Coping with Environmental Regulation in Shipping: Compliant Fuel vs. Scrubbers: Applying Real Options Analysis to Container Ship Owners’ Decision to Invest in Scrubbers

Ole Niklas Bortz

Student thesis: Master thesis


The recently introduced stricter sulphur reduction measures by the International Maritime Organization (IMO) are currently disrupting the shipping industry and are expected to substantially increase the total cost of shipping over the coming years. Therefore, ship owners have to determine the most efficient strategy for staying compliant with these environmental regulations while being faced with uncertainty in regard to the future development of fuel prices. This work investigates what insights can be derived from applying Real Options Analysis to ship owners’ investment project of installing exhaust gas cleaning systems (scrubbers) to container ships that currently run on compliant low-sulphur fuel. Specifically, this valuation method has been applied to a ship owner’s opportunity to retrofit a scrubber to a Post-Panamax container ship in order to remain compliant with the IMO’s stricter sulphur requirements while benefitting from lower bunker costs when the price spread between the compliant low-sulphur and traditional high-sulphur fuels is sufficiently large. This work finds that having the option to switch from using compliant fuel to installing a scrubber when the fuel price between becomes sufficiently large is worth around USD 1 million. Furthermore, the option’s value increases with ship size, which means that especially owners of larger container ships benefit from this flexibility. These insights can provide the basis for further research on decisions with regards to environmental regulation in shipping. Future studies are recommended to focus especially on compliance strategies for future carbon dioxide emission regulations, which will most likely keep the shipping industry busy over the next decades.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2020
Number of pages84
SupervisorsPeter de Langen