The Impact of Bunker Risk Management on CO2 Emissions in Maritime Transportation Under ECA Regulation

27 Pages Posted: 17 Nov 2016

See all articles by Yewen Gu

Yewen Gu

NHH Norwegian School of Economics - Department of Business and Management Science

Stein W. Wallace

Norwegian School of Economics (NHH) - Department of Business and Management Science

Xin Wang

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology

Date Written: November 16, 2016

Abstract

The shipping industry carries over 90 percent of the world’s trade, and is hence a major contributor to CO2 and other airborne emissions. As a global effort to reduce air pollution from ships, the implementation of the ECA (Emission Control Areas) regulations has given rise to the wide usage of cleaner fuels. This has led to an increased emphasis on the management and risk control of maritime bunker costs for many shipping companies. In this paper, we provide a novel view on the relationship between bunker risk management and CO2 emissions. In particular, we investigate how different actions taken in bunker risk management, based on different risk aversions and fuel hedging strategies, impact a shipping company’s CO2 emissions. We use a stochastic programming model and perform various comparison tests in a case study based on a major liner company. Our results show that a shipping company’s risk attitude on bunker costs have impacts on its CO2 emissions. We also demonstrate that, by properly designing its hedging strategies, a shipping company can sometimes achieve noticeable CO2 reduction with little financial sacrifice.

Keywords: Bunker risk management, Maritime bunker management, CO2 emissions, Stochastic programming, ECA, Fuel hedging, Sailing behavior

JEL Classification: C44, C60

Suggested Citation

Gu, Yewen and Wallace, Stein W. and Wang, Xin, The Impact of Bunker Risk Management on CO2 Emissions in Maritime Transportation Under ECA Regulation (November 16, 2016). NHH Dept. of Business and Management Science Discussion Paper No. 2016/17, Available at SSRN: https://ssrn.com/abstract=2870407 or http://dx.doi.org/10.2139/ssrn.2870407

Yewen Gu (Contact Author)

NHH Norwegian School of Economics - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Stein W. Wallace

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Xin Wang

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology ( email )

NO-7491 Trondheim
Norway

HOME PAGE: http://www.ntnu.edu/employees/xinwan

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