A1 Refereed original research article in a scientific journal
REAL OPTIONS ANALYSIS OF ABATEMENT INVESTMENTS FOR SULPHUR EMISSION CONTROL AREAS COMPLIANCE
Authors: Atari S, Bakkar Y, Olaniyi EO, Prause G
Publication year: 2019
Journal: Entrepreneurship and sustainability issues
Journal name in source: ENTREPRENEURSHIP AND SUSTAINABILITY ISSUES
Journal acronym: ENTREP SUSTAIN ISS
Volume: 6
Issue: 3
First page : 1062
Last page: 1086
Number of pages: 25
ISSN: 2345-0282
DOI: https://doi.org/10.9770/jesi.2019.6.3(1)
Abstract
Since the introduction of the Sulphur Emission Control Areas (SECA) regulations in the Baltic Sea Region (BSR) in 2015, the BSR has witnessed high compliance rate. However, a closer look to the situation reveals that the currently preferred compliance strategies depend on low oil price where ship owners shun investments in abatement technologies which may lead into an economic trap in the event of the oil price increase. The research considers incentive provisions for maritime investors who make investment decisions related to clean shipping and maritime fuel management. Traditionally, the financial assessments of these decisions are based on capital budgeting methods comprising cash flow analyses and net present value calculations. The findings reveal that the Real-Option approach represents a more realistic, reliable and promising method for the evaluation of abatement projects, especially under uncertainty and high volatility in material resource markets. The results can be applied to the evaluation of all projects in the maritime industry that depends on the price variation of the underlying asset during a specific period.
Since the introduction of the Sulphur Emission Control Areas (SECA) regulations in the Baltic Sea Region (BSR) in 2015, the BSR has witnessed high compliance rate. However, a closer look to the situation reveals that the currently preferred compliance strategies depend on low oil price where ship owners shun investments in abatement technologies which may lead into an economic trap in the event of the oil price increase. The research considers incentive provisions for maritime investors who make investment decisions related to clean shipping and maritime fuel management. Traditionally, the financial assessments of these decisions are based on capital budgeting methods comprising cash flow analyses and net present value calculations. The findings reveal that the Real-Option approach represents a more realistic, reliable and promising method for the evaluation of abatement projects, especially under uncertainty and high volatility in material resource markets. The results can be applied to the evaluation of all projects in the maritime industry that depends on the price variation of the underlying asset during a specific period.
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