EEDI/EEOI/SEEMP Initiatives for driving down CO2 emissions reduction of from world shipping Insert Customer Name Insert Date

Presentation Outline Background Introduction to Energy Efficiency Design Index Introduction to Energy Efficiency Operational Index Introduction to Market Based Measures Overview of Implications to the Industry     

Background Despite its unmatched efficiency as a mode of transport, shipping is a large emitter of greenhouse-gases (GHGs), mainly carbon dioxide. Ships account for over 1 billion tons of CO2 annually, or around 3% of global emissions, According to the International Maritime Organisation (IMO), CO2 emissions from ships will reach 18% of all man made GHG emissions by 2050 under “business as usual”. The IMO GHG Study 2009 estimates that eco-efficiency technologies could reduce CO2 emissions from shipping by between 25% and 75% Global pressure for IMO to increase energy efficiency and thus reduce CO2 emissions from shipping     

IMO Measure to reduce emissions      If the shipping industry was to do nothing to tackle CO2 emissions then emissions would continue to grow in parallel with the growth in the maritime fleet. Do nothing Introduction of EEDI Introduction of EEOI Market based measures Maritime Fleet CO2 Emissions 1st Stage – Legislative approach Energy Efficiency Design Index(EEDI) targets reduction of CO2 emissions from NB vessels through promoting technical measures for new ships. Only impacts on NB vessels after an agreed date. Energy Efficiency Operations Index(EEOI) is a voluntary initiative which forms part of the Ship Efficiency Management Plan SEEMP and promotes CO2 efficiency operational methods for new/existing ships. 2nd Stage – Polluters pays approach To have the greatest impact on CO2 reductions there has to be an incentive for all existing vessels. Market based measures for existing ships targets the continuous polluters

Introduction to Energy Efficiency Design Index

EEDI – Energy Efficiency Design Index This MAPOL Amendment would require all new construction of ships of 400 gross tonnage and above with a building contract as early as from 1st Jan 2013 are designed to meet a minimum EEDI in an attempt to reduce CO2 emissions. The purpose of IMO’s EEDI: To set a minimum energy efficiency level for new ships; To stimulate continued technical development of all the components influencing the fuel efficiency of a ship; Waiver for developing countries Five countries (China, Chile, Brazil, Kuwait and Saudi Arabia) manage to secure a commitment to a waiver period on the provision of technical assistance to enable them to meet the EEDI requirements, Which effectively means that new ships flagged in developing countries need only be EEDI compliant 6.5 years after the expected 1st Jan 2013 date (i.e. 2019). *Tankers, bulk carriers, gas tankers, container ships, general cargo ships and refrigerated cargo carriers     

EEDI – Proposed phased approach IMO proposed reduction factors relative to the EEDI reference line      Source: MEPC61/WP.10 Annex 1 Page 3; Draft Regulations on Energy Efficiency for Ships

Energy Efficiency Design Index Calculation      Co2 emission from additional shaft motors minus reduced power requirements from waste heat recovery system Capacity: deadweight For cargo carriers, tankers, gas tankers, container ships, ro-ro cargo and passenger ships and general cargo ships, gross tonnage •For passenger ships, Vref ship speed measured in nautical miles per hour (knot) installed power (MCR) for each main engine (j) Co2 emission from auxiliary engine power CO2 emission credit from innovative energy efficient technology Minimizing the ratio of installed power x Specific Fuel Consumption x Carbon content of fuel EEDI = (CO2 output per cargo tonne-mile) Capacity x Speed fW is a non-dimensional coefficient indicating the decrease of speed in representative sea conditions Source: MEPC61/WP.10 Annex 1 Page 3; Draft Regulations on Energy Efficiency for Ships

EEDI - Baseline calculation (VLCC worked example) VLCC = 301,653 dwt Attained EEDI 1950.7 x 301,653 -0.5337 = 2.32g/tonne-nm Baseline EEDI calculated using10 year historical data from Lloyds Register Fairplay Database Baseline Value = a x Capacity-c (Where a and c are constants derived from the regression line) Therefore for a VLCC with a deadweight of = 301,653 dwt Attained EEDI = 1950.7 x 301,653 -0.5337 VLCC EEDI = 2.32g/tonne-nm Source: MEPC61/WP.10 Annex 1 Page 3; Draft Regulations on Energy Efficiency for Ships

EEDI – VLCC Worked Example The baseline denotes the maximum allowable EEDI for newly constructed vessels during the applicable phase. A new ship shall be X% more efficient than the average existing ships of the same type and size in order to be issued with an International Energy Efficiency Certificate. Attained index < Required index, where the “Required Index” is; Required design CO2 - index = (1 − X ) x Baseline value 100 VLCC = 301,653 dwt Attained EEDI 1950.7 x 301,653 -0.5337 = 2.32g/tonne-nm 10% reduction Required EEDI 2.32* 0.1 – Attained EEDI = 2.088g/tonne-nm An illustration of the IMO approach for attained EEDI values

EEDI Survey and Certification Process Two stages: Preliminary verification at the design stage, and the final verification at the sea trial Preliminary verification Final verification Source: MEPC61/WP.10 Annex 1 Page 3; Draft Regulations on Energy Efficiency for Ships

EEDI – Energy Efficiency Design Index Certificate Duration The EEDI verified based upon the technical file and certificate released by class. Technical File will include; The EEDI certificate will be valid through out the lifetime of the ship unless the ship has been withdrawn from service of if a new certificate is issued following major conversion. Current regulations do not apply; To ships solely engaged in voyages within waters subject to sovereignty To ships which have diesel - electric/Turbine/Hybrid propulsion system until a method of calculation is established. Ship’s capacity Deadweight or gross tonnage Shaft power Main and auxiliary engines Ship speed At maximum design loaded conditions at 75% main engine MCR Specific fuel consumption At 75% of main engine MCR, 50% of auxiliary engine MCR Power curves Under fully loaded and sea trial conditions Principal particulars Propulsion system and electricity supply Innovation Description of energy saving equipment Index figure Calculated value of EEDI

Introduction to Energy Efficiency Operational Index

EEOI – Energy Efficiency Operational Index

SEEMP – Ship Energy Efficiency Management Plan SEEMP sets out best practices for the fuel efficient operation of new and existing ships, which works with the EEOI to enable operators to measure the fuel efficiency in grams CO2 per tonne mile of a ship. Forms part of the proposed IMO EEDI regulation for new vessels Each new vessel will be required to keep a SEEMP plan •Possible implementation of new standards will require such document to be onboard each ship: –European standard EN16001: “Energy Management Systems” –International standard ISO50001: “Energy Management SEEMP, although voluntary, is being used by ship owners to help reduce their energy consumption. Source: MEPC1/Circ 683 Annex 1 Page 11; Ship Efficiency Management Plan

SEEMP – Ship Energy Efficiency Management Plan The SEEMP is specific to each ship and is a living document designed to be routinely reviewed and updated Documentation of ship specific best practices for fuel efficiency What is included in the SEEMP: • Voyage planning (weather routing, just in time, speed optimization,) • Optimized ship handling (trim, ballasting, use of rudder etc...) • Hull maintenance/husbandry • Use of engines and waste heat recovery • Energy reduction management and reporting Source: MEPC1/Circ 683 Annex 1 Page 11; Ship Efficiency Management Plan

EEOI – Energy Efficiency Operational Index EEOI – Voluntary Operational Measurement Tool: • Devised to encourage ongoing evaluation of operational performance by owners, operators or charterers Ultimate goal to improve fuel efficiency over time and reduce CO2 emissions Provides a measure of energy-efficiency of each voyage for individual ships Creates a CO2 emissions indicator for individual ships EEOI = Fuel x CO2 Conversion Factor Cargo quantity x Distance (tonnes CO2) (nautical miles) (Tonnes, TEU, Persons, …) Tonnes CO2/(tonne . nautical miles)

= 17.9584 tonnes CO2/tonne nautical miles EEOI – Worked example Voyage No. ∑HFO Cons ∑LFO Cons ∑MDO Cons ∑Loaded Dist ∑ Ballast Dist. Total B/L Factor CO2 Index Tonnes N. Miles N.Miles Tonne - Miles 1 250 50 560 96,000 53,760,000 20.3748 2 500 60 80 1,400 1,605 134,400,000 14.8879 3 400 65 770 1,500 73,920,000 21.7835 Sel. Period 1,150 160 195 2,730 3,665 288,000 262,080,000 17.9584 Fuel consumption Fuel Type LFO x CO2 conversion factor Fuel consumption Fuel Type HFO x CO2 conversion factor EEOI = (3.114*1,150)+(160+(3.186*195) 262,080,000)*1000000 = 17.9584 tonnes CO2/tonne nautical miles Cargo quantity X distance travel (multiple journeys) Source; Amendment to Intertanko adaptation of MEPC Circ 471 Equation (rev.3 - 23rd March 2009)

Introduction to Market Based Measures

Market Based Measures (MBM) Once adopted the EEDI would become the worlds first mandatory climate instrument for shipping As EEDI only applies to newbuildings, Increased focus on implementing market based measures is essential to help reduce GHG emissions from the existing fleet. An expert group has been set up to look at possible market based measures (report to be submitted at MEPC 62 July 2011) Do nothing Introduction of EEDI Introduction of EEOI Market based measures Maritime Fleet CO2 Emissions

Potential Market Based Measures (MBM) Some of the potential MBM being considered; A cap-and-trade system for maritime transport emissions Under this scheme, ship-owners are required to report emissions and surrender allowances for emissions emitted on voyages:    In a cap-and-trade system the emissions are capped and the price of allowances provides an incentive to reduce emissions. A baseline-and-credit system based on an efficiency index Under this scheme, efficient ships generate credits while inefficient ships surrender credits.   The owner of an efficient ship can sell credits to the owner of an inefficient ship. Credits are generated or surrendered in proportion to the difference of a ship’s EEDI with the baseline value for that ship. The traded unit is based on the EEDI.

EEDI/EEOI and MBM Potential Timeline  July 2011    IMO MEPC meeting, London:   - GHG market mechanisms debate - EEDI mandatory application vote - Possible move to apply global GHG emissions cap to shipping and aviation  Early 2012  EU plan to regulate GHG emissions in international shipping expected  Jan 2013 Probable start date for EU market-based GHG regulation Jan 2013 - 2014 Proposed start date for EEDI regulation Phase 0  2015-2016  Possible start for global bunker levy or emissions trading scheme on GHG emissions. Jan 2015 - 2019 Proposed start date for EEDI regulation phase 1 Source: Adapted from Carbon Positive http://www.carbonpositive.net/viewarticle.aspx?articleID=2325

General Implications of the Proposed Measures

What are the general implications for; Ship-owners and Managers - Energy efficiency expected to become an integral part of each of the ship’s owner business Pro Cons The EEDI will facilitate ship-owners to purchase the most fuel efficient ships for their fleets and charterers and cargo owners in choosing the most energy-efficient ships for their operation Benefits : – Reduce fuel consumption, Save money, Decrease the environmental impacts from shipping. Without introduction of market based measures it leaves newbuildings at a potential competitive disadvantage Results in slower vessels with less flexibility to changing market needs Requirements of new skill sets/training for employees as the energy efficiency must be monitored and understood to manage environmental impacts of transportation activities during the lifetime of the vessel. Raises concerns about under powered vessels and insufficient sea margins Costs incurred for market based measures

What are the general implications for; Shipbuilders - Build and convert ships to the highest standards of energy efficiency in anticipation of high and volatile fuel prices and demands for low-carbon performance Pro Cons The EEDI is a non-prescriptive, performance-based mechanism that leaves the choice of technologies to use in a specific ship design to the industry. Ship designers and builders would be free to use the most cost-efficient solutions for the ship to comply with the regulations.  In a heavily cost competitive market the EEDI allows for differentiation for some shipbuilders' by switching to low-carbon, energy-saving and other green technologies Potentially a greater demand for more environmentally friendlier larger vessels Increase in paperwork, time and costs for certification Increase in R&D spends Additional design challenges for cost, safety, reliability, manoeuvrability and heavy weather performance

What are the general implications for; Paint Companies- CO2 emission reduction from innovative energy efficient technology Pro Cons Opportunity to promote/develop/deliver energy efficient products and services Industry has recognised “smooth” Hull coatings has a positive impact on energy efficiency indexes Joint venture opportunities with design houses/shipyards etc.. Customer focus on alternative innovative green technologies Training opportunities on; Coatings technologies Monitoring of coatings performance Increase in R&D spends Need reliable information on environmental performance of vessels Need a standard, credible, and efficient approach for sharing environmental data

Means of Reducing CO2 Emissions      IMO 2009 GHG emissions report estimated that CO2 emissions could be reduced as much as 25%-75% using known technology and operational practices, including but not limited to; Speed Reduction Reduced time in Port Smoother Hull Environmental Energy Larger vessels Waste Heat Recovery

What can International Paint do: We have an array of products available which can have a positive impact on improving energy efficiency Independent testimony of energy savings Work in close collaboration with ship owners to analyse and interpret coatings in-service ship performance data Coatings technical experts who can assist with planning for regulatory change Coatings training packages to suit your needs

Closing notes Shipping is likely to face increased analysis of its social and environmental performance, Volatile and rising oil prices will push up fuel costs significantly while climate change is increasing pressure on shipping to reduce greenhouse gas emissions. The onus is on ship owners, charterers and others in the industry to stay on top of regulatory, technological and operational developments Find out how our customers have improved their operational productivity, reduced their fuel costs and enhanced their environmental profile contact your local International Paint representative