Capital Destruction—What is the Cost of Carbon-Neutrality in Shipping Competition?

Abstract

The shipping sector must reduce its greenhouse gas emissions. Consumers demand green travel and transport services, but shipping is still to a large extent powered by fossil fuels. One of the key factors affecting the released emissions onboard the ship is the type of fuel utilized. Technological development is making new kinds of engines running with carbon-neutral fuels available. However, the new build and retrofit projects encountering the green transition have to be planned in detail. We analyze future cash flows of ropax ships operating with different types of fuel systems on an identical route. We base our findings on calculated asset values and internal rates of return. Based on our analysis of the given scenarios, the transition to carbon-neutral fuels comes with a cost for the shipping companies. In the forthcoming shipping competition, ships using fossil fuels will be more likely than their less polluting counterparts to be categorized as stranded assets.