Abstract
Since the introduction of the Sulphur Emission Control Areas (SECA) regulations in the Baltic Sea Region (BSR) in 2015, the BSR has witnessed high compliance rate. However, a closer look to the situation reveals that the currently preferred compliance strategies depend on low oil price where ship owners shun investments in abatement technologies which may lead into an economic trap in the event of the oil price increase. The research considers incentive provisions for maritime investors who make investment decisions related to clean shipping and maritime fuel management. Traditionally, the financial assessments of these decisions are based on capital budgeting methods comprising cash flow analyses and net present value calculations. The findings reveal that the Real-Option approach represents a more realistic, reliable and promising method for the evaluation of abatement projects, especially under uncertainty and high volatility in material resource markets. The results can be applied to the evaluation of all projects in the maritime industry that depends on the price variation of the underlying asset during a specific period.
Highlights
Green and environmentally friendly shipping have received much attention based on concerns for its local and global contribution to air pollution and environmental problems
The conventional methods to evaluate the project viability in this case of study are a set of criteria: the net present value (NPV), the internal rate of return (IRR), the Modified Internal Rate of Returns (MIRR), the payback period and the profitability index
This means that the operating costs and the capital expenditures are recovered by the income inflows generated by the project to break even within approximatively two years
Summary
Green and environmentally friendly shipping have received much attention based on concerns for its local and global contribution to air pollution and environmental problems. The third option is to switch to other alternative sources of fuel such as Liquefied Natural Gas (LNG), methanol or hydrogen cells. These alternative fuels are being considered for future solutions to meet the SECA requirements (Turesson & Weddmark, 2015). Olaniyi, Atari and Prause (2018) result revealed that most of the ships are switching to the use of the low sulphur fuel because it removes the hassles of capital compliance investments. Hämäläinen (2016) found out that, in Finland, 45 % of shipping operating costs are fuel costs. This finding makes fuel one of the most critical factor in shipping industry so that the optimisation of fuel consummation as well as the choice of the best alternative for abatement are important for environmental reasons but are crucial for the maritime industry due to economic conditional
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