A comparison of the economic value of fuel externalities from whale watching vessels: electric and diesel fueled boats in Iceland

Abstract

The whale watching industry has grown in economic significance in recent years, however, the negative externalities of the activity have been understudied, especially those linked to fuel consumption. This study focuses on the case study of Icelandic whale watching, an industry that attracted 364,000 whale watchers in 2019. Using damage functions and the benefit transfer method, with trip and vessel data provided by three whale watching companies, this study calculates the estimated economic value of fuel externalities from Icelandic whale watching vessels. Outcomes are compared between vessels fueled by diesel and renewable electricity. The mean marginal external costs per kWh are $0.0520 and $0.0005 for diesel and electric vessels, respectively. Mean marginal external costs per trip are $190 for diesel ships, $126 for diesel Rigid Inflatable Boats (RIBs), and $0.25 for electric schooners. Assuming that all trips have been conducted at 50% of their maximum passenger capacities, the mean marginal external cost per passenger per trip is $3.64 for diesel ships, $21.00 for diesel RIBs and $0.009 for electric schooners. If the burden of the external costs fell on the whale watching operators, then Iceland's carbon tax per liter of diesel would need to increase by 45.33%, and diesel prices increase by 18.81%, and electricity prices would need to go up by 0.92%. On the other hand, if the burden of the external costs fell entirely on the tourists, whale watching ticket prices would increase by 3.87–4.28% for diesel ships, 13.38–13.55% for diesel RIBs, and 0.01% for electric schooners. The results suggest there is considerable merit to shifting from the use of fossil fueled to electric boats, however, these outcomes should only currently be generalized to other locations with a similarly high level of production from renewable electricity.