Real option analysis for environmental compliance: LNG and emission control areas

A wide array of technical and operational solutions is available to shipowners in order to comply with existing and upcoming environmental regulation within Emission Control Areas (ECAs). Liquefied Natural Gas (LNG) is a promising alternative since it offers potential cost savings in addition to ensuring compliance with ECA regulation. But investment to retrofit existing vessels to be able to use LNG carries significant upfront costs, and a high degree of uncertainty remains on the differential between the prices of LNG and conventional maritime fuels, as well as on the availability of LNG and the reliability of its supply chain. New technologies such as LNG inherently carry substantial risk and an ill-chosen investment strategy may have irreversible consequences that could jeopardise the future of the shipping company. One important question is whether interested owners should invest in LNG now to comply with ECA rules in 2015 and reap the benefits of lower LNG prices, or whether it would be advisable to wait until some of the uncertainty is resolved.While traditional discounted cash flow techniques are unable to account for the value of managerial flexibility linked, for example, to the possibility of deferring an investment, real option analysis can be used to analyse such cases. The paper discusses the optimal time for investment in LNG retrofit and takes specific account of the value of an investment deferral strategy versus the advantages obtainable from the immediate exploitation of fuel price differentials. Through the use of a real option model the paper shows that there is a trade-off between low fuel prices and capital expenses for investment in LNG retrofit. The development in LNG is critically dependent on its future price as well as the reduction in capital costs and ship retrofitting costs. In this respect, policy makers can play a critical role in providing support to advance technical knowledge, maintain LNG prices at favourable levels and in avoiding ambiguity on regulation.     

Low carbon maritime transport: How speed,size and slenderness amounts to substantial capital energy substitution

Three responses that reduce energy consumption and CO₂ emissions in maritime transport are slower speeds, larger vessels and slender hull designs. We use crude oil carriers as our illustrative example; these represent nearly a quarter of international sea cargo movements. We estimate the potential and costs in these which can all be described as capital substituting for energy and emissions. At different degrees of flexibility and time scales: speed reductions are feasible immediately when there are vessels available, though more capital will be tied up in cargo. Deployment of larger and more slender vessels to a greater extent requires fleet renovation, and also investments in ports and infrastructure. A novel finding in our analysis is that if bunker costs rise as a result of emission costs (fees, quotas), then this may depress speeds and emissions more than if they result from higher oil prices. The reason is that for higher oil prices, more capital tied up in cargo may give cargo owners an interest in speeding up, partly counteracting the impulse from fuel costs that tends to slow vessels down. Emission costs, in contrast, do not raise cargo values.     

Excess Commuting: A Critical Review

Abstract

The stringent ship emission regulations under IMO's (International Maritime Organization) MARPOL Annex VI are a main driver to consider liquefied natural gas (LNG) as a ship fuel. Research into LNG as a marine fuel saw a strong growth in recent years, but no study has analyzed in a systematic way the level of convergence among the findings presented in the wide range of studies. In order to fill this gap, this paper seeks to perform a systematic review to synthesize the findings of 33 published studies on the use of LNG as a ship fuel. The aim is not only to obtain a much broader understanding of the current perspectives and challenges for applying LNG as a bunker for ship propulsion, but also to identify the gaps and weak points in the literature which could suggest future research. Moreover, given the output of the synthesis, the paper presents an extensive decision-making framework for shipowners when deciding on a fuel switch for their fleet from conventional oils to LNG in order to achieve a level of conceptual development beyond that attained in individual studies. In addition, the study also identifies the important role of ports in facilitating and encouraging the large-scale adoption of LNG in the maritime industry.     

Probabilistic analysis of the release of liquefied natural gas (LNG) tenders due to freight-train derailments

Liquefied natural gas (LNG) has emerged as a possible alternative fuel for freight railroads in the United States, due to the availability of cheap domestic natural gas and continued pursuit of environmental and energy sustainability. A safety concern regarding the deployment of LNG-powered trains is the risk of breaching the LNG tender car (a special type of hazardous materials car that stores fuel for adjacent locomotives) in a train accident. When a train is derailed, an LNG tender car might be derailed or damaged, causing a release and possible fire. This paper describes the first study that focuses on modeling the probability of an LNG tender car release incident due to a freight train derailment on a mainline. The model accounts for a number of factors such as FRA track class, method of operation, annual traffic density level, train length, the point of derailment, accident speed, the position(s) of the LNG tender(s) in a train, and LNG tender car design. The model can be applied to any specified route or network with LNG-fueled trains. The implementation of the model can be undertaken by the railroad industry to develop proactive risk management solutions when using LNG as an alternative railroad fuel.     

The potential of turboprops for reducing aviation fuel consumption

To assist in aviation systems planning in the context of fuel price uncertainty and environmental regulation, we take a total logistics cost approach and evaluate three representative aircraft (narrow body, regional jet, and turboprop) for operating and passenger preference costs over a range of fuel prices. Homogenous fleets of each vehicle category are compared for operating and passenger costs over a range of fuel prices and route distances and the minimum cost fleet mix is determined. In general, as fuel prices increase, the turboprop offers a lower operating cost per seat over a wider range of distances when compared with both jet aircraft models. The inclusion of passenger costs along with operating costs decreases the number of fuel price and distance pairs where the turboprop exhibits the lower cost. This analysis shows that the aircraft that exhibits the lowest cost is highly sensitive to fuel prices and passenger costs and points to the important balance between saving fuel and serving passengers.     

LNG-fuelled fishing vessels: A systems engineering approach

Air emissions from fishing vessels must be reduced to comply with progressively stringent environmental regulations. Among the available solutions, liquefied natural gas (LNG) fuel may represent a promising solution, particularly from an environmental perspective. However, the use of LNG as a marine fuel creates different types of hazards than those that exist for traditional fuels. In addition, the increased complexity, safety requirements, and space required for LNG installation increase the capital cost. This article uses a systems engineering approach to clarify the technical aspects of LNG-fuelled systems, their potential implementation costs, and the expertise and training required to operate them safely. Ship owners can use such an approach to aid decision-making and trade-off analyses. Naval architects may also benefit from better information management. Finally, crews may better understand the logic behind the safety actions they are instructed to take.     

Sulphur abatement globally in maritime shipping

In 2016, the International Maritime Organization (IMO) decided on global regulations to reduce sulphur emissions to air from maritime shipping starting 2020. The regulation implies that ships can continue to use residual fuels with a high sulphur content, such as heavy fuel oil (HFO), if they employ scrubbers to desulphurise the exhaust gases. Alternatively, they can use fuels with less than 0.5% sulphur, such as desulphurised HFO, distillates (diesel) or liquefied natural gas (LNG). The options of lighter fuels and desulphurisation entail costs, including higher energy consumption at refineries, and the present study identifies and compares compliance options as a function of ship type and operational patterns.The results indicate distillates as an attractive option for smaller vessels, while scrubbers will be an attractive option for larger vessels. For all vessels, apart from the largest fuel consumers, residual fuels desulphurised to less than 0.5% sulphur are also a competing abatement option. Moreover, we analyse the interaction between global SO_X reductions and CO₂ (and fuel consumption), and the results indicate that the higher fuel cost for distillates will motivate shippers to lower speeds, which will offset the increased CO₂ emissions at the refineries. Scrubbers, in contrast, will raise speeds and CO₂ emissions.     

The fleet renewal problem with regional emission limitations: Case study from Roll-on/Roll-off shipping

In this paper, the maritime fleet renewal problem (MFRP) is extended to include regional limitations in the form of emission control areas. The motivation for including this aspect is that strengthening of emission regulations in such areas is expected to be challenging for deep sea shipping in the years to come. In the proposed model, various means to cope with these stricter emission regulations are evaluated for new vessels, and the possibility of upgrading existing vessels with new emission reduction technology is introduced. We consider future fuel prices to be important for the problem, and have chosen to treat them as uncertain, and thus, a stochastic programming model is chosen. A fleet renewal problem faced by the liner shipping operator Wallenius Wilhelmsen Logistics, concerning whether to use low sulphur fuel or have an exhaust gas scrubber system installed to comply with sulphur regulation in emission control areas from 2015, is used as a case study. Furthermore, tests show that the savings from including the aspect of emission control areas in the MFRP are substantial.     

Should ports expand their facilities under congestion and uncertainty?

This paper investigates simultaneous facility investments of risk-averse ports under congestion and uncertain market demand. We set up a two-period game, allowing two ports first choose their facility investment levels, and then decide their cargo-handling amounts and service prices. When investment costs of the two ports are large, the unique equilibrium is no investment. If investment costs of at least one port are small, then one or two ports will invest at equilibria. If both ports invest at equilibrium, they may become worse off than at non-equilibrium of no investment. This means that the ports may face a tradeoff between stability and efficiency. Moreover, we compare the behaviors of risk-averse and risk-neutral ports, as well as risk-averse ports’ behaviors under uncertainty and no-uncertainty. It is found that ports’ risk-averse degrees are the major factor determining their behaviors in different scenarios.     

Does a carbon tax affect the feasibility of Arctic shipping?

The Arctic route has huge potential for shipping between Europe and Northeast Asia with significant savings in transit time and distance. However, GHG emissions from shipping would harm the environment of Arctic area. Potential Market Based Measures of GHG emission reduction (such as carbon tax) are under consideration but they may affect the economic viability of Northern Sea Route (NSR) for containerships. This paper investigates the economic viability of NSR against Suez Canal Route (SCR) under 2 proposed carbon tax schemes (fixed vs. progressive). Three different fuel oil types (Heavy Fuel Oil, Light Fuel Oil, Liquified Natural Gas) are used as main bunker fuel for the calculation of economic feasibility. Our result reveals that when there is no carbon tax on NSR nor SCR, or both routes are under a carbon tax scheme, no matter fixed or progressive, NSR is more economically viable, regardless of fuel type choice. When only NSR is under a carbon tax scheme, the viability depends on specific carbon tax scheme and fuel choice, but for the majority of containership sizes, NSR has lower unit cost. The result also suggests that for a given route, a progressive scheme in preferable than a fixed one and LNG would be an appealing fuel with lower unit cost.     

Adapting the shipping sector to stricter emissions regulations: Fuel switching or installing a scrubber?

This paper examines how the existing fleet in the shipping industry can be adapted to the new emission regulations through the two main techniques that currently exist: (a) the use of low-sulphur marine diesels; and (b) the installation of scrubbers. A method is presented here for drawing up an economic assessment of both these techniques under uncertainty. It enables the best option to be selected at any given time taking into account fuel prices (spot and futures), scrubber installation costs, the time that the vessel operates in an Emission Control Area (ECA) and the remaining useful lifetime of the vessel. The paper also considers the possibility of an unexpected change from a non-ECA navigation area to an ECA. The assessment is carried out in a manner consistent with marine diesel and crude oil spot and futures market quotes. Our results show the net present value of investing in the installation of scrubbers and investing in changing fuel types for different assumptions on how vessels are operated. We also analyse increases in fuel consumption and CO₂ emissions as a consequence of using scrubbers and how they affects the financial analysis if such incremental emissions must be paid under a CO₂ pricing mechanism.     

How to road price in a world with electric vehicles and government budget constraints

In this paper we examine what characterizes second-best road prices targeting external costs from driving electric (EV) and conventional (ICEV) vehicles when there are distortionary labor taxes and binding government budget constraints. Further, we examine how this second-best pricing fits with government set goals of reducing CO₂ emissions. The paper further develops an analytical framework for assessing first- and second-best road prices on vehicle kilometers, extending it to include EVs and externalities that vary geographically and by time of day. We find that optimal road prices largely vary with external cost, but are also significantly affected by the interactions with the rest of the fiscal system. Not surprisingly, the highest road prices should be for ICEVs in large cities during peak hours due to high external costs. More surprisingly, we find that the road price for ICEVs in rural areas should be lower than that for EVs due to large fiscal interaction effects. These road prices give large welfare gains, but they lead to no reduction in carbon emissions when applying the currently recommended social cost of carbon.     

Evolution of the household vehicle fleet: Anticipating fleet composition, PHEV adoption and GHG emissions in Austin, Texas

In today’s world of volatile fuel prices and climate concerns, there is little study on the relationship between vehicle ownership patterns and attitudes toward vehicle cost (including fuel prices and feebates) and vehicle technologies. This work provides new data on ownership decisions and owner preferences under various scenarios, coupled with calibrated models to microsimulate Austin’s personal-fleet evolution.Opinion survey results suggest that most Austinites (63%, population-corrected share) support a feebate policy to favor more fuel efficient vehicles. Top purchase criteria are price, type/class, and fuel economy. Most (56%) respondents also indicated that they would consider purchasing a Plug-in Hybrid Electric Vehicle (PHEV) if it were to cost $6000 more than its conventional, gasoline-powered counterpart. And many respond strongly to signals on the external (health and climate) costs of a vehicle’s emissions, more strongly than they respond to information on fuel cost savings.Twenty five-year simulations of Austin’s household vehicle fleet suggest that, under all scenarios modeled, Austin’s vehicle usage levels (measured in total vehicle miles traveled or VMT) are predicted to increase overall, along with average vehicle ownership levels (both per household and per capita). Under a feebate, HEVs, PHEVs and Smart Cars are estimated to represent 25% of the fleet’s VMT by simulation year 25; this scenario is predicted to raise total regional VMT slightly (just 2.32%, by simulation year 25), relative to the trend scenario, while reducing CO₂ emissions only slightly (by 5.62%, relative to trend). Doubling the trend-case gas price to $5/gallon is simulated to reduce the year-25 vehicle use levels by 24% and CO₂ emissions by 30% (relative to trend).Two- and three-vehicle households are simulated to be the highest adopters of HEVs and PHEVs across all scenarios. The combined share of vans, pickup trucks, sport utility vehicles (SUVs), and cross-over utility vehicles (CUVs) is lowest under the feebate scenario, at 35% (versus 47% in Austin’s current household fleet). Feebate-policy receipts are forecasted to exceed rebates in each simulation year.In the longer term, gas price dynamics, tax incentives, feebates and purchase prices along with new technologies, government-industry partnerships, and more accurate information on range and recharging times (which increase customer confidence in EV technologies) should have added effects on energy dependence and greenhouse gas emissions.     

An environmental-economic evaluation of hybrid electric vehicles: Toyota's Prius vs. its conventional internal combustion engine Corolla

We compare the second generation of the first commercial hybrid electric vehicle (HEV), the Toyota Prius, to the conventional internal combustion engine (ICE) Toyota Corolla. The more complicated and expensive Prius has lower pollutant and carbon dioxide emissions and better fuel economy than the Corolla. In a world of limited resources and many petroleum users and emissions sources, the policy question is whether the best use of resources is to build hybrids, to improve the fuel economy and environmental emissions of other mobile sources, or to devote the resources to other environmental projects. We find that the Prius is not cost-effective in improving fuel economy or lowering emissions. For the Prius to be attractive to US consumers, the price of gasoline would have to be more than three times greater than at present. To be attractive to regulators, the social value of abating tailpipe emissions would have to be 14 times greater than conventional values. Alternatively, the value of abating greenhouse gas emissions would have to be at least $217/t. There are many opportunities for abating pollutant and greenhouse gas emissions at lower cost. We conclude that hybrids will not have significant sales unless fuel prices rise several-fold or unless regulators mandate them.     

Relevance of the Northern Sea Route (NSR) for bulk shipping

Some scholars consider that today’s market conditions are in favor of the Northern Sea Route (NSR) rather than the Suez Canal Route (SCR). However, the number of bulk carriers using the NSR remains extremely limited, despite higher fuel prices since 2009 and subsequent significant fuel savings. In 2013, there were 53 transits via the Arctic, out of which 27 by oil tankers and 6 by bulk carriers. In this article we show that this result might be attributable to a factor, which is not considered in most studies: the spot freight rate to fuel ratio which governs ship owners’ decisions regarding the sailing speed. Due to a low ratio since 2011, the speed of vessels on the SCR is at its lowest level, and potential NSR fuel savings are too limited to provide a viable alternative. We further argue that, contrary to most studies, internalizing NSR environmental benefits marginally improves the attractiveness of the NSR.     

Car fuel-type choice under travel demand management and economic incentives

Future levels of vehicle air pollution in urban areas will depend on the proportion of new car buyers who opt for less polluting vehicles, as these appear on the market. This paper examines the factors likely to influence the demand for lower emission and zero emission vehicles. Using a discrete choice experiment, suburban driver commuters choose between three types of vehicle, one conventional, one fuel-efficient and one electric. Each is characterized by varying vehicle cost and performance measures, range and refueling rates, and commuting costs and times. The latter are manipulated to determine how their use as economic instruments might influence vehicle choice. All cost and time variables are expressed as ratios of the respondent’s current situation. Parameters of a multinomial discrete choice model are used in a choice simulator to estimate the average choice probability of each type of vehicle under different scenarios reflecting possible future relative vehicle prices and performance levels as well as differential commuting costs and times based on policies aimed at encouraging the purchase of cleaner vehicles. The evidence is that the latter economic instruments will have modest effects on vehicle choice. By contrast there would be a large shift of demand to cleaner and zero-emission vehicles provided their cost and performance came within an acceptable range of conventional vehicles.     

Fuel cycle emissions and life cycle costs of alternative fuel vehicle policy options for the City of Houston municipal fleet

Municipal fleet vehicle purchase decisions provide a direct opportunity for cities to reduce emissions of greenhouse gases (GHG) and air pollutants. However, cities typically lack comprehensive data on total life cycle impacts of various conventional and alternative fueled vehicles (AFV) considered for fleet purchase. The City of Houston, Texas, has been a leader in incorporating hybrid electric (HEV), plug-in hybrid electric (PHEV), and battery electric (BEV) vehicles into its fleet, but has yet to adopt any natural gas-powered light-duty vehicles. The City is considering additional AFV purchases but lacks systematic analysis of emissions and costs. Using City of Houston data, we calculate total fuel cycle GHG and air pollutant emissions of additional conventional gasoline vehicles, HEVs, PHEVs, BEVs, and compressed natural gas (CNG) vehicles to the City's fleet. Analyses are conducted with the Greenhouse Gases, Regulated Emissions, and Energy use in Transportation (GREET) model. Levelized cost per kilometer is calculated for each vehicle option, incorporating initial purchase price minus residual value, plus fuel and maintenance costs. Results show that HEVs can achieve 36% lower GHG emissions with a levelized cost nearly equal to a conventional sedan. BEVs and PHEVs provide further emissions reductions, but at levelized costs 32% and 50% higher than HEVs, respectively. CNG sedans and trucks provide 11% emissions reductions, but at 25% and 63% higher levelized costs, respectively. While the results presented here are specific to conditions and vehicle options currently faced by one city, the methods deployed here are broadly applicable to informing fleet purchase decisions.     

Assessment of profit,cost and emissions by varying speed as a function of sea conditions and freight market

This paper assesses shipping profits, costs and emissions by speed and as a function of sea and freight market conditions. Traditionally, seagoing vessels have been designed to operate at standardized, maximum economic speeds based on hydrodynamic considerations. High fuel costs and increased environmental concerns have challenged this practice. While speed reductions may reduce costs and emissions, most studies are based on still water conditions despite these being the exceptions. In addition, shipping lines operate in a commercial market with the objective of making profit and not solely on cost reductions. Our results show that significant cost and emissions reductions can be achieved and that the maximum economic speeds based on hydrodynamic considerations even in a good freight market are lower than the design speeds.     

Environmental life-cycle assessment of transit buses with alternative fuel technology

The paper presents a life-cycle assessment of costs and greenhouse gas emissions for transit buses deploying a hybrid input-output model to compare ultra-low sulfur diesel to hybrid diesel-electric, compressed natural gas, and hydrogen fuel-cell. We estimate the costs of emissions reductions from alternative fuel vehicles over the life cycle and examine the sensitivity of the results to changes in fuel prices, passenger demand, and to technological characteristics influencing performance and emissions. We find that the alternative fuel buses reduce operating costs and emissions, but increase life-cycle costs. The infrastructure requirement to deploy and operate alternative fuel buses is critical in the comparison of life-cycle emissions. Additionally, efficient bus choice is sensitive to passenger demand, but only moderately sensitive to technological characteristics, and that the relative efficiency of compressed natural gas buses is more sensitive to changes in fuel prices than that of the other bus types.     

液化天然气(LNG)汽车日常检查方法及维护技术综述

天然气是一种优质的替代燃料,具有污染小、安全系数高、运行费用低等优点。天然气已经成为城市公共交通领域应用最为成功和广泛的车辆替代燃料技术,为推动交通运输行业的节能减排做出了显著的贡献。液化天然气汽车,作为天然气汽车的一种类型,与传统汽柴油车相比,液化天然气汽车安装了包括液化天然气气瓶、气管路及各种控制阀门和仪表在内的专用装置,在对液化天然气汽车进行日常检查时需要针对液化天然气汽车的专用装置进行重点检查。本文则针对液化天然气汽车的特点,对液化天然气汽车的正确使用方法、日常检查方法及维护技术要求、以及相关注意事项三个方面进行了解读,为指导液化天然气汽车进行日常检查与定期维护提供了技术参考。