Economic Framework for Green Shipping Corridors: Evaluating Cost-effective Transition from Fossil Fuels Towards Hydrogen

Global warming’s major cause is the emission of greenhouse-effect gases (GHG), especially carbon dioxide (CO2) whose main source is the combustion of fossil fuels. Fossil fuels serve as the primary energy source in many industries, including shipping, which is the focus of this study. One of the measures proposed to tackle GHG emissions is the development of green shipping corridors - carbon-free shipping routes that require the transition to alternative fuels, which are gaining competitiveness. One of the reasons for that is carbon pricing, which taxes CO2 emissions. However, the lack of consensus on the most cost-advantageous alternative fuel in the long run results in the delay of the implementation of green shipping corridors. To make it more accessible for stakeholders to conduct an economic analysis of the various options, a framework to determine and minimize the costs of transitioning from fossil fuels to any alternative fuel is proposed, over the period of one voyage, considering the lost opportunity cost, the deployment cost of bunkering vessels at the necessary call ports, the cost of converting the vessel, the car-bon emissions tax cost, and the fuel cost. This will allow stakeholders to choose the most economical alternative fuel, accelerating the development of green shipping corridor initiatives. To validate the effectiveness of the framework, it was applied in a case study involving a shipowner seeking to transition from heavy fuel oil (HFO) to Ammonia, Hydrogen, Liquefied Natural Gas (LNG), or Methanol. This study faced limitations due to the unknown costs of installing bunkering vessels for Ammonia and Hydrogen. However, it evaluates the cost-effectiveness of alternative fuels, providing insights into their short-term economic viability. The results showed that Hydrogen is the most costadvantageous fuel until a deployment cost per bunkering vessel of 1,990,285$ for a sailing speed of 22 knots and 2,190,171$ for a sailing speed of 18 knots is reached, after which LNG becomes the most economical option regardless of variations in the carbon tax. Moreover, a sensitivity analysis was conducted to determine the effects of variations in parameters, such as carbon tax, fuel prices and vessel conversion costs in the total cost of each fuel option. Results highlighted that even though HFO remains the most economical fuel option, even when considering a high increase in carbon tax, the cost gap between HFO and alternative fuels narrows significantly with the increase in carbon tax. Furthermore, the sailing speed impacts the fuels’ competitiveness, as the cost difference between HFO and alternative fuels decreases at higher speeds.