Determinants of the Price Premium for Eco Vessels

Abstract

Shipping companies face the trilemma of investing in cheaper but more polluting conventional vessels, in more expensive but eco-friendly ones or postponing their investment. We quantify the price premium paid for eco-friendly vessels and investigates its determinants. The results indicate that eco vessels trade at an average premium of 25% compared to their conventional counterparts, while the corresponding income premia are between 9% and 15%. The findings suggest that the price premium is time-varying and highly dependent on market conditions and indicate that price premia and fleet supply are strong drivers, with fuel costs and market liquidity having ambiguous effects. The magnitude and significance of these drivers vary based on the market state and segment. Overall, the paper documents the adverse effect that the current technological and regulatory uncertainty has on newbuilding investment and highlights the need for further policy intervention to reduce market uncertainty and encourage green investment.

Keywords: Asset Pricing, Sustainable Shipping, Maritime Decarbonisation, Vessel Prices, Net Zero Shipping, Price Premium