Assessment of cost as a function of abatement options in maritime emission control areas

This paper assesses cost as a function of abatement options in maritime emission control areas (ECA). The first regulation of air pollutions from ships which came into effect in the late 1990s was not strict and could easily be met. However the present requirement (2015) for reduction of Sulfur content for all vessels, in combination with the required reduction of nitrogen and carbon emissions for new-built vessels, is an economic and technical challenge for the shipping industry. Additional complexity is added by the fact that the strictest nitrogen regulations are applicable only for new-built vessels from 2016 onwards which shall enter US or Canadian waters. This study indicates that there is no single answer to what is the best abatement option, but rather that the best option will be a function of engine size, annual fuel consumption in the ECA and the foreseen future fuel prices. However a low oil price, favors the options with the lowest capex, i.e. Marine Gas Oil (MGO) or Light Fuel Oil (LFO), while a high oil price makes the solutions which requires higher capex (investments) more attractive.     

An investment appraisal method to compare LNG-fueled and conventional vessels

Ever stricter emission regulations stimulate vessel owners to consider the adoption of alternative marine fuels, such as Liquefied Natural Gas (LNG). In deciding whether to invest in LNG-fueled vessels, initial investment and operating costs are decisive factors that have not yet been fully studied in the literature. In this paper, we present a new investment appraisal method to compare the costs of LNG-fueled vessels with conventional vessels. We analyze the fuel costs and overall exploitation costs by simulating bunker planning decisions under stochastic fuel prices, presence in emission controlled areas, and route lengths. Our analyses reveal that the fuel costs of LNG-fueled vessels are often lower than those of conventional vessels, even under unfavorable LNG prices. Due to the higher initial investment costs in LNG-fueled vessels, these fuel cost reductions do not always translate into lower overall exploitation costs. By conducting numerical experiments, we identified conditions under which the exploitation costs of LNG-fueled vessels are lower than conventional vessels.     

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.     

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.     

Asymmetric responses of highway travel demand to changes in fuel price: An explanation via fuel price uncertainty

Previous research has examined asymmetric effects of fuel price uncertainty on energy demand. If we consider that energy demand is related to travel demand, the changes in fuel prices may have asymmetric effects on highway travel demand via fuel price uncertainty. In other words, when in general fuel price is steadily rising, the highway traffic volume decreases by a small percentage. On the other hand, the highway traffic volume increases by a large percentage when fuel prices are falling. We hypothesize that the uncertainty in fuel prices generates this kind of asymmetric effect on highway traffic volume in Korea. We use the Korean monthly fuel price and highway traffic volume data from 2001 to 2009, and define the intra-month (weekly) fuel price changes as monthly fuel price volatility which is a proxy for monthly fuel price uncertainty. We found that the direction of the change in fuel prices had asymmetric effects on highway travel demand and that the fuel price uncertainty led drivers to respond asymmetrically to the changes in fuel prices.     

Developing green fleet management strategies: Repair/retrofit/replacement decisions under environmental regulation

The considerable cost of maintaining large fleets has generated interest in cost minimization strategies. With many related decisions, numerous constraints, and significant sources of uncertainty (e.g. vehicle breakdowns), fleet managers face complex dynamic optimization problems. Existing methodologies frequently make simplifying assumptions or fail to converge quickly for large problems. This paper presents an approximate dynamic programming approach for making vehicle purchase, resale, and retrofit decisions in a fleet setting with stochastic vehicle breakdowns. Value iteration is informed by dual variables from linear programs, as well as other bounds on vehicle shadow prices. Sample problems are based on a government fleet seeking to comply with emissions regulation. The model predicts the expected cost of compliance, the rules the fleet manager will use in deciding how to comply, and the regulation’s impact on the value of vehicles in the fleet. Stricter regulation lowers the value of some vehicle categories while raising the value of others. Such insights can help guide regulators, as well as the fleet managers they oversee. The methodologies developed could be applied more broadly to general multi-asset replacement problems, many of which have similar structures.     

How can shipowners comply with the 2020 global sulphur limit economically?

To comply with the International Maritime Organization’s (IMO) 2020 global sulphur limit for maritime shipping, low-sulphur fuel oils (LSFOs) and scrubbers are the most commonly applied approaches in practice, as a result of which, however, shipowners’ profits will be affected. This paper is to identify a more economical sulphur reduction approach, for which a 19,000 twenty-foot equivalent unit container ship sailing between Far East and Europe is set as a case study. Using the cost-benefit analysis, the use of scrubbers is proved to be more economical due to the higher net present value and lower annual unit cost. The sensitivity check suggests that a scrubber is more attractive in most cases except for two scenarios where LSFOs are more popular. That is, a scrubber is losing its attractiveness when prices of LSFOs and heavy fuel oil (HFO) move in the same direction with the price spread is equal to or below US$56 per ton, and when prices of HFO rise and prices of LSFOs fall with the price spread is equal to or below US$16 per ton. This finding well explains the current popularity of installing scrubbers among shipowners although retrofitting still faces many challenges.     

Maritime routing and speed optimization with emission control areas

Strict limits on the maximum sulphur content in fuel used by ships have recently been imposed in some Emission Control Areas (ECAs). In order to comply with these regulations many ship operators will switch to more expensive low-sulphur fuel when sailing inside ECAs. Since they are concerned about minimizing their costs, it is likely that speed and routing decisions will change because of this. In this paper, we develop an optimization model to be applied by ship operators for determining sailing paths and speeds that minimize operating costs for a ship along a given sequence of ports. We perform a computational study on a number of realistic shipping routes in order to evaluate possible impacts on sailing paths and speeds, and hence fuel consumption and costs, from the ECA regulations. Moreover, the aim is to examine the implications for the society with regards to environmental effects. Comparisons of cases show that a likely effect of the regulations is that ship operators will often choose to sail longer distances to avoid sailing time within ECAs. Another effect is that they will sail at lower speeds within and higher speeds outside the ECAs in order to use less of the more expensive fuel. On some shipping routes, this might give a considerable increase in the total amount of fuel consumed and the CO₂ emissions.     

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.     

A decision analysis framework for intermodal transport: Comparing fuel price increases and the internalisation of external costs

This paper presents the impact of fuel price increases on the market area of intermodal transport terminals. Aim of this research is to determine whether an increase in fuel prices is sufficient enough to raise the market area of intermodal transport to the same degree that would be accomplished by stimulating intermodal transport through policy instruments. Therefore, several fuel price scenarios are analysed in order to verify the impact of different fuel price evolutions on the market area of unimodal road transport compared to intermodal transport in Belgium. The LAMBIT-model (Location Analysis for Belgian Intermodal Terminals), which is a GIS-based model (Macharis and Pekin, 2008), is used to analyse the different fuel price increases and enables a visualisation of the impact on the market area. The LAMBIT model incorporates the different network layers for each transport mode by setting up a GIS network that includes four different layers: the road network, the rail network, the inland waterways network and the final haulage network. The geographic locations of the intermodal terminals and the port of Antwerp are added as nodes in the network and the Belgian municipality centres are defined and connected to the different network layers. Based on the different fuel price scenarios representing respectively a fuel price increase with 10% (low price case), 50% (business as usual case) and 90% (high price case), the results of the LAMBIT model show that the market areas rise in favour of intermodal barge/road and intermodal rail/road. Depending on the scenario, the degree of modal shift however differs. Additionally, in order to compare policy measures with the effect of a fuel price increase, the internalisation of the external costs is analysed with the LAMBIT model. For some years, the European Commission is supporting the idea that transportation costs should reflect the true impacts on environment and society, and is relentlessly pushing towards the so called ‘internalisation of external costs’ as a policy instrument in order to establish fair and efficient pricing of different transport modes. This requires monetarizing the external effects of transport and adding them to the already internalized costs in order to give the correct price signals. Results of this comparative analysis performed with the LAMBIT model are also presented in this paper.     

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.     

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.     

Incorporating Knightian uncertainty into real options analysis: Using multiple-priors in the case of rail transit investment

This paper revisits the real option investment problem from a ‘Knightian’ perspective of uncertainty. We examine the decision to invest in rail transit infrastructure (i.e., transport improvement) by treating population scale and the attitudes of decision-makers or social planners as sources of risk and ambiguity. An α-maxmin multiple-priors expected utility framework is developed to solve for the option value of rail transit investment under Knightian uncertainty. We find that the threshold for investment varies with the ambiguity attitudes (i.e., pessimism or optimism) of decision-makers regarding future population dynamics, and show that option value can in fact either increase or decrease with uncertainty subject to κ-ignorance and ambiguity. We also underline the effect of transport improvement on traffic congestion under various states of nature, and determine the specific population scale ranges for which investment is warranted under (1) risk and (2) Knightian uncertainty. These dynamics are illustrated in a numerical application adapted from a Chinese rail transit initiative specific to the Xiamen region.     

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.     

Towards improved port capacity investment decisions under uncertainty: a real options approach

ABSTRACT

Port activity plays an important role in facilitating international trade. Sufficient capacity is indispensable for a port to attract flows to a region and retain them. The capacity decision is the result of a trade-off between investment and waiting costs. Traditional methods to value expansion projects do not deal adequately with managerial flexibility in the face of uncertainty from different sources in the complex port environment. In this paper, real options (RO) models are identified as an alternative method to making project valuations and investment decisions, as they attribute the correct value to managerial flexibility under uncertainty. In order to be able to build and use such RO models for port capacity investment decisions, the sources and implications of uncertainty in the port and the different RO model specifications need to be understood. To this end, both the literature about uncertainty in the port context and the literature about real options models are reviewed in order to provide researchers who want to build their own decision-making models, with the necessary knowledge of both fields. The review makes clear that the complex interactions in and competition between the logistics chains and their actors coming together in ports have significant impacts on port capacity. Uncertainty is also caused by uncertain international trade flows and changes in legislation following new technologies and environmental impacts. An analysis of the components of some general RO models shows how the options of flexible output, investment size and timing are valued by RO models in a setting with demand uncertainty. Moreover, the review presents researchers with insights in how to deal with cooperative and competitive interactions in the chain, time to build, cyclical markets and legislation changes. It also shows how to value the expansion and the phased investment options. The new insights resulting from this review are subsequently combined in a framework that serves as a guideline to build RO models for port capacity investments. Finally, an exemplifying application of the framework is used to build an actual port capacity investment decision model.     

Network-based real option models

Building on earlier work to incorporate real option methodologies into network modeling, two models are proposed. The first is the network option design problem, which maximizes the expanded net present value of a network investment as a function of network design variables with the option to defer the committed design investment. The problem is shown to be a generalized version of the network design problem and the multi-period network design problem. A heuristic based on radial basis functions is used to solve the problem for continuous link expansion with congestion effects. The second model is a link investment deferral option set, which decomposes the network investment deferral option into individual, interacting link or project investments. This model is a project selection problem under uncertainty, where each link or project can be deferred such that the expanded net present value is maximized. The option is defined in such a way that a lower bound can be solved using an exact method based on multi-option least squares Monte Carlo simulation. Numerical tests are conducted with the classical Sioux Falls network and compared to earlier published results.     

The effects of emission control area regulations on cruise shipping

To control SOx, NOx and particulate matter emission from ships, including cruise ships, emission control areas (ECAs) have been defined by the International Maritime Organization (IMO), which influences cruise planning. This paper investigates a mixed integer programming model to reschedule voyage plans by optimizing speeds, sailing patterns and ports-of-call sequences, hence reducing fuel costs. A tabu search based solution method is developed to solve the model. Computational tests on real-world data of cruise lines are conducted in order to explore the effects of ECA regulations on cruise shipping. The results show that the proposed model can save fuel costs under ECA regulations, and the designed solution method is efficient.     

Preference-based evolutionary algorithm for airport surface operations

In addition to time efficiency, minimisation of fuel consumption and related emissions has started to be considered by research on optimisation of airport surface operations as more airports face severe congestion and tightening environmental regulations. Objectives are related to economic cost which can be used as preferences to search for a region of cost efficient and Pareto optimal solutions. A multi-objective evolutionary optimisation framework with preferences is proposed in this paper to solve a complex optimisation problem integrating runway scheduling and airport ground movement problem. The evolutionary search algorithm uses modified crowding distance in the replacement procedure to take into account cost of delay and fuel price. Furthermore, uncertainty inherent in prices is reflected by expressing preferences as an interval. Preference information is used to control the extent of region of interest, which has a beneficial effect on algorithm performance. As a result, the search algorithm can achieve faster convergence and potentially better solutions. A filtering procedure is further proposed to select an evenly distributed subset of Pareto optimal solutions in order to reduce its size and help the decision maker. The computational results with data from major international hub airports show the efficiency of the proposed approach.     

Economic benefits of introducing LNG-fuelled ships for imported flour in South Korea

As the concerns about air pollution have steadily increased, the perception that ships are the source of pollutants and toxic emissions is also expanding. Thus, the International Maritime Organization (IMO) is tightening maritime regulations to reduce air pollution from ships. Currently, the government and related industries are trying to replace heavy fuel oil with liquefied natural gas (LNG) to counter future IMO regulations. Since the use of LNG is expected to increase costs, it is necessary to estimate the social benefits to determine the legitimacy of the replacement. The purpose of this study is to analyse the public’s willingness to pay (WTP) for products imported in LNG-fuelled ships using the contingent valuation method. Flour, the most of which is currently imported in South Korea, is chosen as the subject of empirical analysis. As a result, the mean additional WTP was KRW 571 (USD 0.51) per kg. This value corresponds to about 36% of the existing flour price. Therefore, South Korean households are willing to pay a considerable premium on the flour imported via LNG-fuelled ships. These results can serve as useful bases for future LNG bunkering-related policies.