Ro case ship showed that hull optimisation costs about 0.1 million euros (US$ 120,000) and results in the fuel saving of about 740 tonnes per annum with EEDI benefit of 2% which resulted into 5% reduction in power requirement or 0.35 knots speed increase at same engine power. Altogether, from ship owners‟ point of view, hull optimisation seems to be a cost effective option to meet the EEDI regulation as initial investment is low with very short payback time and potential for fuel savings is high. Moreover, there is no sacrifice of basic design parameters such as design speed which is crucial for ship owners from revenue purpose.

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6.1.1.1.2 Hull Coatings As explained above, frictional resistance is influenced by the roughness of ship‟s hull; it is thus important to make hull surface as smooth as possible in order to reduce the power required by the ship to move and subsequently to lower the EEDI value. Using hull coatings can reduce/prevent hull fouling by enhancing the smoothness of the hull and thus are helpful in reducing frictional resistance (IMO, Apr 2011). Reduced frictional resistance means reduced power requirement and thus EEDI benefit. This technique is applicable to all ship types and gives EEDI reduction potential in the range of 0.5 to 5%. (IMO, Apr 2011). Cost of hull coatings is in the range of US$ 43,000 to US$ 265,000 (IMO, Apr 2011). In this case also, main advantage for ship owners is in fuel savings and important aspect of using hull coatings is that ship owners are not required to sacrifice on design speed and it has short payback time (Wartsila, Sep 2008). Altogether, from ship owners‟ point of view, hull coatings also seem to be a cost effective option to meet the EEDI regulation as initial investment is low with very short payback time and potential for fuel savings is high. Similar to hull optimisation, ship owners are not required to sacrifice design speed of the vessel but they are required to borne these costs every five years to be able to gain the fuel/emission benefit as specified (IMO, Apr 2011). 6.1.1.1.3 Propeller-hull interface optimisation There is a negative effect on the resistance of the ship or appendages because of the acceleration of water due to propeller action. Such effect can be better predicted by computational techniques and redesigning hull, appendage and propeller in combination will give better performance up to 4% (Wartsila, Sep 2008). This technique is available to all ship types and has very short payback time (IMO, Apr 2011) with advantages of fuel savings to the ship owners. 6.1.1.1.4 Air Lubrication Frictional resistance depends on wetted surface area of the ship (MANDiesel&Turbo, Dec 2011) and is square of the ship speed (E.J.Foeth, 2008). It is the largest component of the ship‟s resistance in normal operating speed ranges, often about 70-90% of the ships total resistance for low-speed ships such as bulk carriers and tankers (MANDiesel&Turbo, Dec

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2011). Thus, any reduction of this component will have favourable effect on ship‟s overall performance.

Figure 11: Air Lubrication Source: NYK Line (NYK, 2010) Air lubrication is the technique using which frictional resistance between the water and the hull surface can be reduced by using air as a lubricant to reduce the wetted surface of the ship (E.J.Foeth, 2008). This can be done in three distinct ways which include injecting bubbles, air films, and air cavity ships (E.J.Foeth, 2008). This helps in reducing the propulsion power demand (Wartsila, Sep 2008). The technology is available in the market and can be applied to new-builds with a minimum length (LOA) of 225 metres and with, a least partly, flat bottom (IMO, Apr 2011). The following vessels are considered as potential users: 1. Crude oil tanker and bulk carriers > 60,000 dwt. 2. LPG tankers with 50,000 m3 capacity and more. 3. All LNG tankers. 4. Full container vessels > 2000 TEU (IMO, Apr 2011) The abatement potential of air lubrication is in the range of 10-15% for tanker and bulkers and 5-9% for container vessels. Costs are expected to be 2-3% of the price of a conventional newly built vessel without air lubrication system (IMO, Apr 2011). Payback time for this system is medium in the range of 5-6 years (Wartsila, Sep 2008). Altogether, air lubrication technique has high potential of reducing EEDI. It has some constraints regarding its applicability to ship types and payback time is little higher than other

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techniques with medium initial investment. From ship owners‟ point of view, this can be a good option to meet EEDI regulations. 6.1.1.1.5 Optimisation of superstructure Air resistance is normally a relatively small component of the total resistance offered by the ship (Molland et al., 2011) however, for ships with large superstructures operating at relatively high speeds aerodynamic drag can contribute more than 10% of the total ship resistance in a strong headwind (Lloyd'sRegister, May 2012). There is thus a potential for reducing power consumption by carrying out systematic streamlining of the superstructure. It is found that the rounding of sharp corners can lead to reduced air resistance of commercial ships in the order of 15% to 20% (Molland et al., 2011). For large ships operating at relatively high speed, potential for reduction in power consumption of 2-5% is estimated depending on the size of the superstructure and area of operation (Kollamthodi et al., Sep 2008). Also for other ships a certain potential for reduction in power consumption in the order of 1-2% is estimated (Kollamthodi et al., Sep 2008). Using this technique, ship owners are likely to have savings in the form of reduced fuel cost due to less power consumption. Initial investment in ship design is required to make use of this technique. Payback time is not known. 6.1.1.1.6 Propeller and rudder design optimisation In order to understand the role of propeller in ship propulsion and how propeller optimisation can reduce power required by the engine to subsequently lower the EEDI value, it is imperative to recall the overall ship powering concept where it was explained that propeller efficiency is an important parameter that governs the power required to be developed by the main engine. Optimisation of propeller in conjunction with rudder design has a potential of improving fuel efficiency by 2 to 6% with medium payback time (Wartsila, Sep 2008). This technique is available in the market and is applicable to tankers, containers and Ro-Ro ships (IMO, Apr 2011). According to the report submitted by Deltamarin Ltd to EMSA (DeltamarinLtd, Dec 2009) research conducted on 11,350 dwt Ro-Ro case ship showed that propeller and rudder

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optimisation costs about 0.25 million euros (300,000 US$) and results in the fuel saving of about 740 tonnes per annum with EEDI benefit of 2% which resulted into 5% reduction in power requirement or 0.35 knots speed increase at same engine power. Use of contra rotating propellers can also be considered to reduce power requirement. It has been documented as the propeller with one of the highest efficiencies. The power reduction for a single screw vessel is 10 to 15% (Wartsila, Sep 2008) but it requires huge investment and problems with gearboxes as well as operational problems with bearings for contra rotating propellers have been reported (Buhaug et al., April 2009). According to the report submitted by Deltamarin Ltd to EMSA (DeltamarinLtd, Dec 2009) research conducted on 11,350 dwt Ro-Ro case ship showed that contra rotating propeller costs about 2.5 million euros (3,000,000 US$) and it resulted in the fuel saving of about 1480 tonnes per annum with EEDI benefit of 9% which translated into 10% reduction in power requirement or 3.5 knots speed increase at same engine power. Payback time of using CRP is high in the range of 10-15 years (Wartsila, Sep 2008) Altogether, from ship owners‟ point of view, propeller and rudder optimisation seems to be a cost effective option to meet the EEDI regulation as initial investment is low with medium payback time and potential for fuel savings is high without any sacrifice of basic design parameters such as design speed. On the other hand, use of contra rotating propellers gives large amount of power reduction but owing to its cost and immature technology, it may not be suitable to ship owners. Moreover, it has very long payback time. 6.1.1.2 De-rating main engine De-rating (as defined before) means operating an engine at less than its rated maximum power. Major engine manufacturer Wartsila has suggested that it is possible to de-rate an engine by installing an engine with an extra cylinder without increasing the engine‟s power and this would result in enormous fuel savings (Wettstein and Brown, 2008). In simple words, if technical calculation suggests that 8 cylinder engine should be installed to achieve the particular design speed, installing the 9 cylinder engine having the same power as that of 8 cylinder engine would technically mean engine de-rating. This is because of the fact that maximum power produced by 9 cylinder engine would be higher than that produced by 8 cylinder engine but limiting its power to that of 8 cylinder engine causes de-rating.

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This technique of de-rating was verified by Wartsila using a case ship- a Panamax container ship with a container capacity of up to 5000 TEU and it was found that if a nine-cylinder Wartsila RT-flex82C main engine is employed instead of required eight-cylinder Wartsila RT-flex82C main engine, annual fuel savings could be US$ 348,000 based on 6000 hours running with heavy fuel oil costing US$ 500 per tonne. The payback time for the extra cost associated with the additional engine cylinder is estimated to be between four and seven years depending on the bunker price (Wettstein and Brown, 2008). In this case fuel savings are firstly due to de-rating and secondly due to reduced specific fuel consumption of the engine (reduction of 2 g/kWh at 90% load (Wettstein and Brown, 2008)). Altogether, concept of de-rating an engine looks a viable option from ship owners‟ point view because it is readily available with leading engine manufacturers such as Wartsila and it results in enormous fuel savings as explained above. Moreover, payback time of using this strategy is medium but it could become short with increasing bunker prices. Most important aspect of using this strategy from ship owners‟ point of view is that there is no need to sacrifice design speed of the vessel and thus it means that ship owners can order exactly the same dimensions of ship which suits them in relation to the market conditions. This way revenue generated by the ship is also not affected. Only extra cost which is to be borne by ship owners is the investment cost in the engine due to an extra cylinder but with such an attractive payback time ship owners should not have any issues with using this strategy of de-rating the engine to meet EEDI requirements. 6.1.1.3 Using fewer cylinder engine As suggested by IMO (IMO, Oct 2011) using fewer cylinder engine would result in lower main engine power and thus reduced EEDI. This approach is documented in the report submitted by Deltamarin Ltd to EMSA (DeltamarinLtd, Dec 2009). One cylinder smaller engine design on Ro-Ro case ship of 11,350 dwt resulted in reduction of installed main engine power by 2100 kW and design speed by 0.8 knots while two cylinder smaller engine design resulted in reduction of installed main engine power by 4200 kW (22%) and consequently about 1.5 knots smaller design speed. This technique resulted in 1 million euro cost saving per cylinder reduction and fuel savings of about 910 tonnes annually for two cylinder reduction (DeltamarinLtd, Dec 2009).

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Even though using fewer cylinders main engine gives savings in engine cost and fuel costs, using this option ship owners have to sacrifice on design speed which means sacrifice on revenue generation and effect on ship‟s intended sailing schedule. Thus, option of using fewer cylinder engines to reduce EEDI doesn‟t seem to be viable option from ship owners‟ point of view.

6.1.2 Specific fuel consumption As evident from the EEDI formula, lower the specific fuel consumption (SFC) of the engine, lower would be the main engine emissions component of the formula and thus lower EEDI value. This means lowering the SFC of the main engine can be a good option to meet the EEDI regulations without affecting the design speed, deadweight and operation pattern of the ship. SFC of an engine depends on the engine efficiency. Higher the engine efficiency, lower would be the SFC. The efficiency of a two-stroke main engine depends on the ratio of the maximum (firing) pressure and the mean effective pressure. Higher the ratio, higher would be the engine efficiency. Moreover, larger the stroke/bore ratio of a two-stroke engine, higher the engine efficiency (MANDiesel&Turbo, Jul 2010). Calculations and measurements carried out by leading ship diesel engine manufacturer MAN shows that standard engine designs available today are close to the highest efficiency possible (MANDiesel&Turbo, Jul 2010). Moreover, there has already been tremendous development in the engine technology during the past decades which has brought down the SFC of marine diesel engines enormously. For example, the specific fuel consumption for the Sulzer RND 90 engine in 1967 was 208 g/kWh, while it is dropped to 166 g/kWh for the Sulzer RTA 96C two-stroke engine in 1996, which accounts for 20% reduction (Chen et al., 2010) Development in the marine diesel engine technology during the past decades has brought the efficiency of engines close to the highest possible efficiency. This does not imply that there is no further possibility of lowering down the SFC of marine diesel engines. This means that if we want to increase the engine efficiency of engines, we need to look for other methods and techniques used in connection with the application of diesel engines (MANDiesel&Turbo, Jul 2010).

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De-rating of engines as explained before is one method that reduces the SFC of the engine. It has been found by major marine diesel engine manufacturers, Wartsila and MAN B&W, that electronically control engines are much more efficient than traditional camshaft (mechanically) controlled engines (MANDiesel&Turbo, Jul 2010; Wartsila, Sep 2008). Delta tuning is another technology offered by Wartsila which can be used to reduce SFC of an engine. Delta tuning is available on Wärtsilä 2-stroke RT-flex engines and it offers reduced fuel consumption in the load range that is most commonly used (Wartsila, Sep 2008). The following graph shows the difference between the SFC of RTA engines (mechanically controlled), electronically controlled RT-flex engines (normal tuning) and delta tuned RTflex engines.

Figure 12: Specific fuel consumption of various engines Source: Wartsila energy efficiency catalogue (Wartsila, Sep 2008) This discussion concludes that there has been a significant development in the engine technology during the past decades which has led to the availability of near highest possible efficient marine diesel engines but de-rating, delta tuning and electronically controlled engines are the options that can be availed by ship owners in order to install an engine with lower SFC on board ships which would eventually result in lower EEDI value. Specific fuel consumption mainly depends on the engine installed on ship and when the engine type is selected, there are only small possibilities to affect the actual SFC to be used on the calculation of EEDI. Thus, selecting a main engine having lower SFC would benefit ship

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owners with low fuel expenses and thus reduced voyage costs because fuel costs are the most significant part of the voyage costs.

6.1.3 Conversion factor CF Conversion factor CF depends on the carbon content of the fuel. As shown in table 4, LNG has the lowest conversion factor. Being part of the numerator of the EEDI formula, C F is an important variable that affects the EEDI value. Lower the conversion factor, lower would be the EEDI value. This means that if low carbon fuel is used to power the ship, EEDI value can be lowered and IMO‟s carbon di-oxide emission targets can be met. Liquefied natural gas (LNG) is considered as the most feasible option as a fuel with low carbon content that can power large marine engines. Some research has also been done in the field of bio-fuels to explore the possibility of those becoming an alternative fuel. 6.1.3.1 LNG as marine fuel LNG has been used as marine fuel in the form of boil-off gas, primarily on LNG carriers. During the last decade substantial growth of LNG-fuelled ships is seen in Europe, predominantly in Norway, and this growth is primarily due to strict environmental regulations in coastal areas (Herdzik, 2011). 6.1.3.1.1 Main drivers With increasingly stricter regulations relating to CO2, NOx, and SOx emissions from ships and the introduction of new emission control areas (ECAs) recently, LNG has been identified as a potential alternative option as fuel that can be used to power merchant ships meeting the regulation criteria. This is due to the fact that LNG, if used as fuel, reduces CO2 emissions by 25-30%, NOx emissions by 80%, SOx emissions by 100% and Particulate matter emissions by more than 90%, if compared with marine heavy fuel oil (Levander, 2009). Since LNG eliminates SOx emissions completely, it is considered as the best option to meet the SOx emissions regulations which otherwise can only be met by using low sulphur fuel, which are costly as compared to traditional high sulphur fuel. Present rate (on 22/07/2012) of heavy fuel oil grade IFO380 at Singapore is 637.50$/MT while same grade of fuel oil with low sulphur (1% m/m) i.e. LS380 costs 795$/MT. Distillate fuel MGO costs 918.50$/MT while low sulphur marine gas oil (LSMGO) with 0.1% m/m sulphur content costs 981.50$/MT at Singapore (Source: www.bunkerworld.com).

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SOx emissions regulations as defined by IMO‟s MARPOL annex 6 regulation 14 will be implemented according the schedule shown in the following figure.

5.00% 4.50%

Sulphur limits (%m/m)

4.00% 3.50% 3.00% World

2.50% Subject to review in 2018

2.00%

ECA EU in ports

1.50% 1.00% 0.50% 0.00%

Figure 13: IMO Sulphur limits Source: International Maritime Organization (IMO, 2011b)

The above figure depicts fuel oil sulphur limits (expressed in terms of % by weight) set by IMO to prevent SOx emission from ships. These limits are subject to a series of step changes over the years as shown in the figure (IMO, 2011b). Apart from the stringent emissions control regulations and chemical properties of LNG helpful in reducing emissions, price advantage of LNG over low sulphur fuel oil is the key driver which forces shipping industry to look forward to LNG as an alternative to traditional heavy fuel oil. LNG‟s price advantage over marine gas oil ranging from US$7-15/MMBtu as shown in figure 14 is a significant attraction for ship operators facing pressure on earnings. This can result into significant annual cost savings on fuel in the order of US$12-20 million for large container vessels and US$6-12 million for VLCCs (Ashworth, Jan 2012).

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LNG vs Fuel oil & Gas oil- NW Europe 30.00

US$/MMBtu

25.00 20.00 15.00 10.00 5.00

1% Fuel oil

Marine Gas oil

LNG

Figure 14: Price comparison of LNG, fuel oil and gas oil Source: Personal Communication to Tri-Zen (Ashworth, 2012) 6.1.3.1.2 Barriers Two fundamental requirements for LNG to become a viable option as a marine fuel are the availability of engines which can burn LNG to power ships and the easy availability of LNG bunkers in ports. Since LNG has been used to power LNG carriers, engines are available in the market those can run on LNG to power merchant ships but as far as availability of LNG bunkers is concerned, it is limited to small scale mainly in Norwegian waters. Ship owners are not likely to specify LNG fuel for ocean going vessels until they are assured that there is a global LNG bunker network in place to refuel their ships (Ashworth, Jan 2012). There are various other technical and economic problems which may be faced by ship owners opting for LNG powered ships. The LNG storage requires additional space since natural gas roughly needs twice the space required by diesel oil (Eide and Endresen, 2010) which means cutting down the vessels cargo carrying capacity and thus revenue. Moreover, an LNG fuelled vessel costs around 20-25% higher as compared to an equivalent oil fuelled vessel while LNG bunker suppliers may have to invest in large, sophisticated barges costing as much as US$100 million (Ashworth, Jan 2012).

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Another obstacle for LNG bunkers to be available globally is that firstly International Maritime Organization (IMO) should finalise the draft International Code of Safety for Ships Using Gases or Other Low Flashpoint Fuels (IGF Code), which is likely to be completed in 2014. Until the IGF Code is in place, shipyards and owners would not be sure about the designs allowed from a safety perspective, especially regarding the placement of LNG fuel systems, for example the idea of placing fuel tanks under accommodation areas is under debate (Einemo, 2012). Until now, delivery of LNG bunkers has been directly from truck into the vessel but this procedure will not work for large, ocean going vessels where much larger amount of bunker is required. Rotterdam is the first port to set up a new satellite terminal capable of delivering LNG into barges and vessels (Ashworth, Jan 2012). Singapore has announced to invest in LNG facilities with a jetty to reload LNG into shuttle carriers being proposed at its import terminal at Jurong Island which is expected to be operational by 2013 (Skaanild, 2011). Proposed LNG bunker terminals in other parts of the world include the Yangtze River Port Fourchon (US), Trinidad and Tobago, Dubai, New York and Quebec (Ashworth, Jan 2012) 6.1.3.1.3 Existing infrastructure Presently, approximately 20 LNG powered ships are in operation in Norwegian waters, mostly supply ships and coastal ferries (Eide and Endresen, 2010). In Norway, Gasnor AS supplies around 50,000 to 60,000 metric tonnes of LNG to nearly 30 vessels annually and it has also made its first LNG deliveries to ships in France. It has an established network of LNG supply terminals in Norway including three LNG production plants, 30 terminals, two LNG tankers and 16 LNG semitrailers (Einemo, 2012). As far as engine technology is concerned major engine manufactures including Wartsila and MAN has wide range of dual fuel engines that can use both LNG and heavy fuel oil to power the ships. MAN has engine called ME-GI (MANDiesel&Turbo, Jul 2010) while Wartsila has various engine models including dual-fuel engines, spark-ignition gas engines, and gas-diesel engines such as 34DF, 50DF, 34SG, 46GD etc. (Levander, 2009). There is an emerging option of retrofitting existing vessels to run on LNG by modifying the engine, auxiliary machinery, piping networks, and tank configuration (Eide and Endresen, 2010).

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6.1.3.1.4 Future developments There are some ports around the world including Singapore, Dubai and New York those have announced development of infrastructure related to LNG bunkering. Gasnor AS, the Norwegian company successfully operating in Norway has signed a contract with Brunsbuttel Ports GmbH to supply LNG to ships at the port and has plans to develop supply infrastructure in the German port of Brunsbuttel due to its strategic location for vessels trading in Europe‟s ECAs (Einemo, 2012). Sensing the need to have ships that can be powered by LNG fuel, there has been development of LNG powered concept ships such as DNV‟s VLCC concept ship named Triality and a 9000 TEU container vessel named Quantum 9000 developed by Kawasaki Heavy Industries approved in principle by DNV (Richardsen, 2012). Triality has the same cargo capacity and operational range as a conventional VLCC, but emits 34% less CO2 (DNV, 2010). In future, such ships may be the reality. Further developments include the feasibility study commissioned by EU to address a number of issues about the use of LNG as a marine fuel, development of draft guidelines for ship-toship transfer (STS) by the Swedish Maritime Technology Forum in cooperation with classification societies and development of mandatory regulations for LNG-fuelled ships by IMO and classification societies (Skaanild, 2011). 6.1.3.1.5 Discussion LNG seems to have potential to become a marine fuel which can be used on large scale. Key drivers which make LNG a prospective fuel include LNG‟s potential to reduce air pollution, dominantly its ability to remove SOx emissions completely; forthcoming emissions control regulations including SOx, NOx, and CO2 emissions regulations and price advantage over low sulphur marine fuels such as marine gas oil. LNG has established its presence in the shipping industry as a fuel that can power large ocean going vessels by powering LNG carriers using boil off gas. Use of LNG as fuel on LNG carriers and other small vessels in Norwegian waters has allowed the development of the required engine technology and small scale bunkering infrastructure in Norway.

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Proposed infrastructure development related to LNG bunkering at Singapore, Dubai, and New York along with the development of concept ship designs which use LNG as fuel shows that LNG as marine fuel has promising future. There is no doubt concerning LNG‟s ability to reduce EEDI value, having lowest carbon factor amongst marine fuels but from ship owners‟ point of view, most important factor is cost. Building an LNG powered vessel costs 20-25% more than what it costs to build a traditional heavy fuel oil powered ship and LNG bunker tanks would require much more space than required by heavy oil tanks which would reduce the cargo carrying capacity of the ship but major driver for a ship owner to opt for LNG powered ship is the compliance of regulations at a lower cost especially in emission control areas and this comes without any sacrifice to the design speed and operational pattern of the ship. Only concern to ship owners is the availability of bunkering infrastructure. If required bunkering infrastructure is in place, ship owners would probably be better placed with LNG powered ships, both in terms of regulatory compliance and cost effectiveness. 6.1.3.2 Bio-fuels For any fuel to become a potential marine fuel, commercial availability on large scale is of paramount importance. IMO‟s MEPC 62 in its report (IMO, Apr 2011) on the study on the economics and cost effectiveness of technical and operational measures to reduce CO2 emissions from ships concluded that Bio-duels are not available in the market on the large scale. This fact eliminates any potential for bio-fuels to be used for powering ships. Despite their unavailability in the market on large scale, various studies have been carried out to analyse the properties of bio-fuels as an alternative to traditional heavy fuel oil. Studying the viability of vegetable oil as an alternative to heavy fuel oil for large ships (Jiménez Espadafor et al., 2009) concluded that pure vegetable oils (PVO) have potential as alternative fuels to HFO used in the low-speed diesel engines of large ships. Burning PVO also produces CO2 but net CO2 emissions are zero because plant growth absorbs large quantities of CO2 from the atmosphere and when PVO is used as fuel the CO2 that had previously been absorbed returns to the atmosphere. It is thus a renewable bio-fuel that neither produces carbon dioxide nor does generate SOx emissions but it is not available on large scale. Palm oil production in 2005 could have possibly generated only about 140,000 MW of power at the engine crankshaft (Jiménez Espadafor et al., 2009).

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Apart from its unavailability on large scale, cost of bio-fuels compared to diesel makes it an impossible contender to substitute traditional heavy fuel oil on board ships. The use of MGO in vessels is more than 30% cheaper than biodiesel because bio diesel has high production costs, about twice that for diesel oil. Moreover, because of its energy contents, 1163 litres of biodiesel is needed to substitute 1000 litres of diesel oil (Fernandez Soto et al., 2010). Economic analysis carried out by Fernandez et al. shows use of bio-diesel on ships costs 31,685 euro/kW while the use of conventional IFO180 fuel costs only 15,890 euro/kW (Fernandez Soto et al., 2010). 6.1.3.2.1 Discussion Chemical properties of bio-fuels show that they have potential to replace heavy fuel oil on large ocean going vessels with reduced CO2 and SOx emissions but large scale unavailability and high cost as compared to that of other traditionally used fuels such as heavy fuel oil and marine gas oil makes it highly uncompetitive.

6.2 Energy efficient technologies According to the EEDI formula, use of energy efficient technologies gives an advantage by deducting their effect from main engine and auxiliary emissions. As per the formula, recovered power due to the use of such energy saving technologies is subtracted from the main power or auxiliary power, whatever is the case. Thus, using such technologies would reduce the EEDI value. Various energy efficient technologies available are waste heat recovery, wind power, solar power, and nuclear power.

6.2.1 Waste heat recovery Waste heat recovery (WHR) system uses the exhaust gas energy from the waste heat of the engines to drive turbines for electricity production, leading to less fuel consumption by auxiliary engine and increase in the total efficiency of the ship (IMO, Apr 2011; MANDiesel&Turbo, Jul 2010; Wartsila, Sep 2008). Technology with power turbines in combination with high-efficiency turbochargers and boilers corresponds to a 10% increase in efficiency and 10% lower fuel consumption and CO2 emission (MANDiesel&Turbo, Jul 2010). If waste heat recovery is combined with NOx reduction methods and scavenging air

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moisturisation or exhaust gas recirculation, 14% to 18% of engine efficiency can be gained (MANDiesel&Turbo, Jul 2010). This system is available in market for last 25 years and thus the technology is quite mature (IMO, Apr 2011; MANDiesel&Turbo, Jul 2010). A WHR system is applied to ships having a high production of waste heat and a high consumption of electricity. Ships with main engines of higher than 20,000 kW power and with auxiliary engines of higher than 1,000 kW power can thus effectively use this system (IMO, Apr 2011). According to the report submitted by Deltamarin Ltd to EMSA (DeltamarinLtd, Dec 2009) research conducted on 11,350dwt Ro-Ro case ship showed that the technology costs 3.5 million euros (US$ 4.2 million) and it results in fuel saving of 1100 tonnes per annum with 7.5% EEDI reduction. Waste heat recovery is a proven technology and it can be used on large ships effectively recovering the engine power by up to 18%. This technology has some initial investment but it results in huge savings on fuel thereby reducing operating costs. Moreover, it is also effective in reducing EEDI value greatly. Ship owners should not have any reluctance in opting WHR system to meet the EEDI regulations.

6.2.2 Wind power Wind power can be used on ships to assist in ship propulsion using kites, sails and wind engines thereby reducing the fuel consumption of the main engine and thus less CO 2 emissions. It affects the Peff component of the EEDI formula thereby reducing the EEDI value taking advantage of main engine power reduction. 6.2.2.1 Towing Kites/Sails Wing shaped sails are installed on the deck and the kite is attached to the bow of the ship, both of which uses the wind energy to add forward thrust to assist in ship propulsion (Wartsila, Sep 2008). Kites can be installed on all type of ships while sails are restricted to only a few types of vessels such as bulk carriers. Kites are more advantageous than sails because they operate at high altitude where wind speeds are much greater than on the sea surface which allows them to generate five times more propulsion power per square meter of sail than that generated by conventional sails

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(Fernandez Soto et al., 2010) but towing kite works effectively on ships with maximum average speed of 16 knots having a minimum length of 30 m. Due to this restriction on speed, only tankers and bulk carriers are considered as potential users (IMO, Apr 2011). Towing kite system has been installed on a small number of commercial sea-going ships including MS Beluga Sky Sails which is world's first cargo ship partially powered by a computer-controlled kite (Schuler, 2008). Till now only kites with up to 640 m2 area are available but kites up to an area of 5,000 m2 have been planned (IMO, Apr 2011). The standard condition for operating such kites is when the vessel is cruising at a speed of 10 knots at a true wind course of 130º with wind speed of 25 knots and waves of up to 60 cm high (Faber et al., 2009a).

Figure 15: Towing kite system and wing shaped sails Source: Ocean Power Magazine.net (Smith, 2011) and Wartsila (Wartsila, Sep 2008) According to the report submitted by Deltamarin Ltd to EMSA (DeltamarinLtd, Dec 2009) research conducted on 11,350dwt Ro-Ro case ship showed that this technology resulted in fuel saving of 700 tonnes per annum with 5% EEDI reduction. Wartsila has estimated that this system could result in around 21% annual fuel savings for tankers and 20% annual fuel savings for car carriers (Wartsila, Sep 2008). Price and engine equivalent power generated depends on the area of the kite. A kite with 160 m2 area can generate 600 kW power while a kite with an area of 320 m2 can generate 1200 kW power and it costs about 480,000 US$ which increases to 19,200 kW power at 3,430,000 US$ for the kite having an area of 5000 m2 (Faber et al., 2009a; IMO, Apr 2011).

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Other costs associated with this system include installation cost of 7.5% of the purchase price and a certain percentage of purchase price as operational costs per annum (IMO, Apr 2011). According to Wartsila (Wartsila, Sep 2008) payback time of kite/sail system is quite high around 12-15 years. Cost details and engine equivalent power generated for kites with different are given in the following table. Kite Area (m2)

Power (kW)

Purchase price (thousand US$)

Installation costs (% of purchase price)

320 640 1280 2500 5000

1200 2500 4900 9600 19200

480 920 1755 2590 3430

7.5% 7.5% 7.5% 7.5% 7.5%

Operational costs per annum (% of purchase price) 5-7% 7-9% 9-11% 11-13% 13-15%

Table 5: Power and costs for different kite areas Source: IMO and CE Delft (Faber et al., 2009a; IMO, Apr 2011) Kite system is available in the market and it has been tried and tested on few commercial ships successfully. From ship owners‟ point of view, though this system has initial capital investment but since it results in EEDI benefit and huge fuel savings resulting in less operating costs, it seems to be a promising technology. On the other hand, an important drawback with this system is that it works effectively only in certain specific weather conditions as explained above which cannot be experienced by a vessel every time it is at sea. 6.2.2.2 Wind engines Wind engines are the rotors placed on deck of a ship which can generate thrust taking advantage of the Magnus effect (Faber et al., 2009a). Wind engines also called as Flettner rotors are vertical rotors installed on the ship which rotate due to the wind and convert wind power into thrust in the perpendicular direction of the wind which implies that in side wind conditions the ship can benefit from the added thrust resulting in reduced required engine power (Wartsila, Sep 2008). According to IMO (IMO, Apr 2011), Greenwave, a UK-registered charity that helps shipping industry to meet environmental obligations has estimated that crude oil tankers, chemical tankers, product tankers, and bulk carriers more than 10,000 dwt are appropriate to use this

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system immediately. A four engine system (two forward and two aft) is preferably applicable to bulkers to keep the engines out of the way of cargo holds while a three engine system (centre-line configuration) is applicable to tankers as crane operations are not involved on tankers (Faber et al., 2009a). This technology can help ship owners with around 30% fuel savings annually as estimated by Wartsila (Wartsila, Sep 2008). Greenwave estimates that the cost of manufacturing and installing four wind engines is in the range of US$ 0.8 million to US$ 1 million but operational costs are not known (IMO, Apr 2011).

Figure 16: Magnus effect and E-ship 1 Source: Wikipedia and Cleantechnica.com (Thomas, 2012) Flettner rotor system has been installed on the ship called E-ship 1, which is owned by Enercon, a German wind power engineering company and the system reduces the fuel consumption of this 123m long cargo ship by up to 30-40% (Thomas, 2012). On this ship Flettner rotors are not driven by wind, instead exhaust gas from the diesel engines of the main propulsion is utilized to drive the steam turbine that generates additional electricity which is used to spin four Flettner rotors (Thomas, 2012). On this ship, WHR is used to generate the power required to drive Flettner rotors which in turn reduce the power required by main engine. This technology has not been used commercially on large scale thus operational costs and problems associated with it are not known. But, if this technology is developed further, it can help ship owners with reduced fuel consumption and reduced EEDI at reasonable costs considering the cost estimate carried out by Greenwave, without any sacrifice to design speed

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and change in deadweight, parameters which are of paramount importance to ship owners for generating revenue.

6.2.3 Solar Power Use of solar power on ships would benefit in reducing EEDI; reduction factor calculated through the PAEeff component in the numerator of the EEDI formula. Solar energy can be used on ships based on the solar photovoltaic power generation system (Wang et al., 2012). Solar panels can be installed on a ship‟s deck to generate electricity which can be used for various purposes including electric propulsion engine and auxiliary ship systems and heat can also be generated using solar panels for use on various ship systems (Wartsila, Sep 2008). This technology is still under development and present day solar cell technology is such that even if the entire deck area were to be covered with photovoltaic cells, it would be sufficient only to fulfil a fraction of the auxiliary power demand of a tanker ship (Buhaug et al., April 2009). It cannot replace the ship‟s primary power source. Efficiency of current solar cells is about 13% and the best technology which is used in laboratories and space crafts has an efficiency of approximately 30% while efficiencies are expected to reach 45% to 60% when third generation photovoltaic cells are developed (Kollamthodi et al., Sep 2008).

Figure 17: MV Auriga Leader (left) with solar panels (right) installed on deck Source: Inhabitat.com (Parsons, 2009)

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The major drawback with solar power is that it is not available during night-time. Therefore, backup power would be needed or else energy storage system is required (Kollamthodi et al., Sep 2008) on board to store the energy during day time which can be used at night when there is no sun. Another drawback is that solar cells can only be placed on ships that have sufficient deck space available which means that they can only be used on tankers, car carriers and Ro-Ro ships (IMO, Apr 2011). Solar panels have been installed on a car carrier, MV Auriga Leader, owned by a Japanese company NYK line. This ship has 328 solar panels installed on its deck which are capable of generating 40 kW auxiliary power accounting for 10% (40kW) of the energy used while the ship is berthed (Parsons, 2009). The investment costs of these solar cells is known to be around US$1.67 million (IMO, Apr 2011). The International Maritime Organization believes that the cost of solar power may decrease in future when the technology becomes mature and applied to large number of ships (IMO, Apr 2011). According to the report submitted by Deltamarin Ltd to EMSA (DeltamarinLtd, Dec 2009) research conducted on 11,350dwt Ro-Ro case ship showed that this technology resulted in fuel saving of only 30 tonnes per annum with less than 0.3% EEDI reduction. Cost of installing solar panels on case ship‟s deck house having an area of about 600 m2 came around 0.25 million euro (300,000 US$) (DeltamarinLtd, Dec 2009). Current state of solar cell technology is not mature enough to convince ship owners to install solar panels on ships. With drawbacks such as unable to use the technology at all times and very poor efficiency, ship owners are not likely to use solar panels on ships. Moreover, considerable amount of investment in solar panels gives only a little EEDI benefit and helps in meeting only a small part of auxiliary power requirement of a ship. This means that if a ship owner uses this technology, there would be an increase in capital cost of the ship, though small but the benefit is almost negligible. If this technology gets further developed and more efficient solar cells at reasonable cost are developed, then it can be considered as a potential technology that might be embraced by ship owners to meet the EEDI regulations.

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Chapter 7 7. Cost effectiveness of EEDI reduction measures Having explained what measures are available and can be explored to meet EEDI requirements and in what way those measures will affect ship owners‟ cost and revenue, this section of the dissertation presents a tool to help ship owners decide which measure is cost effective. From ship owners‟ perspective, it is of paramount importance to meet regulations in a cost-effective manner. With a number of measures available to meet EEDI regulation, a ship owner must identify which measure is cost-effective to implement and what is the impact of implementing a particular measure on cost and revenue of the ship and entire fleet. This section explores some of those techniques described by various authors that can help ship owners to navigate between EEDI measures in a cost-effective manner. There are two approaches found in the available literature that can be used to compare measures and prioritise among them. One such approach is defined by using CATCH parameter i.e. Cost of Averting a Tonne of CO2-equivalent Heating in USD/tonne as defined by Eide et al. (Eide et al., 2009). Another approach is to develop a marginal abatement cost curve (MACC) using a model explained by Eide et al. (Eide et al., 2011) that can be used to assess the marginal cost of all available measures applied to entire fleet.

7.1 CATCH CATCH is a parameter that calculates the cost of averting 1 tonne of CO2 emission using a particular abatement measure. It is calculated using the following formula (Eide et al., 2009).

where ΔC is the cost of implementing a measure on a ship in $. ΔB is the benefit (other than emission reduction) during the operational lifetime of a ship, due to the implementation of a measure in $.

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ΔE is the expected reduction of CO2-eq emissions during the expected operational lifetime of a ship due to the implementation of a measure in tonnes. The cost of implementing a measure, ΔC, includes both initial costs such as installation cost, design cost and operational costs such as maintenance, training, lost revenue. ΔB includes benefits such as fuel cost savings and increased revenue. ΔC and ΔB is calculated per annum for the expected operational lifetime of a vessel, and discounted to a present value. If the measure being evaluated applies to existing ships instead of new buildings then the costs, benefits and emission reductions are calculated for the expected remaining lifetime of the vessel. If the values of ΔC, ΔB and ΔE are known, CATCH can be a useful tool for a ship owner to decide which measure to implement to meet EEDI regulations in a cost effective manner. Eide et al. (Eide et al., 2009) discussed that values of ΔC and ΔB for a particular measure can be easily calculated from various industry sources and to calculate the value of ΔE, first it is necessary to know the annual CO2 emission reduction potential of the measure and then ΔE can be calculated using actual CO2 emissions calculated based on the fuel consumption. This can be explained by following example retrieved from Eide et al. (Eide et al., 2009). For the example of a 74000 dwt bulk carrier explained by Eide et al. (Eide et al., 2009), an operational life of 25 years has been assumed for all measures, and a risk free discount rate of 5% is used to discount future costs and economic benefits. The activity level of the ship in terms of days at sea is considered as 210 days per year and fuel cost of 243 $/T has been assumed. MCR of main engine is assumed at 10,400 kW. An engine load of 75 % of MCR; 190 g/kWh as the specific fuel consumption; and 3.13 g CO2/g fuel as the carbon factor CF of residual fuel oil is assumed. Using the input parameters defined above, the fuel consumption of the ship in example is found to be 6090 T/year, with corresponding CO2 emissions of 18,900 T/year (rounded). The fuel reduction effect of optimizing the hull design can be assumed to be 5%. Thus, an annual reduction in fuel costs of $74,000 (243×6090×5%) is expected. In net present value this is equal to a benefit of ΔB = $1,033,000. The cost of this measure is a one-time initial investment in the design effort i.e. ΔC = $200,000. The emission reduction over the lifetime

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of the vessel achieved is ΔE = 23,600 T (18,900×5%×25). Thus the CATCH value is found to be CATCH = -35 $/T ((200,000–1,033,000)/23,600). Employing the same approach, Eide et al. (Eide et al., 2009) calculated CATCH values for 12 measures applied to two ships separately, a 74,000 dwt bulk carrier and 8000 TEU container ship. Results obtained are depicted in the following graph retrieved from the original paper (Eide et al., 2009).

Figure 18: CATCH values ($/T) for various emissions reduction measures Source: (Eide et al., 2009)

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This study suggested that CATCH < 50 $/T CO2-eq should be used as a decision criterion for investment in GHG emission reduction measures for shipping. This is based on the global cost-effectiveness considerations of the IPCC and is in line with regulatory work using Formal Safety Assessment at the IMO (Eide et al., 2009). Negative CATCH value suggests that benefits of that particular measure exceed the costs incurred. Thus, Eide et al. has suggested a highly useful tool that can be used by ship owners to prioritise among the various measures which can be used to reduce EEDI value.

7.2 MACC As described in previous section, CATCH is used to analyse the cost effectiveness of individual measures for a particular ship. If more than one abatement measure is implemented on a ship at the same time, which is very likely, in that case the cost effectiveness of each measure will certainly be influenced by the effects of other applied measures. When analysing the effect of several measures simultaneously, the results can be presented in the form of a MAC curve (Eide et al., 2011). “A MACC depicts the maximum abatement potential of measures that do not exclude each other, sorted by their marginal costs.” (Faber et al., 2009b). The overall modelling approach to develop the MAC curve for the fleet of ships is extensively explained by Eide et al. (Eide et al., 2011) in their research paper. The MAC curve is generated iteratively by adding and removing ships from the fleet and by applying each measure sequentially in order of increasing CATCH (Eide and Endresen, 2010). The effect of all measures applied previously is taken care of by re-calculating the emission reduction and the CATCH for remaining measures, and assuming that the other measures are applied (Eide et al., 2011). The MAC curve shows the emission reduction potential achievable in the reference year and the marginal cost of achieving such reductions. The MACC can be a highly useful tool for a company having a large fleet of ships. If a company needs to set a certain target of reducing CO2 emissions from its fleet by certain year, it can use MACC to calculate the potential achievable CO2 emission reduction by various abatement measures at certain marginal cost of each measure to be implemented to the entire fleet.

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Eide et al. (Eide et al., 2011) have developed the MACC (shown in figure below) for year 2030 using 59 separate ship segments to represent the fleet. To develop MACC, baseline CO2 emission level for the fleet is determined by an activity-based approach (based on fuel consumption of the fleet) and input data of cost and reduction effect for the measures have been collected from DNV Energy Management projects, various industry sources, available literature sources including the IMO GHG studies and manufacturers (Eide et al., 2011).

Figure 19: Average marginal abatement cost per reduction measure for the fleet in 2030 Source: (Eide et al., 2011) The above curve summarizes available measures to reduce emissions from the shipping fleet sailing in 2030. The width of each bar represents the potential of that particular measure to reduce CO2 emissions from shipping, relative to the baseline scenario for year 2030 and the height of each bar represents the average marginal cost of avoiding a tonne of CO2 emission through that measure, assuming that all measures to the left are already applied (Eide and Endresen, 2010). The bars above the x-axis represent the measures which gives a net cost increase contrary to a net cost reduction given by the measures represented by the bars below the x-axis.

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The results depicted by this MAC curve are averaged MAC per reduction measure for the fleet in 2030 and is true only for the fleet represented by 59 ship segments studied by Eide et al. in their research paper (Eide et al., 2011). Thus Eide et al. warns that measures that are not cost effective on average may be very cost effective for certain ship segments. However, such figures are extremely useful to ship owners willing to prioritise among the potential measures for their own ships. Therefore, specialised tools have been developed by DNV for this specific purpose (Eide and Endresen, 2010).

7.3 Discussion For a ship owner, determination of factors affecting costs and revenue of his fleet is highly important to be a successful owner. As explained earlier, EEDI regulations may have some impact on costs and revenue of ships and fleet of ships. A ship owner has various measures that can be employed to meet CO2 emission regulations but a ship owner needs a decision making tool which can be helpful to ascertain which measure is cost effective. In this section two such approaches are described i.e. CATCH and MACC. CATCH can be a useful tool for a ship owner who wishes to prioritise among the CO2 abatement measures for individual ship while MACC is a useful approach to prioritise among various measures knowing the cost and CO2 abatement potential of each measure applied to entire fleet. As far as input data is concerned, ship owners can use real time fuel consumption data of their fleet and abatement potential data can be collected from various sources described earlier. Moreover DNV has devised special tools for such purposes which would definitely be helpful for ship owners.

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Chapter 8 8. Summary and Conclusions 8.1 Summary In this dissertation, a framework to study EEDI formula in order to study which measures can be implemented to meet IMOs CO2 emission regulations and what is the impact of implementing those measures on ship owners in terms of costs and revenue has been presented. The presented framework studies the EEDI formula in two main parts by studying numerator and denominator components of the EEDI formula separately. Main components of denominator that can be varied to meet EEDI requirements are ship design speed and deadweight. On the other hand, two main components of numerator are main engine emissions and use of efficient technologies to reduce the power requirement. Factors affecting main engine emissions are main engine power, specific fuel consumption and conversion factor which depend on the carbon content of the fuel. Reducing any of the components that affects main engine emissions would reduce the EEDI value. Main engine power requirement can be reduced by optimisation of speed power performance, engine de-rating and by using fewer cylinder engines. Specific fuel consumption of the engine can only be reduced by advanced engine technology i.e. by using more efficient engines. Since conversion factor depends on the carbon content of the fuel, it can only be reduced by using low carbon fuels such as LNG and bio-fuels. Efficient technologies those can be installed on ship to reduce EEDI value includes use of wind power, solar power and waste heat recovery. In this dissertation, various measures those can be used to optimise speed power performance have been studied and it includes hull coatings, air lubrication, hull optimisation, optimisation of superstructure, propeller hull interface optimisation and propeller and rudder design optimisation.

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In the shipping market, due to its cyclical nature, financial performance is of paramount importance and key to survival. Key variables of financial performance are revenue generated from the ship and the cost of operating the ship. Design features of the ship plays an important role in deciding costs and revenue associated with the ship. EEDI requirements call for changes in the design features of the ship such as design speed, deadweight, instalment of advance technologies etc. which would certainly impact revenue and costs associated with the ship and thus financial performance of the ships. In this dissertation, impact of various measures implemented to reduce EEDI on costs and revenue associated with ships have been studied. Another important aspect which has been explored as part of this dissertation is how a ship owner can navigate between various available measures to meet EEDI regulations in a cost effective manner. Two methods that can be used to ascertain the cost effectiveness of CO2 abatement measures described in this dissertation with reference to available literature are CATCH and MACC. CATCH can be used by a ship owner who wishes to prioritise among the CO2 abatement measures for individual ship while MACC can be a useful approach for a ship owner who wishes to prioritise among various measures applied to entire fleet.

8.2 Conclusions Reduced design speed has a significant potential to reduce the EEDI value by means of reduction in main engine power requirement because power is the cubic function of the speed. But choice of design speed depends on various factors such as market level, fuel price and the type of cargo to be carried. Moreover, design speed of a ship greatly affects the transport capacity and thus revenue generation. Reduced design speed is likely to have great implications on costs and revenue associated with the ship because reduced design speed of a fleet of ship would require a ship owner to add more number of ships to maintain the transport capacity of the fleet. Even though lower design speed would reduce expenditure by means of reduced fuel consumption, it does not seem to be a suitable option for ship owners owing to the ability of design speed to affect the revenue generated by the ship. Thus design speed is considered as a constant variable that ship owners cannot afford to temper with to meet EEDI requirements.

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Increased deadweight also has a great potential to reduce the EEDI value but a ship owner cannot increase the capacity of the ship just to have a reduced EEDI value because the size of the ship is determined by various factors. Size of the ship determines the cargo carrying capacity of the ship which directly impacts the revenue generated by the ship. Greater the amount of cargo carried greater the revenue generated. But there are certain factors which limits the size of the ship. These factors include berth length, storage capacity at port, depth of water at port, capacity of the plant where raw materials carried by the ship are required etc. Moreover, ship should fit into the transport system and large ship requires dredging of hub ports and introduction of feeder services. These factors putting a constraint on the size of the ship makes the option of increasing the size of the ship to reduce EEDI value uncompetitive. Similar to design speed, deadweight of the ship can also be considered as a constant parameter which cannot be varied by ship owners in order to meet the EEDI requirements. Both design speed and deadweight increase must be considered as a last resort i.e. these measures should be considered only if other measures affecting numerator of the EEDI formula are unable to meet the prescribed regulations. On the other hand, increasing the deadweight of the ship by reducing the lightweight using the light weight construction material is an interesting measure that can be considered by ship owners as it is available at little extra cost and provides huge savings in the form of reduced fuel consumption. Reducing conversion factor CF in the numerator of the EEDI formula can considerably reduce the EEDI value. This can be done by using low carbon fuel. LNG fuel is the most promising amongst the low carbon fuel available in the market. Using LNG as a fuel gives considerable savings in the operating cost of the ship due to reduced expenditure on bunkers because of the low price of LNG compared to heavy fuel oil and marine gas oil. Engines that run on LNG fuel are available in the catalogue of leading marine engine manufacturers. Only missing link in the LNG fuel infrastructure is the availability of bunkers on large scale. If LNG bunkers are available are available in the market on a large scale, using LNG fuel seems to be the most viable option available to ship owners to reduce EEDI value because LNG as fuel is not only cheaper than other fuels but it is also helpful in meeting SOx emission regulations as well. Moreover, LNG as fuel is the proven technology as it has been used on LNG carriers for a long time and small ships in Norway has also used LNG as fuel successfully for short sea trade. Using LNG as fuel on ships may force ship owners to sacrifice some cargo space

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but still it is an attractive measure because it allows ship owners to run their ships without reducing the design speed i.e. without any major impact on revenue generation. Reduced fuel cost (operating cost) and ability to maintain the same design speed along with the fulfilment of environmental regulations including EEDI and SOx emission regulations is the major consideration that would incline ship owners towards use of LNG as fuel for ships. Lowering the specific fuel consumption of the engine using advanced engine technology is yet another measure that can be explored by ship owners to meet EEDI regulations. During the past decade, diesel engine technology has been developed a lot which has allowed the availability of near highest possible efficient marine diesel engines but use of technologies such as delta tuning, de-rating and electronically controlled engines can further reduce the specific fuel consumption of the engine. Reduced SFC of an engine would always be an attractive measure for ship owners because this would not only help in reducing EEDI but it would also help ship owners in reducing ship operating costs owing to reduced fuel consumption. With high fuel prices, any measure that can help in reducing fuel consumption at little extra cost, without sacrificing the design speed of the ship would always be an attractive option for the ship owners. An important measure to meet EEDI regulations is reducing the main engine power requirement. Using fewer cylinder engines to reduce main engine power is not the feasible option for ship owners because it results in reduced design speed and thus it affects revenue. Engine de-rating, on the other hand, is an attractive measure because it allows a ship owner to have exactly the same design parameters of the ship as intended by the market condition i.e. no sacrifice of design speed. At the same time, at a little extra cost of adding a cylinder to the engine for de-rating, this measure is attractive because of reduced fuel consumption and thus less operating costs. Optimisation of speed power performance to reduce main engine power requirement is the most feasible measure for a ship owner to have reduced EEDI value. This results in less power requirement by the main engine by reducing the resistance to the ship propulsion and thus huge savings in fuel consumption which means less operating costs and no sacrifice to design speed and thus revenue generated by the ship. All the measures such as hull coatings, air lubrication, hull optimisation, optimisation of superstructure, propeller hull interface optimisation, and propeller and rudder design optimisation that can be used for speed power optimisation are applied at designing stage of

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the ship. These measures comes at a little extra cost to new building but results in huge fuel savings without changing the critical parameters such as design speed and deadweight which are crucial for a ship owner for earnings. Thus, improving the ship design by these measures to reduce main engine power requirement is highly attractive and feasible option for ship owners. Use of efficient technologies such as wind power, solar power and waste heat recovery has a significant potential to reduce the EEDI value. All these options reduce the fuel consumption and thus reduced operating cost would be beneficial to ship owners but all of these are not cost effective. Use of solar power on ships is expensive and its potential in reducing EEDI value is limited while use of wind power has also limited potential. But on the other hand, waste heat recovery is a good option that can be explored by ship owners to increase the overall plant efficiency and thus reduce EEDI value and saving on fuel consumption. Most important point to explore here is that if measures affecting main engine power and SFC component of the EEDI formula and use of efficient technologies are not enough to meet EEDI requirements at some point suppose phase 2 or phase 3 of the regulation, and if by that time there is not sufficient infrastructure developed for LNG bunkers to be available on large scale, in that case only option left with ship owners would be to reduce the design speed of the ship, which would have great impact on shipping economics because speed of the ship determines the transport capacity and earnings potential. Another important impact of EEDI regulations on ship owners would be that even though meeting the regulations require ship owners to invest some amount of capital in better design and efficient engines of the ship, this regulatory compliance would certainly reduce the fuel consumption and thus savings in voyage cost. With current high bunker prices, fuel cost is the major cost factor in operation of the ships and any reduction in the expenditure on fuel would be a relief for ship owners and charterers. In the essence, EEDI regulation calls for more efficient design of ships which would certainly reduce fuel consumption and in turn would help ship owners with reduced fuel cost but how far the efficiency of a ship can be increased with improved design and machinery is not known. After a certain limit, there may be a time when further improvement in ship design

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and technology is not possible to achieve EEDI limits which would force ship owners to reduce ship design speed and to compromise on earnings potential. Cost effectiveness of various measures to meet EEDI limits can be calculated using CATCH and MACC approaches but out of the various measures discussed in this dissertation, most feasible measures that are likely to be implemented by ship owners are optimisation of speed power performance by reducing the resistance offered by the ship to its propulsion and use of efficient engine technology such as delta tuning and electronically controlled engines because these measures are available at minimum capital investment and allows ship owners to retain the basic parameters affecting earnings potential such as design speed and deadweight of the ship which thus allows a ship owner to run the ship with its intended operational profile. The following table summarizes the available measures that can be used to meet EEDI limits and the impact of their implementation. Table 6: Impacts and constraints of applying various measures. Measures

Constraints

Impacts (other than EEDI reduction) Affects earnings potential and ship's manoeuvrability. Reduced transport capacity and extra cost of adding ships to maintain the supply chain. Bigger ships are inflexible. Deadweight utilisation may not be possible always. Increased cost of feeder services and dredging of hub ports. Increased cargo carrying capacity at same displacement thus greater earnings potential.

1

Reduced design speed

Design speed depends on various factors such as type of cargo to be carried, fuel prices, and market level. An irreversible approach.

2

Increased deadweight

3

Lightweight construction

4

Hull optimisation

5

Hull coatings

Ship should fit into the bulk transport system. Plant size puts a constraint on the size of the ship. Storage capacity at port, depth of water, berth length. High cost of light weight construction material and costs associated with building the ships using light weight material. Initial capital investment, High fuel savings with though a small amount. short payback time. Savings in voyage cost. Initial capital investment High fuel savings with (small amount). short payback time. Savings in voyage cost.

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7

8

9

10

11

12

13

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Propeller hull interface

Small capital investment High fuel savings with during design phase. short payback time. Savings in voyage cost. Air Lubrication Medium capital Investment Great potential of fuel (2%-3% of new build price). savings resulting in Not widely used on reduced voyage costs. commercial ships. Optimisation of Potential only for relatively Savings in fuel cost and superstructure high speed ships such as thus reduced voyage costs. container ships. Capital investment during design phase. Propeller and Rudder Initial capital investment Large fuel savings with design optimisation during the design phase. short payback time. Reduced voyage cost. Contra rotating propeller Very high capital investment. Very high fuel savings thus Immature technology. Long considerable reduction in payback time. voyage cost. Maintenance costs may be high due to immature technology. De-rating main engine Increased cost of adding an Potential fuel savings due extra cylinder to main engine. to de-rating and reduced SFC at an attractive payback time of 4 to 7 years resulting in reduced voyage cost. Fewer cylinder engine Reduced design speed. Revenue generated is affected due to reduced transport capacity. Cost of adding extra ships to maintain the sailing schedule. Reduced SFC Considerable improvements High fuel savings and have already been made in the reduced voyage costs. technology. De-rating, delta Maintenance cost of tuning and electronically electronically controlled controlled engines available at engines may be higher than extra investment cost in the traditional engines. engine. LNG fuel Worldwide bunker Huge savings in expenses infrastructure not available. on fuel owing to low prices Reduced cargo carrying of LNG thus low voyage capacity due to space taken by costs. LNG bunker tanks. Cost of ship may be increased by 20% to 25%.

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Bio fuels

16

Waste heat recovery

17

Wind power

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Unavailability at large scale. Very high prices. High initial capital investment in machinery.

Not defined due to lack of research in this area. Very high potential of reducing fuel consumption and thus reduction in voyage cost. Immature technology. Have Reduced fuel consumption not been installed on large and thus savings in voyage number of commercial vessels. cost. High capital investment. High capital investment. Small savings in fuel Immature technology. Very consumption. little benefit.

From the above table it is clear that if a ship owner abides by the EEDI regulations by using various measures defined in this dissertation he is likely to have reduced fuel consumption on ships which would have huge impact on voyage costs but this advantage comes at an initial capital investment in better ship design and efficient machinery.

8.3 Future work In this dissertation, concept of EEDI and its formula has been analysed to assess the impact of the regulation in terms of cost and revenue associated with the ship. It would be interesting to assess how SEEMP would impact the economics of operating a ship because it affects the way ships are operated. When EEDI compliant ships comes out to sea, an import investigation of costs and revenue associated with two different ships can be made by analysing two ships of same type running with same operational pattern, where one vessel is EEDI compliant and other is not. This practical investigation would help to ascertain how beneficial EEDI regulation is to reduce fuel costs and how much capital investment is required to make a ship EEDI compliant.

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Appendix 10. Appendix 1 (Communication to Tri-Zen)

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