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Maritime Policy & Management: The flagship journal of international shipping and port research
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Cost-effectiveness assessment of CO2 reducing measures in shipping

Magnus S. Eide , yvind Endresen , Rolf Skjong , Tore Longva & Sverre Alvik
a a a a a a

Det Norske Veritas Research & Innovation, 1322 Hvik, Norway

Available online: 23 Jul 2009

To cite this article: Magnus S. Eide, yvind Endresen, Rolf Skjong, Tore Longva & Sverre Alvik (2009): Cost-effectiveness assessment of CO2 reducing measures in shipping, Maritime Policy & Management: The flagship journal of international shipping and port research, 36:4, 367-384 To link to this article: http://dx.doi.org/10.1080/03088830903057031

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MARIT. POL. MGMT., AUGUST VOL.

2009,

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NO.

4, 367384

Cost-effectiveness assessment of CO2 reducing measures in shipping

MAGNUS S. EIDE*, YVIND ENDRESEN, ROLF SKJONG, TORE LONGVA and SVERRE ALVIK Det Norske Veritas Research & Innovation, 1322 Hvik, Norway
International shipping is a significant contributor to global greenhouse gas (GHG) emissions, and is under mounting pressure to contribute to overall GHG emission reductions. There is an ongoing debate regarding how much the sector could be expected to reduce emissions and how the reduction could be achieved. This paper details a methodology for assessing the cost-effectiveness of technical and operational measures for reducing CO2 emissions from shipping, through the development of an evaluation parameter called the Cost of Averting a Tonne of CO2-eq Heating, CATCH, and decision criterion, against which the evaluation parameter should be evaluated. The methodology is in line with the Intergovernmental Panel on Climate Change (IPCC) and with regulatory work on safety and environmental protection issues at the International Maritime Organization (IMO). The results of this study suggest that CATCH 550 $/tonne of CO2-eq should be used as a decision criterion for investment in emission reduction measures for shipping. In total, 13 specific measures for reducing CO2 emissions have been analysed for two selected case ships to illustrate the methodology. Results from this work shows that several measures are cost effective according to the proposed criterion. The results suggest that cost effective reductions for the fleet may well be in the order of 30% for technical measures, and above 50% when including speed reductions. The results of this study show that the cost effectiveness approach for the regulation of shipping emissions is viable and should be pursued in the ongoing regulatory process.

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1. Introduction International shipping is a significant contributor to global greenhouse gas emissions, and is under pressure to bear its share of the burden and contribute to overall GHG emission reductions. International shipping contributes about 3% of global CO2 emissions [1, 2]. In fact, if global shipping was a country, as opposed to a sector, it would be the sixth largest producer of greenhouse gas emissions, exceeding Germanys emissions [3]. The International Maritime Organization (IMO), the UN organization regulating international shipping, is currently working to establish GHG regulations for international shipping [4], and is under pressure, e.g. from the EU, to implement regulations with substantial impact on emissions. The European Commission has announced that it will implement regulations of its own if the IMO fails to act [58], and the United Nations Framework Convention on Climate Change (UNFCCC) process is considering shipping (along with aviation) for inclusion in the global CO2 reduction targets for the period from 2012 [9].
*To whom correspondence should be addressed. e-mail: magnus.strandmyr.eide@dnv.com
Maritime Policy & Management ISSN 03088839 print/ISSN 14645254 online 2009 Taylor & Francis http://www.tandf.co.uk/journals DOI: 10.1080/03088830903057031

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The increasing pressure on shipping is not unique. Reducing climate change resulting from anthropogenic GHG emissions is high on the international agenda, across all sectors and industries. Global temperature increases above 2 C are expected to dramatically increase the risk of catastrophic global consequences, and are likely to occur if the concentration of CO2-equivalents in the atmosphere exceed 450 parts per million (ppm) [10]. To avoid this scenario, swift and decisive action is needed. The EU has adopted the 2 C stabilization level as a goal [11], and is working to gain a global agreement on this [10]. In order to achieve stabilisation at 450 ppm, GHG emissions need to have been reduced by 50%85% in 2050 compared with todays level [12]. However, all scenarios indicate significant increases in GHG emissions up to 2050, which means that achieving the needed reductions will be very challenging. For shipping, there is an ongoing debate regarding how much the sector could be expected to reduce emissions and how the reduction could be achieved [6, 7, 13, 4]. As for the global GHG emissions, growth is expected also for shipping and achieving significant reductions will be challenging [2]. However, a number of measures are available for shipping to reduce GHG emissions, and key questions relate to how much emissions should be reduced, how the reduction should be regulated, which measures are effective, how a global scheme can be implemented and how shipping emissions compare with other sectors emission. What seems clear is that some form of shipping CO2 regulations will be implemented in the near future, either agreed via the IMO or the UNFCCC process, or possibly on regional level (e.g. the EU). In the shipping industry there is general consensus that the IMO is the regulatory body best suited to ensure that shippings contribution to emission reductions is managed effectively and in a way that ensures a level playing field (i.e. regulations which are neutral across all nations and ship categories to avoid market distortions). Maintaining a level playing field is of primary concern to industry actors. A sector based approach is thus desirable. Generally speaking, sector based approaches may have a disadvantage of not being cost effective in that there may be measures in other sectors which are more cost effective [15]. However, this can be mitigated by trading mechanisms or, as suggested in this study, by using a decision criterion based on cross-sector reduction potential and costs. It is also an advantage that the IMO has a lot of experience with sector wide legislation. Historically, the IMO has adopted a wide range of legislation in an attempt to raise the performance of the world fleet consistently in the pursuit of a safer and cleaner shipping industry. In recent years the decision process at IMO and in particular at the Maritime Safety Committee (MSC) has moved towards an increasingly transparent and rational regime based on risk analysis and cost-effectiveness assessments. The principal tool for the IMO in this regard is the Formal Safety Assessment (FSA). FSA is a standardized risk analysis and cost benefit assessment, with the aim of developing maritime regulations in a structured and systematic way. Clear and specific cost effectiveness criteria for the adoption of new requirements have been defined or are under development (e.g. [1620]). One of the benefits of using this approach for regulatory development is that the resulting regulations for maritime safety and environmental protection will be based on a sound rationale, and that pertinent costs imposed by new requirements may be defended based on achievable risk reductions. A large number of such studies have been submitted e.g. [21, 22]. The advantages of the cost-effectiveness approach for safety, raises the question if a similar approach should be extended to decisions regarding accidental pollution

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and regular releases like emissions to air, in particular GHG emissions [23]. Indeed, the IPCC is using cost-effectiveness in its reasoning for dealing with GHG reduction, and has documented the level of cost-effectiveness which will be necessary to attain atmospheric stabilization [12]. At IMO, the Marine Environmental Protection Committee (MEPC) is currently discussing a criterion for the prevention of accidental releases of oil from ships [24]. This paper presents a method for assessing the cost-effectiveness of GHG emission reducing measures in shipping (section 3). Furthermore, based on the global cost-effectiveness considerations of the IPCC, a decision criterion for the selection of measures in shipping is presented (section 4). The method is applied to several selected measures for CO2 emission reduction (section 5). Finally the paper discusses the applicability of the method in regulations (section 6). The methodology presented in this paper is valid for all GHG, and therefore the unit CO2 equivalent is used (CO2-eq). However, in the modelling cases, only CO2 is considered. Furthermore, only CO2 emissions from ships in operation are considered in the analysis, as they dominate ship emissions in a lifecycle perspective.

2. Cost effectiveness approach The potential reduction for CO2 emissions by ships has been addressed by several studies (e.g. [25, 26]. However, limited data are available in the literature on cost/benefit ratios of different CO2 reduction options for shipping, although cost-effectiveness data and methods are reported for other emissions such as NOx and SOx (e.g. [27, 28]). This section presents a model by which individual measures for emission reduction, or alternatively several measures combined, may be rated in terms of cost-effectiveness. The method builds on the FSA approach presently in use at IMO. In an FSA, one or several risk reducing measures are analysed with respect to risk-reducing performance (expected statistical reduction in loss of lives; DR) cost of implementation (DC) and expected commercial benefit from the measure (other than risk reduction in terms of life saved; DB). The performance measure, or decision parameter, the NCAF (Net Cost of Averting a Fatality), is calculated as follows: NCAF DC DB DR 1

The FSA guidelines [16] state that all risk reducing measures with an NCAF below $3 million should be made mandatory by the IMO. This is the marginal cost per life saved discounted to present value using a risk free discounting rate. By now, a number of FSA studies have been performed and reported to IMO according to these guidelines, and decisions have been made based on such submissions [22]. A similar performance measure has been developed for assessing measures for oil spill reduction; the CATS (Cost of Averting a Tonne of oil Spill) [24]. By the same logic, a decision parameter for emission reduction is established: the CATCH (Cost of Averting a Tonne of CO2-eq Heating) [$/tonne]. The calculation of the CATCH is as follows: CATCH DC DB DE 2

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is the expected reduction of CO2-eq emissions during the expected operational lifetime of a ship due to the implementation of a measure [tonnes] is the cost of implementing a measure on a ship [$] is the benefit (other than emission reduction) during the operational lifetime of a ship, due to the implementation of a measure [$].

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The cost of implementing a measure, DC, includes both initial costs (e.g. installation cost, design cost) and operational costs (e.g. maintenance, training, lost revenue). DC, as well as the benefit from the measure, DB (e.g. fuel cost savings, increased revenue), is calculated annually during the expected operational lifetime of a vessel, and discounted to a present value. If the measure under evaluation applies to existing ships (as opposed to new buildings) then the costs, benefits and emission reductions are calculated using the expected remaining lifetime of the ship. Essentially, the CATCH is a measure of cost-effectiveness in terms of the present value of the sum of the discounted current and future benefits and costs arising from implementing a given proposal at the ship level.

3. Cost effectiveness decision criterion For transparent and rational decision-making, the decision parameter (the CATCH value) must be linked to well-defined decision criterion. Measures which can be demonstrated to fulfil the criterion are viable for implementation. The following section describes the development of a criterion based on work by the IPCC. The IPCC estimate an increase in the global GHG emissions ranging from 9.7 to 36.7 GT (Giga Tonne) CO2-eq in the period 2000 to 2030, depending on scenario [12]. The IPCC has also reviewed the economic potentials for GHG mitigation at different costs for 2030 [12], demonstrating potentials for mitigation of about 6 GT CO2-eq involving net benefits (costs less than 0). Furthermore 13 to 26 GT CO2eq can be abated at a cost of less than 50 $/T CO2-eq and 16 to 31 GT CO2-eq at a cost of less than 100 $/T CO2-eq (Figure 1).

Figure 1. Global economic mitigation potential in 2030 estimated from bottom-up (panel a) and top-down (panel b) studies, compared with projected increases from scenarios relative to year 2000 emissions (panel c). Source: [12] figure 4.1, p. 58 (amended with text boxes).

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The question to be answered is: What must shipping or any other industry expect to pay per tonne abated emissions to help bridge the gap between the expected global baseline emissions in 2030 and the target emissions needed in order to limit temperature increase of 2 C? In order to successfully arrive at a specific cost-effectiveness criterion, it is assumed that global adoption of the goal of stabilizing the GHG concentration in the atmosphere at 445490 ppm (Category I, Figure 2) is needed to limit temperature increases to 2 C. Furthermore, the assessment is built on the B2 Scenario, which is a conservative assumption in the sense that most other scenarios have higher emission growth estimates up to 2030. In broad strokes, there are four scenario alternatives, the A1, A2, B1 and B2. The B2 scenario family describes a world with a relatively high emphasis on local solutions to economic, social, and environmental sustainability. It is a world with continuously increasing global population at a rate lower than A2, intermediate levels of economic development, and less rapid and more diverse technological change than in the B1 and A1 storylines. While the scenario is also oriented toward environmental protection and social equity, it focuses on local and regional levels [29].

3.1. Determining stabilization target level Figure 2 illustrates that in order to achieve a Category I stabilization level, the necessary reduction in CO2 emissions from 2000 to 2030 is 10 GT CO2 (midpoint estimate in 2030 range). This indicates a relative reduction of 34% in 2030 relative to the 2000 emissions levels of 29 GT CO2. This assessment is independent of growth scenarios, but assumes a given path to stabilization in Category I. The stabilization pathway is not described for gases other than CO2. However, assuming that the required reduction in CO2 is proportional to other GHG, this implies that the total GHG emissions must also fall by 34%, or 13.9 GT CO2-eq, from its 2000 level of 40.8 GT CO2-eq [12] to 26.9 GT CO2-eq in 2030.

Figure 2. Global CO2 emissions for 1940 to 2000 and emission ranges for categories of stabilization scenarios from 2000 to 2100 (left) and equilibrium temperature increases for a range of stabilization levels (right). Source: [12] figure 5.1, p. 66 (amended with text boxes).

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3.2. Determining 2030 baseline The amount of reductions required to reach the emission target level of 26.9 GT CO2-eq in 2030 depends on what the 2030 baseline emission level is assumed to be. The B2 Scenario indicates an increase in GHG emissions of 13 GT CO2-eq above 2000 levels to 53.8 GT CO2-eq in 2030 (Figure 1, panel c). Using this as a baseline, it is evident that a reduction of 26.9 GT CO2-eq or 50% of the baseline value of 53.8 GT CO2-eq in 2030 is required in order to attain Category I stabilization. Note that most other baseline choices (Figure 1, panel c) would lead to considerably more ambitious reduction targets. 3.3. Determining cost of reaching stabilization level, given 2030 baseline From Figure 1 (panel a) it is clear that a reduction in the order of 26.9 GT CO2-eq in 2030 is achievable at a cost of 50 $/T CO2-eq, judging by the optimistic assessment presented in the high end of range, bottom-up approach (see [30] for a description of the different approaches). It is noted that using some of the more pessimistic assessments (Figure 1, panel b), the target may be hard to achieve even at 100 $/T CO2-eq. It should also be noted that several options for mitigation are not included in the IPCC estimates for reduction potential, and that these omitted options represent significant reduction potentials in the order of 10 to 15% of the potential reported [31]. The above considerations show that the marginal cost of achieving Category I stabilization levels under the B2 scenario can be optimistically assessed to be 50 $/T CO2-eq. This figure may thus be used to describe the investment criterion which the world must aim for in order to mitigate global warming. The shipping sector is no exception to this in the IPCC reasoning. It is therefore suggested that CATCH550 $/T CO2-eq should be used as a decision criterion for investment in emission reduction measures for shipping. However, it is possible that this criterion should be higher and that even 100 $/T CO2-eq may not be enough to achieve the stated goal. The criterion should therefore be subject to adjustments, as science progresses and more evidence are provided. It should be noted that although the cost criterion is built on IPCC figures for abatement costs, as described above, it is acknowledged that other approaches are available, potentially yielding different results. The (marginal) abatement cost (as shown in Figure 1, panels a and b) is the cost of introducing measures which reduces the emissions by a given amount (per ton abated). This is typically technology dependent, and independent of the baseline emissions. Abatement costs are also discounted to a present value. The International Energy Agency [32] reports that to achieve stabilization at 450 ppm a quota price of $180 per ton of CO2 is required in 2030. Quota prices are comparable to marginal abatement cost. In contrast, the (marginal) social cost of CO2 is the cost of damages (due to flooding, heat waves, etc.) resulting from increased GHG concentration and global heating (per tonne emitted). All future damages are discounted to a present value, and is calculated in relation to a baseline emission scenario (such as in Figure 1, panel c). The Stern review [32] reports a social cost of CO2 at about $85 per ton of CO2 (year 2000 prices). Nordhaus [34] argues an optimal social cost of carbon at $7 per ton CO2 in 2005, rising to 95 $ in 2050. The optimal social cost is where the marginal cost of reducing more CO2 emission is equal to the marginal damage cost of emitting a tonne of CO2, and is as such not linked to a particular stabilization scenario.

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The above discussion illustrates that the definition of a criterion is highly dependant on the methodology chosen, as well as on the many underlying assumptions and choices regarding input parameters. The differences depend not only on discounting rates, but also on assessments of when society best can afford to make investments to curb emissions. It should also be noted that the chosen approach of using present values of economic costs and benefits and comparing it with the total CO2 reduction over the lifetime of the vessel (in line with the method used by the IPCC [35]), is not the only approach to evaluating the cost-effectiveness of a measure. An alternative approach is to calculate an annual cost and benefit and compare it to the annual CO2 emission reduction such as is done by McKinsey [36]. In the second approach the CATCH value of the measure would be a real value where the investment costs are calculated into annuities, while the first approach will give a present value where future costs and benefits are discounted into a present value. The difference between the two approaches is not only technical. A present value criterion means that it does not matter whether you reduce a tonne of CO2 in 10 years or in 20 years if you invest now, whereas a real value criterion means that a reduction in 20 years must cost less than a reduction in 10 years, as 50 $/T in 20 years is considered less than 50 $/T in 10 years. To adjust for this effect, a real value criterion should be adjusted for inflation, complicating the calculations. Both approaches will give the same result provided a consistency in comparing valuesreal values can not be compared with present values. To induce an action oriented implementation a present value approach is used in this study.

4. Case description and modelling results 4.1. Modelling cases As a first approach to study the cost-effectiveness of CO2 reducing measures for shipping, a set of measures are analysed considering implementation on new buildings. Two vessels are considered; a 74 000 DWT (deadweight tonnage) bulk carrier and an 8 000 TEU (twenty-foot equivalent unit) container ship. Bulk carriers make up 7% of the world fleet in numbers, but represent 14% of total fuel consumption, while the corresponding figures for container vessels are 4% and 22% [37]. The two vessels types are thus representing more than one-third of world shipping fleet emissions. For each of the two ships the following measures are analysed with respect to the CATCH value (Equation 2): . Optimized hull design: it has been assumed that the only cost associated with this measure is an additional design cost before the ship is built. The benefit is reduced fuel consumption as a result of better hydrodynamic properties which amounts to an annual fuel cost reduction. The annual CO2 emission reduction, DE, is a direct consequence of reduced fuel consumption. . The weather routing system is assumed to be a subscription based service, which incurs a start up cost (installation of equipment, etc.) and an annual subscription fee. The benefit is reduced fuel consumption and reduced CO2 emission as a consequence of avoiding harsh weather. . The Kite system has an installation cost, as well as considerable maintenance costs. The benefit is reduced fuel consumption and reduced CO2 emission as a consequence of harnessing wind power to drive the ship forward. The costs

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M. S. Eide et al. and benefits will vary with the sail size, which must be adjusted to ship size. (The effect of this measure when applied to a container vessel travelling at 25 knots is assumed to be low, and is thus only considered for the bulk carrier.) Silicon based coating has an initially extra cost and lead to less resistance in the water due to sea weed and shell growth on the hull. It may also reduce hull maintenance, but this effect is not taken into account here. The initial cost is dependent on the hull size. Pre-swirl stator: by reducing the energy lost in wake rotation the fuel consumption is reduced. This installation only has an initial cost which does not vary much with the ship size, but if the ship has a twin propeller the cost may increase. Propeller polishing: with regular propeller cleaning the effectiveness of the propeller is increased. This has an increased maintenance cost. Electronically controlled engine: the engine can be optimized to run better at part loads through electronic control. This measure has an initial increased cost for the engine. Optimal trim: this is an operational measure that must be used after each loading and ballasting, and require good loading computers and weight control. The only direct cost of this measure is an initial design cost, and the benefit derives from reduced fuel consumption by reduced resistance in water. Waste heat recovery: this measure consists of gathering waste heat from the main engine and using it to generate electric power. The generated electric power may be used for ship utilities and/or ship propulsion via an electric shaft motor. To simplify calculations it has been assumed that all power from the waste heat recovery is used for propulsion. Only fuel cost reductions are included in the benefits. Fuel cells run on natural gas can potentially replace conventional power generation. At this early development stage the costs are considerable. There are also maintenance costs as the fuel cells stacks need to be replaced at four years intervals. The CO2 reduction will come from lower carbon content and higher effectiveness of the energy production. The fuel costs will be reduced. Solar panels: this measure is installed on the ship exterior (deck), and converts solar power directly into electric power with the use of photoelectric technology. It has been assumed that for the small system considered herein, enough deck space can be made available also on the container ship. The generated electric power may be used for ship utilities and/or ship propulsion via an electric shaft motor. To simplify calculations it has been assumed that all power from the panels is used for propulsion. Speed reduction: the fuel consumption of a vessel is assumed to be proportional to the cube of the vessel speed. This is a common assumption, in reality this will wary with the specific designs. Thus, moderate reductions in speed will greatly reduce fuel consumption and thus emissions. The cost of reduced speed is calculated as the extra cost of more ships to compensate for the lost transport capacity. By reducing the speed from, e.g., 14.5 to 13.5 knots, 6.9 % of the transport capacity is lost (in terms of tonne-miles pr day). The cost of replacing this capacity is then 6.9% of the vessels capital and operating costs.

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The data (e.g. cost, reduction effect) for the measures have been collected from various industry and literature sources, including the IMO GHG study [25]. In cases

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where a low and high bound on the cost and reduction effect is presented in the data, the high cost and low effect is assumed. Furthermore, all measures have been assumed to be implemented separately. Should more than one measure be implemented on one ship, the combined effects must be considered. For all measures an operational life of 25 years has been assumed, and a risk free discount rate of 5% (real) is used to discount future costs and economic benefits. The activity level of the shipsmeasured in days at sea is set to 210 and 230 days per year for the bulk ship and container ship respectively [37]. Furthermore, a fuel cost of 243 $/T has been assumed. This is based on an average of the IFO180 price in Rotterdam from 2000 to 2008 [38, 39], and is considered to be a low, but realistic, estimate for future fuel prices (the effect of fuel price is discussed more thoroughly in Section 5.5). Furthermore, in the calculations of emissions, activity based models are used, as described e.g. by IMO [1], Dalsren et al. [37] and Endresen et al. [40]. The installed maximum continuous rated engine power (MCR) for the container ship is 65 000 kW, while the bulk carrier MCR is at 10 400 kW. An engine load of 75 % of MCR; 190 g/kWh as the specific fuel consumption SFC; and 3.13 g CO2/g fuel as the carbon factor CF of residual fuel oil is assumed [41, 42]. For the container vessel, 25 knots is used as baseline speed. For the bulk carrier, 14.5 knots is used. Although the calculations of the above measures will not be shown in full, one example will be presented in detail to illustrate the methodology. For this purpose optimized hull design is selected. The background figures for this measure are available from the IMO GHG study [25]. For the 74 000 DWT bulk carrier, and given the input parameter listed above, the fuel consumption is found to be 6090 T/year, with corresponding CO2 emissions of 18 900 T/year (rounded). For the specific ship in question the fuel reduction effect of optimizing the hull design can be assumed to be 5%. Thus, an annual reduction in fuel costs of $74 000 (243 6 090 5%) is expected. In net present value this translates to a benefit of DB $1 033 000. Furthermore, the cost of this measure is limited to a one-time initial expense for the design effort DC $200 000. The emission reduction over the lifetime of the vessel achieved is DE 23 600 T (18 900 5% 25). Thus the CATCH value is found to be CATCH 35 $/T ((200 0001 033 000)/23 600). It should be noted that the assumptions made regarding operational activity level (days at sea, engine load), ship lifetime and engine efficiency (SFC) are average figures, based on statistics, and are known to vary considerably from ship to ship. This variation depends on the technical specifics of the ships, but also the trade in which the vessel operates and other operational aspects. Similar variation is present in the effects of the measures under consideration. 4.2. Results Figure 3 illustrates the results, calculating the CATCH values (equation 2) for the selected measures, as applied to the two case ships. The results clearly illustrate that several cost effective options exist for reducing CO2 emissions from shipping, as they stay below the cost-effectiveness criterion of 50 $/T. Several options come at negative cost for both the bulk carrier and the container vessel. It is noted that the CATCH value for the optimal trim, weather routing, silicon coating and optimized hull options are close to constant for the two ships. This is due to relatively low costs, such that the CATCH fraction is dominated by the benefit and the emission reduction, which are proportional to each other. For the bulk carrier it is evident that the waste heat recovery system is well above the cost-effectiveness criterion.

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Figure 3. CATCH values ($/T) for emissions reduction measures applied to a 74 000 DWT bulk ship (top), and a 8000 TEU container ship (bottom). All measures are assumed independent (implemented one at a time). The green colour illustrate the CATCH values below the costeffectiveness criteria of 50 $/T CO2-eq. Red colour illustrate that the cost-effectiveness criteria has not been met.

This is because the waste heat recovery system has a relatively large investment cost, which is not fully recouped by fuel savings for a ship with a smaller engine. This option is thus not recommended for implementation on the bulk ship. However, the kite, the speed reductions and the propeller polishing options, for which the cost are higher than the benefit when implemented on the bulk carrier, these options have CATCH-values below the suggested cost-effectiveness criterion, and should thus be considered for implementation. For the large container ship, it is evident that all analysed emission control options except the most immature technologies (fuel cell and solar panels) should be recommended for implementation on the basis of pure economic gain (negative CATCH values).

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4.3. Considerations for the world fleet From the literature (e.g. [25, 26]), the estimated short-term CO2 reduction potential for operational measures is up to 40%. This order of reduction could be achieved by fleet optimization, routing and speed reduction. The potential of technical measures to reduce CO2 emissions has been estimated at up to 30% in new ships. The technical measures include designing hulls with less resistance, more efficient aft-ship, propeller and rudder arrangements, shift from oil to natural gas as main fuel, zero or minimum ballast configurations, marine fuel cells (longer term) and hybrid ships (e.g. wind power, solar panels, use of lightweight materials, etc.). The combined effects of technical and operational measures are not known from the literature, but they are clearly not independent. Furthermore, the cost of many of the measures is not known. The results of this study go a long way to confirm the figures for potential emission reductions found in the literature as described above, at least for the two example ships used in this study. In addition, the results also indicate that much of this potential is achievable in a cost-effective manner. Assuming independence between the measures, the cost-effective measures (not including speed reduction) considered in this study add up to an emission reduction in the order of 30% for the bulk carrier, and close to 40% for the container vessel. The marginal reductions for each measure ranges from 1% to 11%, and the effects of interdependence is not considered significant with numbers of this order. The most ambitious speed reduction considered herein could further halve the emissions. Acknowledging that the vessels analysed in this study do not adequately represent the world fleet, this study can not accurately assess fleet reduction potentials or cost levels. The results will vary with ship type, trade and operational profile (e.g. engine load), and most of the technologies and measures considered in this study are likely not to be cost-effective for smaller vessels. It is also likely that the results may change for other major ship types such as general cargo ships and tankers, although tankers should resemble the bulk vessel results. Given the large differences in emissions between ship segments [1, 37], it is clear that cost effectiveness modelling should be carried out on a number of ship segments in order to gain an overview of the fleet potential. It is therefore difficult to make an assessment of the potential for cost-effective reductions in the world fleet as a whole. However, the vessels selected for analysis in this study both belong to the ship segments responsible for a majority of emissions from the world fleet. As such, the results shown here may be indicative of what can be achieved by cost-effective reductions. In the opinion of the authors the potential for measures with a CATCH550$/T CO2-eq may well be in the order of 30% for technical measures, and above 50% when including speed reductions. 4.4. Uncertainty It should be noted that the measures analysed herein differ significantly from each other in terms of technological maturity, ease of implementation, and costs. Novel technologies face a set of barriers [43] which must be overcome in order to obtain widespread use. Typically, the price of the technology declines as it matures. Among the technologies presented in this study, fuel cells are among the least mature, and have yet to be implemented in merchant ships, let alone for applications of the magnitude suggested in this study. Thus, comparing the cost-effectiveness of these technologies might seem unfair. Nevertheless, the results shown may be indicative of what can be achieved, and serve as illustration of the proposed method.

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It is acknowledged that some measures, such as the speed reductions, have been treated in a simplified manner, and the results should thus be considered as good indications, rather that precise estimates. For instance, in the calculation of cost related to speed reductions, no added inventory cost for cargo owners or impacts on contractual obligations has been included. It is recognized that the list of measures analysed in this study is not exhaustive. One of the most promising options in a short-term perspective not considered in this study is the use of natural gas as fuel. Natural gas has been successfully introduced in marine applications as an alternative to the diesel oil. The worlds first gas driven ferry M/F Glutra has been operated since 2000 and by the end of 2007 Norway had six gas-ferries in operation. The supply vessel M/S Viking Energy has been in operation since 2003 and the ship-owner Eidesvik AS reports a NOx reduction of 89% and reduced emissions of CO2 by 21%. Its engines are dual-fuel engines with the possibility of running on diesel oil as well as liquefied natural gas (LNG). Such dual-fuel engines are also becoming increasingly popular in new LNG-carriers as they are proven to be more energy efficient than present gas turbine installations [44]. A sufficiently detailed study of this option for the case ships used in this study is beyond the scope of this article, but is recommended for later work. Other options not considered herein include sustainable biofuels, hydrogen, nuclear power and carbon capture and storage, which could potentially eliminate or drastically reduce CO2 emissions. However, these options are not considered feasible in the short term perspective. 4.5. Sensitivity Many of the choices made regarding input parameters used in the calculations, e.g. technology price, effect of measure and interest rate, will impact the results of this study. Also, the assumptions made regarding operational activity level (days at sea, engine load), ship lifetime and engine efficiency (SFC) are based on average figures, and are known to vary considerably from ship to ship. For ships with very high activity levels (e.g. 270 days at sea) the cost effectiveness will be better. For ship operating frequently on reduced engine loads (e.g. 50% of MCR) the cost effectiveness will be reduced. In the following, the sensitivity of the results with regard to fuel price, which is considered one of the most influential parameters, is investigated. In Figure 4 the CATCH values for the selected measures are shown, using the average price of 243 $/T fuel as before (blue bars), but also recalculated CATCH values using a price of 600 $/T fuel (left error-bar mark) and 100 $/T fuel (right error-bar mark). These fuel prices reflect a historic average of the IFO180 price in Rotterdam from 2000 to 2008 [38, 39], as well as approximate maximum and minimum prices for the same period. The 100 $/T fuel level is low historically, and illustrates the least desirable scenario from an environmental perspective. Prices have peaked above 600 $/T fuel in the last years and this could be considered a realistic upper bound for the future price level. For the container vessel, the results show that although the CATCH values change significantly with the fuel price, the conclusions for most of the measures remain the same. For waste heat and electrically controlled engines, the CATCH value becomes positive with a low fuel price. However, both measures remain below the criterion proposed in this study. The solar panels and fuel cells remain not cost-effective even at 600 $/T fuel. The rest of the measures all remain at negative

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Figure 4. Sensitivity analysis of the CATCH values for emission reduction measures, using a fuel price of 243 $/T fuel (blue bars), but also the recalculated CATCH values using fuel price of 600 $/T fuel (left error-bar mark) and 100 $/T fuel (right error-bar mark).

CATCH values, even at low fuel prices. This indicates that the conclusions for the container vessel are robust. For the bulk carrier, the fuel price has a larger impact on the results. The solar panels, fuel cells and waste heat remain not cost-effective even at 600 $/T fuel, although waste heat is close to the cost effective criterion at this price. Electronically controlled engines become cost effective with high fuel prices, whereas the remaining options remain below the criterion even at 100 $/T fuel, although some measures cross from negative to positive CATCH values. These results also indicate robustness for the bulk vessel conclusions. The above sensitivity analysis assumes the 50 $/T CO2-eq criterion proposed in this study is unchanged. However, a change in this criterion can be caused,

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e.g. by choosing a different baseline scenario in the IPCC report, as a higher growth scenario will imply higher marginal costs for achieving stabilization, or by applying updated analysis, e.g. from the next update of the IPCC report. It should also be kept in mind that the IMO process for implementing a regulation takes time, typically in the order of 5 years. However, the speed of implementation will depend heavily on the political circumstances. For instance, the International Ship and Port Facility Security (ISPS) code was passed with speed and urgency in about a year after the events of 9/11 2001 [45]. Clearly, if a substantial delay time occurs before the proposed CATCH is implemented, the criterion may have to be revised. However, once the principle is established in IMO, updating the criterion could be done annually by IMO/MEPC. From Figure 1, and the discussion in Sections 4.2 and 4.3, it is not unlikely that the criterion should be 100 $/T CO2-eq. Using this criterion in combination with Figure 4, the waste heat recovery for the bulk carrier becomes cost effective under assumptions of high fuel prices, and that the electronically controlled engine option is cost-effective unless the fuel price is very low. Although not apparent from the two examples shown in this study, it is likely that the selection of the criterion as well as the assumed average fuel price may change the conclusions reached for some of the measures, in particular for smaller vessels.

5. Use of CATCH in regulations The use of a cost-effectiveness decision parameter (CATCH) coupled with a decision criterion (CATCH550$/T CO2-eq) allows for several approaches to regulate emissions. The options may be illustrated using examples from earlier IMO regulations: First, the decision to make ECDIS (Electronic Chart Display and Information Systems) mandatory for large segments of the world fleet is an example of how the cost-effectiveness approach was used to justify a prescriptive regulation [46, 47]. The criterion developed herein is obviously applicable to regulations concerning explicit measures for ships, such as described in the modelling cases. It would for instance be easy for IMO to mandate compulsory use of, e.g., silicon coating for ships in certain segments. A second regulatory option of using cost-benefit is to regulate levels of performance, as it has been done for safety and accidental pollution at IMO. When IMO mandated a ballast water discharge concentration standard, the policy was performance-based, meaning that any technology that can meet the required performance level is allowed. New performance based regulations have been suggested for damage stability (survivability in case of collision or grounding) for passenger vessels using a similar approach [48]. One example of how environmental performance can be linked to the proposed criterion is described by Longva et al. [49] for the IMO energy efficiency design index (formerly known as the CO2 design index). However, the criterion could prove useful in the implementation of several available solutions for emissions regulation under consideration, not only the design index. Several investigations have examined different schemes for the regulation of carbon dioxide emissions from ships (e.g. [50]). The schemes include some market-based instruments, such as emissions taxes and emissions trading, as well as some command-and-control instruments, such as mandating emissions standards that ships must meet. Hybrid schemes are also considered; for instance, a standard combined with a tax for not meeting the

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standard, or a credit for operating at a higher level than the standard requires. In one way or the other, these schemes will require the establishment of targets, standards or caps, and the cost effectiveness criterion defined herein could be used to do this. By implementing only measures that are cost effective according to the criterion, and at the same time using a criterion that deliver the necessary reduction in GHG emissions, optimum use of resources is ensured. In principle, this is the same basic idea as was intended to be used according to the Kyoto protocol. The difference relates to implementation: the Kyoto mechanisms have implicitly expected that the CATCH should be established by market mechanisms rather than analysis. As shown in this paper, the analytical approach to determining a criterion for CATCH is viable. This means that shipping is in a position to avoid the introduction of complex marked based mechanisms as a means for regulationthe traditional IMO approach is an option. The application of marked based mechanisms to the shipping sector has been extensively debated, given the global nature of the industry and the domination of non-Annex I countries among the flag states.

6. Conclusions International shipping is a significant contributor to global greenhouse gas emissions, and is under mounting pressure to bear its share of the burden and contribute to overall GHG emission reductions. This paper presents a methodology for assessing the cost-effectiveness of technical and operational measures for reducing CO2 emissions from shipping, through the development of a decision parameter called the CATCH (Cost of Averting a Tonne of CO2-eq Heating). The development is in line with the Intergovernmental Panel on Climate Change (IPCC) and with regulatory work using Formal Safety Assessment at the IMO. A decision criterion for the implementation of measures, against which the decision parameter should be evaluated, is also developed based on the global cost-effectiveness considerations of the IPCC. The results of this study suggest that CATCH550 $/T CO2-eq should be used as a decision criterion for investment in GHG emission reduction measures for shipping. A number of specific technical and operational measures for reducing CO2 emissions has been analysed for selected ships to illustrate the methodology. This work shows that several measures are cost effective according to the proposed criterion. Assuming independence between the measures, the cost effective measures (not including speed reduction) considered in this study add up to an emission reduction in the order of 30% for the bulk carrier, and 40% for the container vessel. The most ambitious speed reduction considered herein could further halve the emissions. It is difficult to make an assessment of the potential for cost-effective reductions in the world fleet as a whole. However, the vessels selected for analysis in this study both belong to the ship segments responsible for a majority of emissions from the fleet, namely large container and bulk ships. As such, cost-effective reductions for the fleet may well be in the order of 30% for technical measures, and well above 50% when including speed reductions. Details of the fleet potential need to be further investigated by upcoming studies. The use of a cost-effectiveness decision parameter coupled with a decision criterion allows for several approaches to regulate emissions, and by introducing CATCH550 $/T CO2-eq as a decision criterion for regulations, shipping may

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contribute significantly to the global emission reductions in a cost-effective manner. The cost effectiveness approach for the regulation of shipping emissions is viable and should be pursued. One of the benefits of using this approach for regulatory development is that the resulting regulations will be based on a sound rationale, and that pertinent costs imposed by new requirements may be defended based on achievable emission reductions.

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