EEXI and CII Enforcement in 2026: Which Vessel Segments Get Scrapped First
- Capt. Anuj Chopra
- 4 hours ago
- 13 min read
The Carbon Intensity Indicator has been operational since January 2023. By 2026, vessels must have achieved an 11% cumulative improvement in CO2 intensity relative to their 2019 baseline. The annual reduction requirement does not pause because freight rates are high, because scrapping is economically unattractive, or because replacement tonnage is not yet available. The ratchet turns regardless.
The question in 2026 is not whether CII will eventually force scrapping. It is which vessel segments face the sharpest commercial pressure first, and when that pressure becomes economically impossible for owners to ignore. This article breaks down that question by segment, using available fleet age data, Clarksons Research ratings projections, and the mechanics of how CII enforcement actually works in commercial practice.
What EEXI and CII Actually Measure
EEXI and CII are two distinct regulatory instruments that address different aspects of vessel carbon intensity, and understanding the difference matters for reading their commercial implications.
EEXI (Energy Efficiency Existing Ship Index) is a one-time technical compliance certification that became mandatory in January 2023. Every vessel above 400 gross tonnage across covered ship types must meet a carbon intensity baseline set relative to its design characteristics. The main compliance route for most vessels was engine power limitation (EPL), essentially capping the maximum power output of the main engine to reduce standardised CO2 emissions. Clarksons Research assessed that most vessels could achieve EEXI compliance through fairly minor modifications, with a small proportion requiring significant CAPEX or major speed reductions. EEXI compliance is a pass/fail test; once certified, a vessel carries that certification unless it undergoes a major conversion.
CII (Carbon Intensity Indicator) is the operational counterpart: an annual A to E rating based on actual CO2 emissions per cargo-carrying capacity per nautical mile over a calendar year. Unlike EEXI, which is a snapshot, CII measures how a vessel is actually operated. A ship that passes EEXI certification but runs heavily loaded at high speed will produce poor CII outcomes. A vessel that reduces speed, optimises routing, and manages cargo loadings carefully can maintain CII compliance across multiple rating cycles.
The compliance thresholds tighten annually. The required CII improvement runs at approximately 2% per year from 2023 through 2026, reaching 11% cumulative improvement relative to 2019 by the end of 2026. The required reduction factors for 2027 through 2030 are under IMO MEPC review, with MEPC 84 scheduled for May 2026 expected to adopt amendments.
The CII Rating Scale and Consequences
The rating consequences differ by tier. A vessel rating A or B is compliant and commercially advantaged. C is the minimum passing grade. A D rating for three consecutive years or an E rating in any single year requires the vessel owner to submit a corrective action plan approved by the flag state administration. The corrective plan must address how the vessel will improve its rating.
The commercial consequences extend beyond the regulatory. Major oil companies, commodity traders operating under Western banking relationships, and freight operators with sustainability commitments have begun including CII floor requirements in charter fixtures. A vessel persistently rated D or E is not just non-compliant with IMO requirements; it is excluded from the cargo programmes of an increasing proportion of mainstream charterers. This creates a commercial penalty that operates independently of whether flag state administrations actively enforce corrective plan requirements.
How Widespread Is Non-Compliance in 2026?
Clarksons Research estimated, as of its 2024 Green Technology Tracker, that approximately 45% of today's tanker, bulker, and container fleets would be rated D or E if they were still trading in 2026 and had not modified speed or specification. This estimate is the most widely cited projection in the industry. The qualifier matters: many operators have reduced speed or retrofitted energy-saving devices specifically to avoid D and E ratings. But not all have done so.
The same research found that 34% of global tonnage by gross tonnage was aged over 15 years as of 2024, up from 32% in early 2023. The average fleet age across segments has risen: tankers stand at 13.3 years, container ships at 13.9 years, and bulkers at 12.3 years on a gross-tonnage-weighted basis. An ageing fleet and tightening annual standards is a structural combination that pushes a growing proportion of existing tonnage into non-compliance territory each year, absent active intervention by owners.
BIMCO projected that 15,000 ships could be scrapped over the coming decade due to regulatory pressures, with its chief shipping analyst noting many older ships are expected to be recycled earlier than normal because of tightening GHG emission limits. Actual scrapping has remained subdued. In 2023, vessel demolition totalled only 10 million DWT, the lowest in over a decade and well below the 29 million DWT ten-year average, according to BRS data. Elevated freight rates and rerouting-induced demand (particularly Red Sea diversion effects) kept older vessels employed past their normal commercial retirement.
Which Vessel Segments Face the Greatest Scrapping Pressure?
Different vessel types sit at very different points in the CII pressure curve. The scrapping order is not random; it follows the intersection of vessel age, fuel consumption per unit of cargo capacity, and commercial employability under a tightening ratings framework.
1. Steam Turbine Vessels: Near-Certain Scrapping
Approximately 250 steam turbine vessels remain in the global fleet. These ships, primarily LNG carriers and certain tanker types built in the 1970s and 1980s, use steam turbine propulsion that is dramatically less fuel-efficient than modern diesel or dual-fuel engines. Their CII trajectories are virtually impossible to rehabilitate through operational measures. Speed reduction alone cannot bridge the efficiency gap. Retrofitting a modern propulsion system is prohibitively expensive relative to any residual asset value. This segment will see near-complete attrition from the commercial fleet through mandatory regulatory pressure even before owners consider the economics of obsolescence.
2. Aged VLCCs and Suezmaxes (20+ Years Old)
Large crude oil tankers built before 2005 are the segment where CII pressure intersects most sharply with shadow fleet economics. A VLCC built in the early 2000s serving a major oil company charter has a clear CII problem: its fuel consumption per tonne-mile is substantially higher than modern eco-designs, and speed reduction that would improve the CII rating may push voyage economics below viability. Many of these vessels have already migrated toward the shadow fleet, where CII enforcement by Western charterers does not apply.
The commercial logic creates a perverse outcome: the oldest, least-efficient tankers exit the CII-governed mainstream market and enter the shadow fleet, where they continue operating with no meaningful regulatory oversight. The shadow fleet is, by definition, CII-exempt in commercial practice. This reduces the scrapping pressure that theory would predict and partially explains why actual demolition rates have fallen below historical averages despite the tightening regulatory framework.
Within the mainstream fleet, persistent D and E rated VLCCs and Suezmaxes without scrubber installations or speed reduction programmes are the most likely candidates for accelerated scrapping when earnings decline and the rate premium for compliant vessels widens.
3. Capesize and Post-Panamax Dry Bulk Carriers (Pre-2010)
In dry bulk, the CII pressure concentrates in the largest vessel sizes built before 2010. Capesize carriers (above 100,000 DWT) have high absolute fuel consumption and operate on commodity trades where speed is a direct competitive factor. CII-mandated slow steaming imposes a real freight earnings cost. The 60 to 70% of bulk carriers mainly above Panamax that face the most significant CII challenges without modification were identified in legal analysis from CJC Law as the key at-risk cohort within dry bulk.
The Capesize fleet faces a compounding problem. The vessels most likely to receive D or E ratings are the oldest, but Capesize earnings have been supported in 2025 by Guinea's Simandou iron ore mine commencing shipments, with 120 million tons annual capacity creating ton-mile demand because the Atlantic-to-China distance is approximately three times that of Australian routes. High earnings reduce the scrapping economic case. Once the rate cycle turns, the combination of poor CII ratings and advancing age will accelerate demolition decisions.
4. Panamax Bulkers (Pre-2008 Build)
Older Panamax bulk carriers face CII pressure that is less severe than the largest sizes but structurally persistent. These vessels typically operate on coal and grain routes where voyage speed affects both schedule competitiveness and CII outcomes. Pre-2008 designs lack the hull efficiency features (bulbous bow optimization, propeller designs, coating technology) of modern eco-vessels. Energy-saving devices retrofitted to a 20-year-old hull provide incremental gains that may not be sufficient to sustain C-rating compliance as annual thresholds tighten post-2026. BIMCO's recycling projection for the decade concentrates significantly in this segment.
5. Older Container Ships Without Eco-Specification
Container shipping has the highest orderbook as a percentage of fleet capacity among major sectors, at roughly 22%, driven by carrier ordering during the 2020 to 2022 freight rate boom. A large proportion of that orderbook carries eco and alternative-fuel specifications. The contrast with the existing pre-2015 fleet without eco-design is sharp. Older container ships have CII challenges that cannot be resolved through speed reduction alone without eliminating service schedule competitiveness, since container liner schedules are set by frequency commitments to port authorities and cargo owners.
Container ships also have the wrinkle that CII is calculated per tonne-mile of capacity, not actual loaded cargo, meaning a vessel running partially empty still accumulates denominator capacity while emitting the same fuel-based numerator. On trades where load factors have softened, older vessels face a double penalty: lower earnings and worsening CII metrics simultaneously.
Speed Reduction: The Interim Fix and Its Limits
Speed reduction is the most widely used operational tool for improving CII ratings. CO2 emissions per voyage drop non-linearly with speed reduction because fuel consumption scales approximately with the cube of speed. A vessel reducing from 13 knots to 11 knots may reduce fuel consumption by 35 to 40% per day, significantly improving the CII numerator.
The limits are commercial. A VLCC time-chartered to transport crude from the Persian Gulf to a South Korean refinery on a schedule cannot arbitrarily slow-steam if the charterer has a vessel arrival deadline tied to refinery operations. Voyage charter contracts specify laycan windows that must be met. Slow steaming reduces absolute voyage earnings even if it improves the CII metric. For an owner running an older vessel with deteriorating CII trajectory, the choice becomes: accept slower voyages at potentially lower time charter equivalent earnings, retrofit energy-saving devices at CAPEX cost, or sell the vessel to a buyer who will operate it in a CII-exempt context (i.e., the shadow fleet or a flag regime with minimal enforcement).
The Shadow Fleet Complication
The shadow fleet creates a regulatory arbitrage that distorts the expected CII scrapping timeline. A vessel rated E by its classification society and excluded from major charterer programmes is not automatically scrapped. If the vessel is seaworthy in a basic operational sense, it can be sold to a shadow fleet operator who will carry sanctioned crude with no interest in IMO compliance ratings, no Western insurance requirements, and no charterer enforcing CII minimum thresholds.
This pathway has absorbed older Aframax and Suezmax tankers that would otherwise have been demolished. It artificially maintains fleet utilisation in the lower-quality segment, supports secondhand prices for older vessels above scrap value, and delays the fleet renewal that MARPOL's architects anticipated. It also concentrates the oldest and least safely operated vessels in trade lanes where environmental risk from spills and mechanical failure is real.
The connection between shadow fleet growth and CII enforcement is therefore not incidental. Tighter CII enforcement in the mainstream market is, in part, generating the shadow fleet's expansion. The vessels that do not comply go somewhere, and that somewhere is the shadow market. Understanding this dynamic is important for assessing actual versus projected scrapping rates over the next five years.
The MEPC Review: Post-2026 Trajectory
IMO's Marine Environment Protection Committee review of CII reduction factors for 2027 through 2030 is the critical regulatory variable for the medium term. MEPC 83 approved draft amendments and MEPC 84, scheduled for May 2026, was expected to adopt them. The direction of the review is toward tighter annual reduction factors, consistent with the IMO's 2023 Revised GHG Strategy, which targets net-zero GHG emissions from shipping by or around 2050 and requires 20 to 30% emission intensity reduction by 2030 compared to 2008.
If post-2026 CII reduction factors are tightened to 3 or 4% annually instead of the current 2%, the proportion of the existing fleet rated D or E would increase substantially faster. Vessels that currently maintain C ratings through speed reduction would slide to D territory within two to three years. This would accelerate the commercial pressure on older tonnage and could trigger a more sustained scrapping cycle than the muted demolition rates of 2023 and 2024.
The EU Emissions Trading System, which began applying to shipping in January 2024, adds a parallel cost pressure. Vessels operating in and between EU ports now pay for CO2 allowances on their emissions. For older, fuel-inefficient vessels, this adds direct operating costs that further compress the earnings differential between compliant and non-compliant assets.
What Actually Triggers a Scrapping Decision?
Regulatory rating alone rarely triggers a scrapping decision. The decision is commercial: at what point does the present value of remaining earnings fall below the scrap value of the vessel's steel? The variables in that calculation are: freight rate environment (higher rates extend vessel life by making even inefficient assets profitable), scrap steel prices (currently supportive), drydock timing (a vessel approaching a mandatory five-year drydock faces a major cost hurdle that often becomes the decision point), and CII-driven charterer exclusion (which effectively creates a rate discount for non-compliant vessels that reduces the earnings present value).
The trigger in practice often looks like this: an older Aframax tanker approaches its scheduled drydock. The drydocking cost is estimated at $3 to 5 million including mandatory surveys and steel work. The vessel's CII rating is D and trending toward E. The owner models the charterer market for a D or E rated Aframax after the drydock and concludes that the rate discount from non-compliant status will prevent payback of the drydock investment within a reasonable operating horizon. The vessel goes to a demolition yard rather than a drydock.
That calculation shifts every time freight rates change significantly. High rates in 2024 and early 2025 pushed the scrapping threshold outward. A rate correction, particularly for tankers if Russian or Iranian sanction relief occurs and redirects previously shadow-fleet-employed capacity into the mainstream market, could accelerate demolition decisions sharply.
The Two-Tier Market That CII Has Already Created
Whatever the eventual scrapping trajectory, CII has already created a measurable two-tier asset value and charter market. Modern eco-specification vessels, defined by Clarksons as vessels with fuel-efficient hull designs and propulsion, now represent 33% of global fleet gross tonnage, up from 14.6% in 2018. These vessels command premium charter rates and preferential treatment in major charterer programmes.
The premium is not fixed. It varies with the rate environment and the proportion of cargo owners actively enforcing CII minimums. In a tight freight market where all tonnage is in demand, the CII premium compresses because charterers take what they can get. In a softer market, it widens because charterers become more selective. The structural direction is toward a wider premium as annual tightening requirements and more cargo owners embedding CII clauses in contracts shift the compliance floor upward.
For prospective MAT holders evaluating any vessel asset, the CII rating trajectory of the specific vessel, not the segment average, is the relevant variable. A well-operated older vessel with energy-saving device retrofits and a strong operational CII record may outperform a newer vessel with poor operational management. The certification is annual. The trajectory is what matters, not the point-in-time rating.
Frequently Asked Questions
What is the difference between EEXI and CII?
EEXI is a one-time technical compliance certification based on a vessel's design efficiency, mandatory from January 2023. CII is an annual operational rating from A to E based on actual CO2 emissions per cargo capacity per nautical mile. EEXI is a pass/fail threshold. CII is an ongoing performance measurement that tightens each year.
What happens to a ship that gets a D or E CII rating?
A vessel rated D for three consecutive years or E in any single year must submit a corrective action plan to its flag state administration. Commercially, major charterers with CII compliance clauses in their fixture terms may exclude D or E rated vessels from their cargo programmes, creating a charter rate discount or loss of employment opportunities.
Which vessel types are most at risk of scrapping due to CII?
Steam turbine vessels face near-certain retirement because their propulsion efficiency cannot be economically upgraded. After that, aged VLCCs and Suezmaxes (20+ years), older Capesize bulkers, pre-2008 Panamax bulkers, and older container ships without eco-specification face the strongest structural pressure from tightening CII requirements combined with advancing age.
Why have scrapping rates remained low despite CII pressure?
Two factors: elevated freight rates have made even older vessels profitable enough to operate, extending their commercial viability; and older non-compliant vessels have found a market in the shadow fleet, where Western charterer CII enforcement does not apply. The shadow fleet acts as an absorption mechanism for vessels exiting the regulated market.
What is the IMO's post-2026 CII trajectory?
CII reduction factors for 2027 through 2030 are under MEPC review, with MEPC 84 in May 2026 expected to adopt amendments. The direction is toward tighter annual reductions, consistent with the IMO's 2023 Revised GHG Strategy targeting net-zero emissions from shipping by or around 2050.
Does the EU Emissions Trading System affect CII compliance?
The EU ETS, which extended to shipping from January 2024, adds direct CO2 allowance costs for vessels operating in and between EU ports. This creates a parallel financial pressure on fuel-inefficient vessels, compounding the CII charter market penalty with direct operating cost increases.
Glossary
EEXI (Energy Efficiency Existing Ship Index): One-time technical compliance certification mandatory from January 2023, setting a carbon intensity baseline based on a vessel's design characteristics.
CII (Carbon Intensity Indicator): Annual A to E operational rating measuring a vessel's actual CO2 emissions per cargo capacity per nautical mile. Tightens by approximately 2% per year through 2026.
Engine Power Limitation (EPL): A technical compliance measure that caps the maximum power output of a vessel's main engine, reducing standardised fuel consumption to achieve EEXI compliance.
Corrective Action Plan: A document required from vessel owners when a ship receives D ratings for three consecutive years or an E rating in any year, submitted to the flag state administration.
Steam Turbine Vessel: A vessel using steam turbine propulsion technology, primarily built in the 1970s and 1980s. Dramatically less fuel-efficient than modern diesel engines.
Capesize: Dry bulk carrier above approximately 100,000 DWT, too large to transit the Panama or Suez Canals when fully loaded. Primarily carries iron ore and coal on long-haul routes.
Eco Vessel: Clarksons Research designation for vessels with fuel-efficient hull designs, propulsion systems, and specifications that deliver measurably lower fuel consumption per tonne-mile.
Flag State Administration: The government of the country whose flag a vessel flies, responsible for vessel certification, compliance enforcement, and approval of corrective action plans.
MEPC (Marine Environment Protection Committee): The IMO committee responsible for reviewing and setting environmental regulations for shipping, including annual CII reduction factors and broader GHG strategy.
EU ETS (EU Emissions Trading System): The European Union's carbon pricing mechanism, extended to shipping from January 2024. Vessels operating in and between EU ports must purchase allowances for CO2 emitted.
Scrapping / Demolition: The process of dismantling a vessel at a ship recycling yard. The vessel is sold for its scrap steel value. Decision is driven by the economics of continued operation versus the scrap price received.
CII Tiering: The market effect where CII-compliant vessels command premium charter rates and preferential charterer access, while non-compliant vessels trade at a discount or face exclusion.
Citations
Risk Disclosure: This content is produced for informational and educational purposes only. It does not constitute financial advice, investment advice, or a solicitation to acquire any financial product. Participation in maritime asset ownership through the Shipfinex platform carries financial risk, including the potential for values to decline materially below purchase price. Shipfinex operates under VARA In-Principle Approval (IPA/26/01/002) and Poland VASP registration. All prospective MAT holders should conduct independent due diligence and seek professional financial and legal advice before any commitment. Past performance of maritime assets does not indicate f
uture outcomes.
Capt. Anuj Chopra
Advisor / Contributing Author
Capt. Anuj Chopra ExC FNI FICS is a maritime industry executive with over 40 years of experience. As former VP Americas at RightShip and co-founder of ESGplus LLC, he specialises in maritime risk, ESG, and environmental compliance. He is an Adjunct Professor at the University of Houston and Fellow of both The Nautical Institute and the Institute of Chartered Shipbrokers.
