The economics of shipping decarbonisation: Carbon, production, and allocative efficiencies

Existing shipping environmental regulations largely omit the economic dimension which, in turn, delays the industry's clean energy transition. This paper investigates the efficiency of global shipping on economic foundations. We apply a stochastic frontier analysis to assess the interactions between capital, operation, earnings, and transport work, both across all major shipping segments and at an individual-vessel level. The empirical results indicate that carbon efficiency of vessel types decreases with speed. Larger vessel types produce more carbon emissions for a given level of TC earnings and costs. At an individual vessel level, higher production efficiency is observed in vessels that are newer, spend more time at sea, have installed more energy saving technologies (ESTs), and belong to companies with stronger EST investment policy. Technical and operational inefficiencies raise the total cost of owning and operating a vessel by 7%, with market price dynamics and inefficient allocation of economic resources increasing it by 25%. An increase in fuel price of 38% or a reduction in speed of 13.5% does not severely affect a vessel's overall efficiency and total cost. Policy interventions need to be carefully designed in order not to negatively impact the overall efficiency of global shipping.