Optimal compliance choices for ocean carriers under the sulphur regulation

This paper investigates how carriers adapt to the sulphur regulation by choosing between sulphur scrubber (SS) and fuel switching (FS). A cost minimization model is proposed to determine the optimal compliance choices, considering factors such as fuel prices, capital cost difference be-tween SS and FS, and shipping service profile. We find that the optimal choice depends on the tradeoff between the capital cost advantage of FS and the fuel cost advantage of SS. And such a tradeoff is moderated by the vessel's annual fuel consumption. Ignoring the speed differentiation behavior of FS vessels would exaggerate the benefits of SS. But whether it can cause a wrong compliance choice depends on the extent of overestimation, which depends on the presence in emission control areas and fuel prices. When fuel price volatility is factored in, a portfolio of FS and SS might be better than simply choosing either one for all vessels.