Bridging the Maritime-Hydrogen Cost-Gap: Real Options Analysis of Policy Alternatives

Alternative, and especially renewable, marine fuels are needed to reduce the environmental and climate impacts of the shipping sector. This paper investigates the business case for hydrogen as an alternative fuel in a new-built vessel utilizing fuel cells and liquefied hydrogen. A real option approach is used to model the optimal time and costs for investment, as well as the value of deferring an investment as a result of uncertainty. This model is then used to assess the impact of a carbon tax on a ship owner’s investment decision. A low carbon tax results in ship owners deferring investments, which then slows the uptake of the technology. We recommend that policymakers set a high carbon tax at an early stage in order to help hydrogen compete with fossil fuels. A clear and timely policy design promotes further investments and accelerates the uptake of new technologies that can fulfill decarbonization targets.