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.     

On two speed optimization problems for ships that sail in and out of emission control areas

This paper deals with two speed optimization problems for ships that sail in and out of Emission Control Areas (ECAs) with strict limits on sulfur emissions. For ships crossing in and out of ECAs, such as deep-sea vessels, one of the common options for complying with these limits is to burn heavy fuel oil (HFO) outside the ECA and switch to low-sulfur fuel such as marine gas oil (MGO) inside the ECA. As the prices of these two fuels are generally very different, so may be the speeds that the ship will sail at outside and inside the ECA. The first optimization problem examined by the paper considers an extension of the model of Ronen (1982) in which ship speeds both inside and outside the ECA are optimized. The second problem is called the ECA refraction problem, due to its conceptual similarity with the refraction problem when light travels across two different media, and also involves optimizing the point at which the ship crosses the ECA boundary. In both cases the objective of the problem is to maximize daily profit. In addition to mathematical formulations, examples and sensitivity analyses are presented for both problems.     

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.     

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.     

Valuation of strategic options in public–private partnerships

This paper investigates the feasibility of and develops an economic valuation model for strategic options in Comprehensive Development Agreements (CDAs). A CDA is a form of public–private partnership whereby the right to price and collect revenues from toll roads is leased to a private entity for a long but finite period of time. In exchange, this provides local and state governments with a quick influx of cash and/or additional infrastructure. Uncertainty associated with such long-term leases is of substantial public concern. This paper examines five different strategic options, namely a buyout option, a conditional buyout option, a revenue-sharing option, and two types of minimum revenue guarantee options. The buyout option in particular could give the public sector additional control over the future use of leased facilities and address potential concerns regarding long-run uncertainty and possible unforeseen windfalls for the private sector. The paper’s contributions include the analysis, feasibility assessment and valuation of several strategic options, sensitivity analysis of the solutions, an economic consumer demand-based revenue model for purposes of cash flow simulation, and analysis of option price sensitivity to “moneyness”. The main conclusion is that strategic options can provide useful risk reduction, but generally have significant value relative to the lease itself. By scaling down payoffs, options could be realistically included in CDAs and other PPPs. For some parameter values, option values to the developer and public authority are offsetting, allowing for costless risk reduction.     

The effectiveness and costs of speed reductions on emissions from international shipping

Greenhouse gas emissions from international shipping are an increasing concern. The paper evaluates whether vessel speed reduction can be a potentially cost-effective CO₂ mitigation option for ships calling on US ports. By applying a profit-maximizing equation to estimate route-specific, economically-efficient speeds, we explore policy impacts of a fuel tax and a speed reduction mandate on CO₂ emissions. The profit-maximizing function incorporates opportunity costs associated with speed reduction that go unobserved in more traditional marginal abatement cost analyses. We find that a fuel tax of about $150/ton fuel will lead to average speed-related CO₂ reductions of about 20–30%. Moreover, a speed reduction mandate targeted to achieve 20% CO₂ reduction in the container fleet costs between $30 and $200 per ton CO₂ abated, depending on how the fleet responds to a speed reduction mandate.     

Vessel accident oil-spillage: Post US OPA-90

The vessel accident oil-spillage literature has focused on oil-cargo vessels, tankers and tank barges, implicitly assuming that these vessels incur greater accident oil-spillage than other (i.e., non-oil-cargo) vessels which just carry oil in their fuel tanks. This study investigates the validity of this assumption for the post US OPA-90 (Oil Pollution Act of 1990) period by investigating determinants of vessel accident oil-spillage, where one of the hypothesized determinants is type of vessel (including both oil-cargo and non-oil-cargo vessels). Tobit regression estimates of vessel accident oil-spillage functions suggest that tank barges have incurred greater in-water and out-of-water oil-spillage for the post OPA-90 period than non-oil-cargo vessels; alternatively, tankers have not incurred greater out-of-water (in-water) oil-spillage than non-oil-cargo vessels (except for freight ships). The policy implication is that greater attention needs to be given to reducing tank barge accident oil-spillage in the post OPA-90 period.     

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.     

California’s Low Carbon Fuel Standard: Modeling financial least-cost pathways to compliance in Northwest California

The transition to low-carbon transportation fuels plays a key role in ongoing efforts to combat climate change. This analysis seeks to optimize potential alternative fuel portfolios that would lead to a 10% reduction in fuel carbon intensity by 2020 as required under California’s Low Carbon Fuel Standard (LCFS).We present a novel, probabilistic modeling approach for evaluating alternative fuel portfolios based on their marginal greenhouse gas (GHG) abatement costs. Applied to a case study region in Northwest California, our model enables us to quantify the financial cost of GHG reduction via each fuel pathway, as well as for a portfolio deployed to meet the LCFS target. It also enables us to explore the sensitivity of the alternative fuel portfolio, evaluating the impact of fluctuating prices, fuel carbon intensities, and technology penetrations on the makeup of the portfolio and on the average cost of GHG abatement.We find that battery electric vehicles play a critical role, as they offer the lowest-financial-cost significant abatement in almost all plausible scenarios. However, electric vehicles alone will not be sufficient to reach the target; low-carbon biofuels can be expected to play a role in the achievement of 2020 Low Carbon Fuel Standard targets.     

Public responses to policies designed to internalise environmental and social externalities from road transport in New Zealand

Based on a public survey of registered voters, we explore four options for internalising the social and environmental costs of road transport. The options were presented together with generalised factual information about their benefits and costs. Respondents are highly supportive of fuel use efficiency standards and exhaust gas quality standards, with lesser support for proposed initiatives of road user charges and speed reduction. Demographic analysis of responses enables identification of those who might favour or oppose particular options. In this case women are identified as being strongly supportive of the speed reduction option.     

Potential of low viscosity oils to reduce CO2 emissions and fuel consumption of urban buses fleets

This paper shows the results of a comparative fleet test the main objective of which was to measure the influence of Low Viscosity Oils (LVO) over the fuel consumption and CO₂ emissions of urban buses. To perform this test, 39 urban buses, classified into candidate and reference groups depending on the engine oil viscosity, covered a 60,000 km mileage corresponding to two rounds of standard Oil Drain Interval (ODI). In the same way, for 9 buses of the 39 buses, the effect of differential LVO over fuel consumption and their interaction with engine LVO was assessed during the second ODI.Test results confirm that the use of LVO could reduce fuel consumption, hence CO₂ emissions. However, special attention should be taken prior to its implementation in a fleet, particularly if the vehicles are powered by engines with high mechanical and thermal stresses during vehicle operation because this could lead to friction loss increase, loss of the potential fuel consumption reduction of LVO and, in the worst scenario, higher rates of engine wear.     

CO2 emissions efficiency and marginal abatement costs of the regional transportation sectors in China

Nowadays, evaluating CO₂ emissions efficiency and its marginal abatement cost in transportation sectors has been a hot topic. However, while evaluating the CO₂ marginal abatement cost using data envelopment analysis approach, the weak disposability of CO₂ may imply positive abatement cost, which undoubtedly violates our common sense. To obtain non-positive marginal abatement cost, CO₂ emissions should be treated as an input. To reconcile this contradiction, this paper intends to propose a global, directional distance function model based on previous study to investigate the productivity, economic efficiency, CO₂ emissions efficiency, and marginal abatement cost of the China’s regional transportation sectors during 2007–2012. The results show that: (1) the productivity, economic efficiency and CO₂ emissions efficiency of different regions differ widely. More specifically, the coastal areas of south China perform better than the other areas in terms of productivity, economic efficiency, and CO₂ emissions efficiency. (2) Generally, the economic efficiency is greater than CO₂ emissions efficiency, which is relatively low in most areas. (3) A negative correlation is found between CO₂ emissions efficiency and its marginal abatement cost. For a 1% increase in CO₂ emissions efficiency, the CO₂ marginal abatement cost declines by 102 Yuan (in 2004 constant price). The results imply that improving CO₂ emissions efficiency plays an important role in marginal abatement cost reduction, and it also provides us a new approach to reduce abatement cost besides the technical progress.     

Abatement cost functions for incentive-based policies in the automobile market

This paper compares the outcomes of policies that target vehicle holdings with those that target vehicle usage using data from the US Consumer Expenditure Survey. Results show that a higher price of gasoline shifts vehicle holdings towards more fuel efficient vehicles and reduces the annual demand for miles, whereas imposing a fee on vehicles or a feebate program only shifts vehicle holdings towards more fuel efficient vehicles and has little to no impact on the demand for miles. While it is relatively expensive to reduce CO₂ emission through incentive-based policies, achieving any abatement level is more expensive through imposing fees on vehicles than gasoline taxes. In addition, the maximum amount of abatement attainable by a feebate program is relatively small and the same amount could be achieved by imposing a $0.73 gasoline tax per gallon.     

Batteries in offshore support vessels – Pollution,climate impact and economics

This paper assesses the pros and the cons of installing batteries on offshore support vessels. These vessels are specially designed to provide services to oil and gas operations, such as anchor handling, supply and subsea operations. They have multiple engines and advanced dynamic positioning systems to ensure that they can perform their duties with high reliability at nearly any sea state. Combined with high safety requirements, this has resulted in general operational patterns with vessels running multiple combustion engines even at calm water conditions. For emissions, low engine loads yield high emissions of exhaust gases such as nitrogen oxides (NOx) and aerosols such as black carbon (BC), due to less favorable combustion conditions. The high span for these vessels between low loads and high, and their great need for potential power at short notice, motivate our examination of hybrid setups with electric: the vessel segment should be more favorable than many. We find that combining batteries with combustion engines reduces local pollution and climate impact, while the economics with current battery cost and fuel prices is good enough for new vessels, but not good enough for retrofits.     

Urban form and long-term fuel supply decline: A method to investigate the peak oil risks to essential activities

The issue of a peak in world oil supply has become a mainstream concern over the past several years. The petroleum geology models of post-peak oil production indicate supply declines from 1.5% to 6% per year. Travel requires fuel energy, but current transportation planning models do not include the impacts of constrained fuel supply on private travel demand. This research presents a method to assess the risk to activities due to a constrained fuel supply relative to projected unconstrained travel demand. The method assesses the probability of different levels of fuel supply over a given planning horizon, then calculates impact due to the energy supply not meeting the planning expectations. A new travel demand metric which characterizes trips as essential, necessary, and optional to wellbeing is used in the calculation. A case study explores four different urban forms developed from different future growth options for the urban development strategy of Christchurch, New Zealand to 2041. Probable fuel supply availability was calculated, and the risk to transport activities in the 2041 transport model was assessed. The results showed all the urban forms had significantly reduced trip numbers and lower energy mode distributions from the current planning projections, but the risk to activities differed among the planning options. Density is clearly one of the mitigating factors, but density alone does not provide a solution to reduced energy demand. The method clearly shows how risk to participation in activities is lower for an urban form which has a high degree of human powered and public transport access to multiple options between residential and commercial/industrial/service destinations. This analysis has led to new thinking about adaptation and reorganization of urban forms as a strategy for energy demand reduction rather than just densification.     

The desulphurisation of shipping: Past,present and the future under a global cap

As from January 2020, the International Maritime Organization (IMO) is implementing a global 0.5% limit on the sulphur content of fuel, commonly known as the global sulphur cap. This limit is the latest policy in the efforts to reduce sulphur emissions from shipping, following the designation of emission control areas (ECAs) and other regional regulations. In this paper, a literature review is conducted of academic studies that have dealt with issues relating to the reduction of maritime sulphur emissions. Various recurring research themes are identified, spanning the areas of operations research, maritime economics and transport policy. The effects and implications of available compliance options are then analyzed from the perspectives of ship operators, shippers and consumers. Using lessons learned from the enforcement of ECA regulations, this is followed by an appraisal of various potential issues related to the enforcement of these new global regulations. It is found that a homogeneous enforcement regime is required to ensure a level playing field amongst ship operators and that the global sulphur cap may lead to serious market distortion, due to the potential short term rise of fuel prices. The paper concludes with a set of recommendations for future research on sulphur emissions from shipping in the aftermath of the global cap and, looking forward, to its relationship to the IMO strategy on the reduction of greenhouse gas (GHG) shipping emissions.     

Environmentally friendly cost efficient and effective sea transport outsourcing strategy: The case of Statoil

Statoil is a completely integrated oil and gas Norwegian company which established in 1972. The company is one of the most technology-intensive world’s leading energy producers and covers more than 35 countries across the globe. This study proposes how Statoil coordinate with environmentally friendly, cost efficient and effective sea transport supplier. The study used the theories of supply chain management such as model of industrial purchasing process, model of strategic triangle and Kraljic purchasing portfolio model. The result of the study identified that the emission of environmentally harmful gases from sea transport are dependent on the size and the speed of the ships, and the type of fuel they consume. The best solution for Statoil to get environmentally friendly sea transport service is using suppliers that are certified by the preferred standard of ITTC 7.5-04-01-01.2 or ISO 15016:2002. The requirement of environmentally friendly sea transport supplier by Statoil maximizes the suppliers’ risk. Therefore, making partnership with the supplier is the effective and giving the contract with a cost reimbursable agreement of fuel price adjustment (escalation clause) is the cost efficient coordination of Statoil.     

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.     

Does emission control area policy reduce sulfur dioxides concentration in Shanghai?

As an important measure to abate ship-source air emissions, the establishment of Emission Control Area (ECA) has been adopted not only at international level, but also at national and regional level. However, there exists a research gap of employing econometric models to enrich the ECA policy evaluation research by testing the effectiveness of an ECA policy based on the empirical data. This paper focuses on the effectiveness of the ECA policy in shanghai port by adopting regression discontinuity (RD) approach. The RD design is considered as a wonderful substitution for the randomized control trial, which usually serves as a conventional and effective tool to address endogeneity. The causal effect of the ECA policy on the SO₂ concentration reduction can be detected by the RD approach. According to the estimated results, there is a discontinuity around the ECA policy cutoff point, and it is indicated that the SO₂ concentration in Shanghai decreased by at least 0.229 μg/m³ daily on average due to the implementation of the ECA policy. The positive role that the ECA policy plays in reducing SO₂ concentration in Shanghai is well demonstrated. This paper also puts forward an agenda for the future studies in the domain of the ECA policy evaluation.     

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.