Real options analysis of abatement investments for sulphur emission control compliance

Sina Atari (), Yassine Bakkar (), Eunice Omolola Olaniyi () and Gunnar Prause ()
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Sina Atari: Tallinn University of Technology, Estonia
Yassine Bakkar: Tallinn University of Technology, Estonia
Eunice Omolola Olaniyi: Tallinn University of Technology, Estonia
Gunnar Prause: Tallinn University of Technology, Estonia

Entrepreneurship and Sustainability Issues, 2019, vol. 6, issue 3, 1062-1087

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.

Keywords: SECA regulations; maritime investments; Real-Options; Monte Carlo simulation; clean shipping (search for similar items in EconPapers)
JEL-codes: G31 G32 L26 L98 M10 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:ssi:jouesi:v:6:y:2019:i:3:p:1062-1087

DOI: 10.9770/jesi.2019.6.3(1)

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