Effect of proposed CO 2 emission reduction scenarios on capital expenditure

Peter N. Hoffmann, Magnus S. Eide and Øyvind Endresen

Maritime Policy & Management, 2012, vol. 39, issue 4, 443-460

Abstract: The International Maritime Organisation is currently working on establishing regulations for international shipping regarding greenhouse gas emissions, and a cost-effectiveness approach has been suggested as one method for determining the necessary reductions in emissions from shipping. Previous studies have investigated the CO 2 emission reduction potential for the world shipping fleet up to 2030 and the associated marginal abatement cost levels. To analyse the cost implications of different emission reduction scenarios, this study has calculated the emission reduction potential and additional capital expenditure for 25 CO 2 emission reduction measures applied to 59 ship segments. The expected fleet development over time, keeping track of new ships built from 2010 to 2030 and Existing ships built prior to 2010 and still in operation by 2030, have been modelled. Two alternative approaches to find the cost-effective potential in the world shipping fleet have been applied. One approach is to implement only measures which in themselves are cost-effective (measure-by-measure), and another approach is to implement measures as long as the net savings from cost-effective measures balance the costs of non-cost-effective measures (set of measures). The results demonstrate that by 2030, the majority (93%) of the reduction potential will be related to new ships. Our results show that the measure-by-measure approach would decrease the CO 2 emissions by 30% for new ships while the set-of-measures approach with 53% (of the 2030 baseline emissions of 1316 Mt). The implication of achieving such emission reduction is an increase in the capital expenditure on New ships by 6% (USD 183 billion) and 27% (USD 761 billion), respectively, in the period 2010 to 2030 compared to a business-as-usual scenario. The measure-by-measure approach yields a 5% decrease in CO 2 emission per 1% increase in capital expenditure, while the set-of-measures approach yields a 2% decrease per 1% increase. This is due to the significant variation in capital intensity of the different measures, ranging from almost zero to USD 200 per tonne of CO 2 averted. The results of this study are useful for the shipping industry to assess the economic burden that must be shouldered in order to implement abatement measures under different CO 2 emission reduction scenarios.

Date: 2012
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Citations: View citations in EconPapers (10)

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DOI: 10.1080/03088839.2012.690081

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