Chapter 3 Fuel switching as an abatement policy under the 0.5 sulfur cap
3.1 Evaluating the sulfur cap fuel switching abatement policy per vessel size
3.1.1 Profits and Economies of scale in the presence of the sulfur cap policy
Since firm 1 and firm 2’s operational speed remained the same for under the sulfur cap, the overall operating costs throughout the planing horizon remained the same. However, the firm 3 decreased it s speed from 21 knots to 16 knots , which in turn called for a bigger fleet size to satisfy current throughput, therbye increasing it s operational costs.
The following Figure 4 illustrates the influence of price difference between low and high-sulfur bunkers with different sulfur content based price differences between ULSFO and HFO where the price of HFO is the reference ($435/ton) for comparison. We define L as a low oil price difference of $35 between them, and H as a high oil price difference of $100.
firm 1 and firm 2 have the same
3.1.2 Emissions and Economies of Scale in the presence of the sulfur cap policy
- The simulation output confirms our initial analysis:
Holding demand constant, the firm’s capacity determines its emissions and net present values despite having less efficient motors.
further highlighting the economies of Scale within the sector.
sector returns to scale.
allows the firm to satisfy demand with less trips. This is mainly due b
of the bigger firms outweighs
wgile bigger vessels are less fuel efficient, the capacity outweight
as the vessel capacity increases, it’s emissions decreases, all else constant.
3.1.4 Observations:
The shipping industry has been under intensive environmental pressure for satisfying more stringent environmental regulations. It can be traced back to the e orts by IMO to protect human health and environment, especially for coastal citizens. The upcoming 2020 sulfur cap requires operators to select a suitable and economic compliance option complying with the new sulfur regulation. In practice, sulfur cap regulations require either the use of low-sulfur fuel such as MGO or LNG, or the scrubberon newbuilding or retrofitting vessels.
Slow steaming under the fuel-switching option is analyzed under four scenarios in Table 4, the stricter the sulfur regulations,
Stricter sulfur caps can reduce sulfur emissions in However, it does not work for carbon emissions. Actually, it increases the carbon emission, which urges the renegotiation of environmental policies for shipping activities
Why is it that only firm 3 the only firm to see a decrease in its carbon emission as a result for the sulfur cap policy
Under a stricter global sulfur cap,i.e., 0.5% Sulfur cap regulation on global high seas,
As discussed in the model, the vessels’ sailing speed can be changed according to the number of deployed vessels in the line.
the comparison between the two compliance options with di erent numbers of deployed vessels using Scenario 3, as which is the most possible situation in 2020.
result shows that the average daily costs will be reduced when additional vessels are operated in the liner service, which is due to the fact that the smaller operating speed leads to lower bunker consumption, and thereby with lower emissions for both CO2 and SOx.
deployed number of vessels will postpone the advantage of installing scrubbers.
the price di erence of low and high-sulfur oils has an overall impact on operators’ compliance decisions.
sulfur limit regulation is an e ective way to reduce shipping externalities and improve the marine environment as well as public health. The impacts can be strengthened with the increasingly stringent sulfur caps in the future. Meanwhile, the stricter sulfur regulations also pose some threats to shipping industry, which consists of demands for technological innovations and compliance fuels, etc. The following results can be attained: first, the upcoming 2020 global sulfur cap greatly influences operators’ compliance option choices. From the standpoint of operators, the stringent global sulfur cap refers to more compliance costs paid by operators. Furthermore, the scrubber installation option will gain more attractiveness and priority with a stricter sulfur limit on the global high seas due to the energy cost-savings. The increasingly stringent sulfur limit regulations not only increase the costs of operators, but also press on the related sectors, such as refineries and equipment producers, which also should be on policymakers’ agenda. Whether the related sectors can provide timely supply of compliance oils or equipment is the main concern of policymakers in shipping industry. Second, it is noteworthy that the e ects of speed di erentiation are limited in the selected case owing to the smaller SECA range in the cycle. Third, the scrubber system has a higher emission of CO2 but can reduce more sulfur emission in comparison with the fuel-switching option. IMO aims to reduce shipping emissions and supervise the shipping activities from di erent aspects, which not only include sulfur emission. In other words, emission reduction from shipping should be an overall approach, which should not at the expense of increasing other pollutants. From the perspective of policymakers, the additional carbon emissions must be considered, especially for the purpose of reducing half carbon emissions till 2050 proposed by IMO. Besides, whether scrubber system is the most environmental-friendly approach to control sulfur emission still needs further consideration. Last but not least, additional vessels deployed in the cycle can save bunker costs due to lower operating costs. However, when more ships are deployed on the line, the advantages of installing scrubbers are reduced due to excessive initial investments. Some governments fund the investment of compliance options encouraging operating companies to adopt positive actions for environmental regulations, which can be referential experience by some policymakers. It is worthwhile mentioning that when emission reduction regulations become stricter, such as the implementation of the global sulfur cap 2020, the scrubber system is an economic option to operators. The model used in the study can be extended to di erent lines and vessels even after 2020 for operators or shipowners choosing compliance option choices, which contains initial investments and operating costs on particular vessels and compliance options. Therefore, it is possible to solve similar issues where there are alternatives between equipment investments and operating costs. As for the limitations and future directions in the study, they can be listed as follows. First, this study only discusses the sulfur emission and operators’ compliance choices, which can be extended to the other emissions. Second, the calculations of emissions in the study is dependent on emission factors and the real sailing situation, which can be modeled more precisely in the future. Third, some parameters are assumed constant within the vessel’s lifespan, which can be relaxed in the future.