City Research Online

Abstract

In 2020, the International Maritime Organization implemented a limit to the sulphur content emitted by vessels. To comply, a vessel should either incur the capital cost to be retrofitted with a scrubber or burn fuels that emit less sulphur but are more expensive. We examine this dilemma by developing a Vector Error Correction Model that links freight rates, fuel prices, and the green investment decision of scrubber installation. The results, across the tanker and dry bulk sectors from 2021 to 2024, suggest that the freight premium of scrubber-fitted vessels positively depends on the spread between very low- and high-sulphur fuel oil prices and negatively on the size of the scrubber-fitted fleet. Scrubber investment, in turn, is determined by the past freight premium and the fuel spread. Being the first to investigate the interplay between green shipping investment and price uncertainty, our findings yield significant industry and policy implications

Publication Type:	Article
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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