The Economies of Scale of CO2 Reduction in the

Shipping Industry

Abstract:
It has been realized that ships are of significant economies of scale
when it comes to average fix costs and average operational costs, but
it remains unclear how ship sizes may influence the marginal
abatement cost (MAC) of CO2 reduction. As international community
moves forward to curbing CO2 emissions from ships, investigating the
CO2 reduction cost differences among a variety of ship sizes can shed
light on some unintended consequences to regulatory proposals, the
shipping industry, and port and canal authorities. This paper uses data
from the report of the Society of Naval Architect and Marine Engineers,
analyzes the MAC of different ship sizes, concludes that the significant
economies of scale exists for six ship types analyzed in this study, and
discusses some possible influences from some ship CO2 emission
mandates. Bigger ships have more options to reduce CO2 with
relatively lower costs. The smallest size category of each ship type
sees substantial cost increases. The mandate to reduce ship CO2
emissions may impose heavier cost burden on smaller ships than it
does on bigger ships, driving ships even larger. Port and canal
authorities may feel the pressure too as they need to continue to
improve their infrastructure to accommodate even larger ships.

1. Introduction
Shipping accounts for approximately 3% of manmade greenhouse
gas (GHG) emissions [1], and it is considered to contribute significantly
to climate change
PEVuZE5vdGU+PENpdGU+PEF1dGhvcj5JTU88L0F1dGhvcj48WWVhcj4y
MDA5PC9ZZWFyPjxSZWNO
dW0+NTwvUmVjTnVtPjxyZWNvcmQ+PHJlYy1udW1iZXI+NTwvcmVjLW5
1bWJlcj48Zm9yZWlnbi1r
1
ZXlzPjxrZXkgYXBwPSJFTiIgZGItaWQ9ImYwc2E1c3Z2b2Q1dndiZXp4ejB4
MHZ0d3Y5NWY5c2Zm
ZGRmdCI+NTwva2V5PjwvZm9yZWlnbi1rZXlzPjxyZWYtdHlwZSBuYW1lP
SJSZXBvcnQiPjI3PC9y
ZWYtdHlwZT48Y29udHJpYnV0b3JzPjxhdXRob3JzPjxhdXRob3I+SU1PPC9
hdXRob3I+PC9hdXRo
b3JzPjwvY29udHJpYnV0b3JzPjx0aXRsZXM+PHRpdGxlPlVwZGF0ZWQgU
3R1ZHkgb24gR0hHIEVt
aXNzaW9ucyBGcm9tIFNoaXBzPC90aXRsZT48L3RpdGxlcz48ZGF0ZXM+
PHllYXI+MjAwOTwveWVh
cj48L2RhdGVzPjxwdWJsaXNoZXI+TVBFQzwvcHVibGlzaGVyPjx1cmxzPjw
vdXJscz48L3JlY29y
ZD48L0NpdGU+PENpdGU+PEF1dGhvcj5Db3JiZXR0PC9BdXRob3I+PFllY
XI+MTk5NzwvWWVhcj48
UmVjTnVtPjU1PC9SZWNOdW0+PHJlY29yZD48cmVjLW51bWJlcj41NTwv
cmVjLW51bWJlcj48Zm9y
ZWlnbi1rZXlzPjxrZXkgYXBwPSJFTiIgZGItaWQ9ImYwc2E1c3Z2b2Q1dndi
ZXp4ejB4MHZ0d3Y5
NWY5c2ZmZGRmdCI+NTU8L2tleT48L2ZvcmVpZ24ta2V5cz48cmVmLX
R5cGUgbmFtZT0iSm91cm5h
bCBBcnRpY2xlIj4xNzwvcmVmLXR5cGU+PGNvbnRyaWJ1dG9ycz48YXV0
aG9ycz48YXV0aG9yPkNv
cmJldHQsIEphbWVzIEouIDwvYXV0aG9yPjxhdXRob3I+RmlzY2hiZWNrLC
BQYXVsIFMuPC9hdXRo
b3I+PC9hdXRob3JzPjwvY29udHJpYnV0b3JzPjx0aXRsZXM+PHRpdGxlPkV
taXNzaW9ucyBGcm9t
IFNoaXBzPC90aXRsZT48c2Vjb25kYXJ5LXRpdGxlPlNjaWVuY2U8L3NlY29
uZGFyeS10aXRsZT48
L3RpdGxlcz48cGVyaW9kaWNhbD48ZnVsbC10aXRsZT5TY2llbmNlPC9m
dWxsLXRpdGxlPjwvcGVy
aW9kaWNhbD48cGFnZXM+ODIzLTgyNDwvcGFnZXM+PHZvbHVtZT4yN
zg8L3ZvbHVtZT48bnVtYmVy
PjUzMzk8L251bWJlcj48a2V5d29yZHM+PGtleXdvcmQ+c2hpcCwgZW1p
2
c3Npb25zLCBwcm9wdWxz
aW9uLCBlbnZpcm9ubWVudCwgYXRtb3NwaGVyZSwgcG9sbHV0aW9uL
CBuaXRyb2dlbiwgc3VsZnVy
LCBzdWxwaHVyLCBlbmdpbmUsIGRpZXNlbDwva2V5d29yZD48L2tleXdv
cmRzPjxkYXRlcz48eWVh
cj4xOTk3PC95ZWFyPjwvZGF0ZXM+PHVybHM+PC91cmxzPjwvcmVjb3Jk
PjwvQ2l0ZT48Q2l0ZT48
QXV0aG9yPkVuZHJlc2VuPC9BdXRob3I+PFllYXI+MjAwMzwvWWVhcj48U
mVjTnVtPjIwPC9SZWNO
dW0+PHJlY29yZD48cmVjLW51bWJlcj4yMDwvcmVjLW51bWJlcj48Zm9yZ
Wlnbi1rZXlzPjxrZXkg
YXBwPSJFTiIgZGItaWQ9ImYwc2E1c3Z2b2Q1dndiZXp4ejB4MHZ0d3Y5N
WY5c2ZmZGRmdCI+MjA8
L2tleT48L2ZvcmVpZ24ta2V5cz48cmVmLXR5cGUgbmFtZT0iSm91cm5h
bCBBcnRpY2xlIj4xNzwv
cmVmLXR5cGU+PGNvbnRyaWJ1dG9ycz48YXV0aG9ycz48YXV0aG9yPk
VuZHJlc2VuLCDDmC48L2F1
dGhvcj48YXV0aG9yPkUuIFPDuHJnYcKwcmQ8L2F1dGhvcj48YXV0aG9yP
kouIEsuIFN1bmRldDwv
YXV0aG9yPjxhdXRob3I+Uy4gQi4gRGFsc8O4cmVuPC9hdXRob3I+PGF1
dGhvcj5JLiBTLiBBLiBJ
c2Frc2VuPC9hdXRob3I+PGF1dGhvcj5ULiBGLiBCZXJnbGVuPC9hdXRob3
I+PGF1dGhvcj5HLiBH
cmF2aXI8L2F1dGhvcj48L2F1dGhvcnM+PC9jb250cmlidXRvcnM+PHRpd
Gxlcz48dGl0bGU+RW1p
c3Npb24gZnJvbSBJbnRlcm5hdGlvbmFsIFNlYSBUcmFuc3BvcnRhdGlvbiB
hbmQgRW52aXJvbm1l
bnRhbCBJbXBhY3Q8L3RpdGxlPjxzZWNvbmRhcnktdGl0bGU+Sm91cm5
hbCBvZiBHZW9waHlzaWNh
bCBSZXNlYXJjaDwvc2Vjb25kYXJ5LXRpdGxlPjwvdGl0bGVzPjxwZXJpb2Rp
Y2FsPjxmdWxsLXRp
dGxlPkpvdXJuYWwgb2YgR2VvcGh5c2ljYWwgUmVzZWFyY2g8L2Z1bGwt
dGl0bGU+PC9wZXJpb2Rp
3
Y2FsPjxwYWdlcz40NTYwPC9wYWdlcz48dm9sdW1lPjEwODwvdm9sdW1l
PjxudW1iZXI+RDE3PC9u
dW1iZXI+PGRhdGVzPjx5ZWFyPjIwMDM8L3llYXI+PC9kYXRlcz48dXJscz4
8L3VybHM+PC9yZWNv
cmQ+PC9DaXRlPjxDaXRlPjxBdXRob3I+V2FuZzwvQXV0aG9yPjxZZWFyP
jIwMDk8L1llYXI+PFJl
Y051bT41NjwvUmVjTnVtPjxyZWNvcmQ+PHJlYy1udW1iZXI+NTY8L3JlYy
1udW1iZXI+PGZvcmVp
Z24ta2V5cz48a2V5IGFwcD0iRU4iIGRiLWlkPSJmMHNhNXN2dm9kNXZ3Y
mV6eHoweDB2dHd2OTVm
OXNmZmRkZnQiPjU2PC9rZXk+PC9mb3JlaWduLWtleXM+PHJlZi10eXBlI
G5hbWU9IkpvdXJuYWwg
QXJ0aWNsZSI+MTc8L3JlZi10eXBlPjxjb250cmlidXRvcnM+PGF1dGhvcnM
+PGF1dGhvcj5XYW5n
LCBILjwvYXV0aG9yPjxhdXRob3I+TGl1LCBELjwvYXV0aG9yPjxhdXRob3I
+RGFpLCBHLjwvYXV0
aG9yPjwvYXV0aG9ycz48L2NvbnRyaWJ1dG9ycz48dGl0bGVzPjx0aXRsZT
5SZXZpZXcgb2YgbWFy
aXRpbWUgdHJhbnNwb3J0YXRpb24gYWlyIGVtaXNzaW9uIHBvbGx1dGlv
biBhbmQgcG9saWN5IGFu
YWx5c2lzIDwvdGl0bGU+PHNlY29uZGFyeS10aXRsZT5Kb3VybmFsIG9mI
E9jZWFuIFVuaXZlcnNp
dHkgb2YgQ2hpbmE8L3NlY29uZGFyeS10aXRsZT48L3RpdGxlcz48cGVy
aW9kaWNhbD48ZnVsbC10
aXRsZT5Kb3VybmFsIG9mIE9jZWFuIFVuaXZlcnNpdHkgb2YgQ2hpbmE8
L2Z1bGwtdGl0bGU+PC9w
ZXJpb2RpY2FsPjxwYWdlcz4yODMtMjkwPC9wYWdlcz48dm9sdW1lPjg8L3
ZvbHVtZT48bnVtYmVy
PjM8L251bWJlcj48ZGF0ZXM+PHllYXI+MjAwOTwveWVhcj48L2RhdGVzPj
x1cmxzPjwvdXJscz48 L3JlY29yZD48L0NpdGU+PC9FbmROb3RlPgB=
PEVuZE5vdGU+PENpdGU+PEF1dGhvcj5JTU88L0F1dGhvcj48WWVhcj4y
MDA5PC9ZZWFyPjxSZWNO
dW0+NTwvUmVjTnVtPjxyZWNvcmQ+PHJlYy1udW1iZXI+NTwvcmVjLW5
4
1bWJlcj48Zm9yZWlnbi1r
ZXlzPjxrZXkgYXBwPSJFTiIgZGItaWQ9ImYwc2E1c3Z2b2Q1dndiZXp4ejB4
MHZ0d3Y5NWY5c2Zm
ZGRmdCI+NTwva2V5PjwvZm9yZWlnbi1rZXlzPjxyZWYtdHlwZSBuYW1lP
SJSZXBvcnQiPjI3PC9y
ZWYtdHlwZT48Y29udHJpYnV0b3JzPjxhdXRob3JzPjxhdXRob3I+SU1PPC9
hdXRob3I+PC9hdXRo
b3JzPjwvY29udHJpYnV0b3JzPjx0aXRsZXM+PHRpdGxlPlVwZGF0ZWQgU
3R1ZHkgb24gR0hHIEVt
aXNzaW9ucyBGcm9tIFNoaXBzPC90aXRsZT48L3RpdGxlcz48ZGF0ZXM+
PHllYXI+MjAwOTwveWVh
cj48L2RhdGVzPjxwdWJsaXNoZXI+TVBFQzwvcHVibGlzaGVyPjx1cmxzPjw
vdXJscz48L3JlY29y
ZD48L0NpdGU+PENpdGU+PEF1dGhvcj5Db3JiZXR0PC9BdXRob3I+PFllY
XI+MTk5NzwvWWVhcj48
UmVjTnVtPjU1PC9SZWNOdW0+PHJlY29yZD48cmVjLW51bWJlcj41NTwv
cmVjLW51bWJlcj48Zm9y
ZWlnbi1rZXlzPjxrZXkgYXBwPSJFTiIgZGItaWQ9ImYwc2E1c3Z2b2Q1dndi
ZXp4ejB4MHZ0d3Y5
NWY5c2ZmZGRmdCI+NTU8L2tleT48L2ZvcmVpZ24ta2V5cz48cmVmLX
R5cGUgbmFtZT0iSm91cm5h
bCBBcnRpY2xlIj4xNzwvcmVmLXR5cGU+PGNvbnRyaWJ1dG9ycz48YXV0
aG9ycz48YXV0aG9yPkNv
cmJldHQsIEphbWVzIEouIDwvYXV0aG9yPjxhdXRob3I+RmlzY2hiZWNrLC
BQYXVsIFMuPC9hdXRo
b3I+PC9hdXRob3JzPjwvY29udHJpYnV0b3JzPjx0aXRsZXM+PHRpdGxlPkV
taXNzaW9ucyBGcm9t
IFNoaXBzPC90aXRsZT48c2Vjb25kYXJ5LXRpdGxlPlNjaWVuY2U8L3NlY29
uZGFyeS10aXRsZT48
L3RpdGxlcz48cGVyaW9kaWNhbD48ZnVsbC10aXRsZT5TY2llbmNlPC9m
dWxsLXRpdGxlPjwvcGVy
aW9kaWNhbD48cGFnZXM+ODIzLTgyNDwvcGFnZXM+PHZvbHVtZT4yN
zg8L3ZvbHVtZT48bnVtYmVy
5
PjUzMzk8L251bWJlcj48a2V5d29yZHM+PGtleXdvcmQ+c2hpcCwgZW1p
c3Npb25zLCBwcm9wdWxz
aW9uLCBlbnZpcm9ubWVudCwgYXRtb3NwaGVyZSwgcG9sbHV0aW9uL
CBuaXRyb2dlbiwgc3VsZnVy
LCBzdWxwaHVyLCBlbmdpbmUsIGRpZXNlbDwva2V5d29yZD48L2tleXdv
cmRzPjxkYXRlcz48eWVh
cj4xOTk3PC95ZWFyPjwvZGF0ZXM+PHVybHM+PC91cmxzPjwvcmVjb3Jk
PjwvQ2l0ZT48Q2l0ZT48
QXV0aG9yPkVuZHJlc2VuPC9BdXRob3I+PFllYXI+MjAwMzwvWWVhcj48U
mVjTnVtPjIwPC9SZWNO
dW0+PHJlY29yZD48cmVjLW51bWJlcj4yMDwvcmVjLW51bWJlcj48Zm9yZ
Wlnbi1rZXlzPjxrZXkg
YXBwPSJFTiIgZGItaWQ9ImYwc2E1c3Z2b2Q1dndiZXp4ejB4MHZ0d3Y5N
WY5c2ZmZGRmdCI+MjA8
L2tleT48L2ZvcmVpZ24ta2V5cz48cmVmLXR5cGUgbmFtZT0iSm91cm5h
bCBBcnRpY2xlIj4xNzwv
cmVmLXR5cGU+PGNvbnRyaWJ1dG9ycz48YXV0aG9ycz48YXV0aG9yPk
VuZHJlc2VuLCDDmC48L2F1
dGhvcj48YXV0aG9yPkUuIFPDuHJnYcKwcmQ8L2F1dGhvcj48YXV0aG9yP
kouIEsuIFN1bmRldDwv
YXV0aG9yPjxhdXRob3I+Uy4gQi4gRGFsc8O4cmVuPC9hdXRob3I+PGF1
dGhvcj5JLiBTLiBBLiBJ
c2Frc2VuPC9hdXRob3I+PGF1dGhvcj5ULiBGLiBCZXJnbGVuPC9hdXRob3
I+PGF1dGhvcj5HLiBH
cmF2aXI8L2F1dGhvcj48L2F1dGhvcnM+PC9jb250cmlidXRvcnM+PHRpd
Gxlcz48dGl0bGU+RW1p
c3Npb24gZnJvbSBJbnRlcm5hdGlvbmFsIFNlYSBUcmFuc3BvcnRhdGlvbiB
hbmQgRW52aXJvbm1l
bnRhbCBJbXBhY3Q8L3RpdGxlPjxzZWNvbmRhcnktdGl0bGU+Sm91cm5
hbCBvZiBHZW9waHlzaWNh
bCBSZXNlYXJjaDwvc2Vjb25kYXJ5LXRpdGxlPjwvdGl0bGVzPjxwZXJpb2Rp
Y2FsPjxmdWxsLXRp
dGxlPkpvdXJuYWwgb2YgR2VvcGh5c2ljYWwgUmVzZWFyY2g8L2Z1bGwt
6
dGl0bGU+PC9wZXJpb2Rp
Y2FsPjxwYWdlcz40NTYwPC9wYWdlcz48dm9sdW1lPjEwODwvdm9sdW1l
PjxudW1iZXI+RDE3PC9u
dW1iZXI+PGRhdGVzPjx5ZWFyPjIwMDM8L3llYXI+PC9kYXRlcz48dXJscz4
8L3VybHM+PC9yZWNv
cmQ+PC9DaXRlPjxDaXRlPjxBdXRob3I+V2FuZzwvQXV0aG9yPjxZZWFyP
jIwMDk8L1llYXI+PFJl
Y051bT41NjwvUmVjTnVtPjxyZWNvcmQ+PHJlYy1udW1iZXI+NTY8L3JlYy
1udW1iZXI+PGZvcmVp
Z24ta2V5cz48a2V5IGFwcD0iRU4iIGRiLWlkPSJmMHNhNXN2dm9kNXZ3Y
mV6eHoweDB2dHd2OTVm
OXNmZmRkZnQiPjU2PC9rZXk+PC9mb3JlaWduLWtleXM+PHJlZi10eXBlI
G5hbWU9IkpvdXJuYWwg
QXJ0aWNsZSI+MTc8L3JlZi10eXBlPjxjb250cmlidXRvcnM+PGF1dGhvcnM
+PGF1dGhvcj5XYW5n
LCBILjwvYXV0aG9yPjxhdXRob3I+TGl1LCBELjwvYXV0aG9yPjxhdXRob3I
+RGFpLCBHLjwvYXV0
aG9yPjwvYXV0aG9ycz48L2NvbnRyaWJ1dG9ycz48dGl0bGVzPjx0aXRsZT
5SZXZpZXcgb2YgbWFy
aXRpbWUgdHJhbnNwb3J0YXRpb24gYWlyIGVtaXNzaW9uIHBvbGx1dGlv
biBhbmQgcG9saWN5IGFu
YWx5c2lzIDwvdGl0bGU+PHNlY29uZGFyeS10aXRsZT5Kb3VybmFsIG9mI
E9jZWFuIFVuaXZlcnNp
dHkgb2YgQ2hpbmE8L3NlY29uZGFyeS10aXRsZT48L3RpdGxlcz48cGVy
aW9kaWNhbD48ZnVsbC10
aXRsZT5Kb3VybmFsIG9mIE9jZWFuIFVuaXZlcnNpdHkgb2YgQ2hpbmE8
L2Z1bGwtdGl0bGU+PC9w
ZXJpb2RpY2FsPjxwYWdlcz4yODMtMjkwPC9wYWdlcz48dm9sdW1lPjg8L3
ZvbHVtZT48bnVtYmVy
PjM8L251bWJlcj48ZGF0ZXM+PHllYXI+MjAwOTwveWVhcj48L2RhdGVzPj
x1cmxzPjwvdXJscz48 L3JlY29yZD48L0NpdGU+PC9FbmROb3RlPgB= [1-
4]. Along with other types of emissions, recent studies have
documented the steady increase of ship-based CO2 emissions. The
7
expansion of international trade has led to substantial increases in CO2
emissions from ocean shipping. CO2 emissions from the international
maritime industry doubled between 1994 and 2007. Without policy
measures, CO2 emissions are projected to grow between 150% and
300% by 2050 and may contribute to as much as 12.7% of the total
global CO2 emissions, despite significant market-driven efficiency
improvements [1].
A few technical and operational measures have been proposed or
implemented to reduce ship-based CO2 by the industry [5]. Most
measures can achieve some degree of energy efficiency improvement.
For example, Propulsion Dynamics, a company specializing in hull and
propeller performance monitoring, estimates significant fuel savings
from such monitoring; Man Diesel, a diesel engine supplier, analyzes
the costs and savings of engine derating and turbocharger cut-off; and
Wettstein and Brown compute the payback time of engine derating
using data provided by Wärtsilä, a leading ship design firm.
Shipping firms are beginning to use these measures to save fuel
and reduce CO2. The Nippon Yusen Kaisha (NYK), Japan’s largest
shipping company, adopted a plan to reduce the speeds of more than
740 containerships by 10% each year from 2008 [6]. The NYK also
cooperated with Toyota to power the car carrier using solar panels. The
vessel is outfitted with 328 solar panels that can generate up to 40
kilowatts, decreasing demand on the ship’s diesel-powered auxiliary
engines for electricity [7]. A. P. Moller-Maersk combined some of these
measures in his daily operation and achieved significant CO2 reduction.
These measures included increasing ship sizes, reducing fleet speeds,
retiring old and inefficient vessels, minimizing waiting time at
terminals, and improving the efficiency of main engines. The company
claimed that the CO2/TEU-km dropped 8.9% in 2007 and 15% in 2008,
both compared with the 2002 level [8].
The enthusiasm to increase energy efficiency is further powered by
the price of fuel, which reached its peak in the summer of 2008.
Although the price has collapsed since then, it has recovered and
8
remains at a historically high level. The concern of potential CO2
reduction regulation and associated costs also incentivizes shipping
firms to investigate in energy-saving options both from an
environmental and an economic perspective.
The costs and benefits of these measures are being evaluated. The
IMO 2009 GHG Study divided these measures to indicate which were
mutually exclusive and which could be implemented simultaneously
[1]. This report was among the first to comprehensively review the
costs and benefits of energy-saving measures. Another comprehensive
overview to date is by CE Delft et al. [9]. This report presented a
thorough cost-effectiveness analysis and a marginal abatement cost
curve for 29 measures in 12 groups, taking into account 14 different
ship types, often subdivided in several size categories. The Society of
Naval Architecture and Civil Engineers (SNAME) conducted an analysis
to update the CE Delft report using updated data and refined
methodology. The report considered 29 measures in 15 groups for 318
different ship type, size, and age combinations. All three of these
reports concluded that a large amount of CO2 could be reduced
inexpensively [10]. For example, the SNAME report showed that about
35% or 580 million metric tons of CO2 could be reduced at a negative
abatement cost in 2020.
Although studies have shown the aggregated marginal cost of all
ships and the decreasing average cost per unit of ship has been
observed in almost all cargo ship types [11][12], the relationship
between the marginal abatement cost and ship size remains unclear,
creating a knowledge gap that this study is going to fill.
Understanding this relationship can help policy makers, the
industry, and other stakeholders in many ways. First, it can facilitate
the discussion of the Energy Efficiency Design Index (EEDI), which was
proposed to increase the energy efficiency of newly-built ships.
Currently, the EEDI is based on ship types [13], but policymakers may
modify this if the marginal abatement cost (MAC) varies significantly
by ship sizes. Second, if the economies of scale do exist, the potential
9
CO2 regulations may drive ships to be built even larger, a trend that
has already been observed. The policy may create winners and losers
among shipowners who own different sizes of ships. Third, the already-
constrained port and canal infrastructures may need more upgrades as
ships become larger [14]; port and canal authorities may have to
further upgrade their infrastructures and facilities.
The remainder of the paper is organized as follows: Chapter 2
introduces the methodology and data and illustrates specific ship types
and sizes this study is going to focus on, Chapter 3 presents the
average CO2 reduction per ship capacity for both new ships, and
existing and new ships combined, and Chapter 4 concludes the study.

2. Methodology and Data

The methodology of this study follows Wang et al (2010) with
some major modifications [10]. The MAC of each measure is a
combination of the cost, the savings, and the CO2 reductions from a
given measure. The cost includes the purchasing cost, the installation
cost, the service cost, the opportunity cost, and any other cost. The
saving is primarily from fuel savings from the energy efficiency
improvement. If CO2 has a monetary value, for example, it is taxed or
mandated to reduce in the future, the value of the saved CO2 should
also be included. The CO2 cost can be easily converted into the fuel
cost using Equation 1:

1
F= × CP
Ck

F is the price increase of fuel, Ck is the carbon content of fuel type k,

and CP is the carbon reduction cost. For each fuel type k, the carbon
converter is different. The emission factors of residual oil and marine
diesel oil are about 3130 kg/ton and 3190 kg/ton of fuel, respectively.
The MAC of the measure i of a given ship type and ship size
combination can be reflected in Equation 2:

10
 C t,s,i + ∑ O Ct,s,i − ∆Ft,s,i × P
MAC t,s,i =
E t,s × ∆Rt,s,i
t and s represent ship type and size combination, respectively; Ct,s,i is
the cost of purchasing, installing, and using measure i in annuity; it
includes all costs associated with the use of measure i except for the
opportunity cost; Σ OCt,s,i is total opportunity cost of using the measure
i; ∆ Ft,s,i is the fuel savings from measure i for a given ship type and size
combination; P is the fuel price; Et,s is the total CO2 emission of ship
type t and ship size s; ∆ Rt,s,i is the CO2 reduction potential of measure i.
For Ct,s,i, the effect of some services and technologies may last
more than one year, and the cost is discounted and allocated over the
lifetime of the service or technology. This relationship is shown in
Equation 3:
Ct,s,i = NPV (r,li ,Ii )

r is the discount rate; li is the lifetime of the measure i; Ii is the initial

investment of measure i. The purchasing cost each year is the net
present value (NPV) of the initial investment.
There are several types of opportunity costs. Sometimes, ships
have to be put out of service for several days to be retrofitted with
energy-saving technologies. If the days exceed that of dry-docking,
these ships will lose profits that they would have made had they been
in service. Another example is the slow steaming: when ship speeds
are slowed, more ships are needed to cover the lost frequency. The
capital cost and operational cost from these extra ships require
substantial investment.
The MAC varies by ship size for each ship type. This paper selects
8 types of ships with 37 ship sizes (Table 1). The MAC of each ship size
within each ship category is then compared.

Table 1. Ship types and sizes in this analysis

Ship Type Ship Size

Crude Tanker A 200,000+ DWT
11
 B 120 -199,999 DWT
C 80 -119,999 DWT
D 60 -79,999 DWT
E 10 -59,999 DWT
F -9,999 DWT
A 60,000+ DWT
B 20 -59,999 DWT
Product Tanker C 10 -19,999 DWT
D 5 -9,999 DWT
E -4,999 DWT
A 20,000+ DWT
B 10 -19,999 DWT
Chemical Tanker
C 5 -9,999 DWT
D -4,999 DWT
A 200,000+ DWT
B 100 -199,999 DWT
C 60 -99,999 DWT
Bulk Carrier
D 35 -59,999 DWT
E 10 -34,999 DWT
F -9,999 DWT
A 10,000+ DWT
General Cargo B 5,000-9,999 DWT
C -4,999 DWT
D 10,000+ DWT, 100+ TEU
General Cargo with Container E 5,000-9,999 DWT, 100+ TEU
F -4,999 DWT, 100+ TEU
A 8,000+ TEU
B 5 -7,999 TEU
C 3 -4,999 TEU
Container
D 2 -2,999 TEU
E 1 -1,999 TEU
F -999 TEU
Cruise A 100,000+ GT

12
 B 60-99,999 GT
C 10-59,999 GT
D 2-9,999 GT
E -1,999 GT

For each of the 37 ship type and size combinations, a variety of

energy-saving measures can be applied. These measures are then
plotted in the marginal abatement cost curve (MACC). The curve
represents the MAC of each measure and can be used to compare the
reduction cost of each ship size. The MACC can be illustrated in
Equation 4:

 MACs,t,1 m1 
 
MACCs,t =  MACs,t,2 m 2 
 
 ... ...
m1 is the measure corresponding to the MAC.

These energy-saving measures are then ranked on the basis of

their cost-effectiveness. The most cost-effective measure is assumed
to apply first, followed by the second most cost-effective, and so on.
The average MAC for a given ship type and size is then calculated
using the MAC of each measure weighted by the CO2 reduction of the
measure. This relationship can be reflected in Equation 5:

M ACs,t =
(M AC s,t,n1 )
× (E s,t × ∆Rs,t,n1 ) + M ACs,t,n 2 × (E s,t × (1 − ∆Rs,t,n1 ) × ∆Rs,t,n 2 ) + ...
(E s,t )
× ∆Rs,t,n1 + E s,t × (1 − ∆Rs,t,n1 ) × ∆Rs,t,n 2 + ...

ni represents the measure with the lowest MAC. In other words,

M ACs,t,n i = min (M ACs,t,i )

2.2 Data and Assumption

The baseline ship data comes from the IMO 2009 GHG report,
which presented the average yearly activities and fuel consumption of
14 ship types with 53 ship sizes in 2007. This study takes a portion of
these ship types and their sizes and analyzes the economies of scales

13
by comparing the MACs in 2020. The ship growth rates by ship type
and size are also taken from the IMO 2009 GHG report.
The year 2020 is chosen as the target year because some of the
technologies are not currently available or their costs have not yet
stabilized. Historically, when a new technology is first commercially
applied, the cost may decrease as an effect of competition, maturity of
the technology, economies of scale, etc. Therefore, consistent with
Wang et al (2010), a 10% cost reduction over the next five years is
then assumed for the air lubrication technology and the waste heat
recovery technology. After five years and the 10% price decrease, the
costs are assumed to stabilize for these two technologies. The 10%
learning rate is also consistent with the learning rate estimates of the
ship building industry by NASA [15]. The other three technologies that
are forecasting price decreases in the next five years are wind engines,
wind kites, and solar panels. A 15% price reduction is assumed for
wind engines, wind kites, and solar panels, consistent with the
observed learning rates of their onshore counterpart [16]. For other
technical and operational measures, no learning effect is assumed
because, as Wang et al (2010) point out, these measures have already
been employed by some ships and the learning effect is assumed to
run out [10].
Some of the individual abatement measures that are accounted
for may exclude each other because these measures cannot and will
not be applied at the same time[9, 10]. Therefore, it is useful to
subsume the individual abatement options to groups (whereas the
measures that exclude each other are being allocated to the same
group) and to ultimately present the marginal abatement cost curve on
an option-group basis. Abatement options should exclude each other
because these measures aim at reducing vessel energy loss in the
same way, and no extra abatement can be expected from combining
these options. For example, there will be no extra emission reduction
from cleaning a hull that has recently been blasted. Abatement options
should also exclude each other because a combination of these
14
 measures would not be feasible due to practical reasons. Two technical
options that require a lot of deck space or two options whose
combination might turn out to be counterproductive (or may even
constitute a safety hazard due to unpredictable interactions) must be
classified as mutually exclusive too. The combination of towing kites
and wind engines is an example of two options that are allocated to
the same option group. Therefore, these 22 technologies are classified
into 15 groups, shown in Table 2.
The opportunity costs of technical and operational measures,
except for the operational speed reduction, are associated with the
“extra days beyond dry docking.” The estimated extra days are listed
in Table 2:
Table 2. Technical and Operational Measures
Technical and Learni
Operational ng Opportunity Suitable
Measures Group Rate Cost Ship Types
Operational Speed All except
Reduction (10%) Operational No Fix and for Cruise
Operational Speed speed reduction operational costs All except
Reduction (20%) No from extra ships for Cruise
Weather Routing Weather routing No No All
Autopilot Autopilot
upgrade/adjustment upgrade/adjustm
ent No No All
Propeller polishing at
regular intervals No No All
Propeller
Propeller polishing
polishing
when required (include
monitoring) No No All
Hull cleaning Hull cleaning No No All
Hull coating 1 No 1.5 extra days All
Hull coating 2 Hull coating beyond the dry
No docking All
Air lubrication Air lubrication 1.5 extra days All ship type
beyond the dry with ship
15% docking size limit
Propeller rudder Propeller
upgrade upgrade No No All
Propeller boss cap fin 1.5 extra days
beyond the dry
No docking All
Propeller upgrade No 1 extra day All
15
 beyond the dry
docking
Common Rail 1 extra day
beyond the dry
Main engine No docking All
Main Engine Tuning retrofit 1 extra day
beyond the dry
No docking All
Waste Heat Recovery Waste heat
recovery 15% No All
Wind engine 4.5 extra days All ship type
beyond the dry with ship
20% docking size limit
Wind power
Wind kite 1 extra day
beyond the dry
20% docking All
Solar Power Solar power 1 extra day
beyond the dry
20% docking All
Speed control pumps Speed control 1 extra day
and fans pumps and fans beyond the dry
No docking All
Energy saving lighting Energy saving
lighting No No Cruise
Optimization water flow Optimization 1 extra day
water flow beyond the dry
No docking All
For the 22 measures, most costs and CO2 reduction data are
derived from Wang et al. (2010). This report was published by SNAME,
and it provided comprehensive data on 22 technologies, operational
measures, and other validated input, such as the discount rate, future
fuel prices, and ship age distribution.

Other costs data, including new shipping building data and

operational cost data, come from the Review of Maritime Transport,
published by the United Nation Conference on Trade and Development,
and the Ship Operational Cost 2009, published by Drewary. When the
new building ship price data are missing, the ship data from the Army
Corps of Engineers are used.

3. Result

16
 Figure 1 shows the MAC of various technical and operational
measures for a given ship type. For each ship, the energy-saving
measures are ranked by their MAC. The measure with the lowest MAC
is assumed to be applied first, followed by the measure with second
lowest MAC, and so on. The number of measures that could be applied
vary by ship size. For example, the air lubrication can only be used by
crude oil tankers and bulk carriers larger than 60,000 dwt, and full
container vessels larger than 2000 TEU. In this case, the comparison is
made only for measures that these ship sizes all have. For example, if
the largest crude tankers can use 14 of the 15 energy-saving
measures, and the smallest crude tankers can only use 12 of the 14
measures, then the MAC of the first 12 groups of measures used by the
largest crude tankers are selected and compared with the MAC of
measures used by the smallest crude tankers.
Figure 1 illustrates obvious economies of scale. Larger ships
generally have a smaller MAC. The trend is especially palpable for
crude tankers, containerships, and cruise ships. More startlingly, there
is a significant MAC increase for the smallest size category for each
ship type, especially when the first four or five inexpensive energy-
saving measures run out. This indicates that the smallest ships could
be more vulnerable than larger ships to absorb cost increases from the
CO2 reduction.

17
 700
3500
500
600
3000
400
500
2500
300
400
2000
200
300
1500
100
200
1000
0
100
500
0
-100 1 2 3 4 5 6 7 8 9 10
-100
0
-200 1 2 3 4 5 6 7 8 9 10 11
)M m

-200
lA
C

1 2 3 4 5 6 7 8 9 10 11 12
pb
($
o
e g
in
a

-500
m M s

-300
)MmlA pC
($
olA
b
te g
in
a)t r

General Cargo with Container

pC
($b rg
in s

-300
o
te
s a r

-1000 Bulker
-1500 D10,000+dwt, 100+TEU E 5,000-9,999 dwt, 100+TEU
A 200,000+dwt B100Chemical Tanker
-199,999 dwt C60 -99,999dwt
F -4,999 dwt, 100+TEU
D35 -59,999dwt E10 -34,999dwt F-9,999 dwt
A 20,000+dwt B 10 -19,999 dwt C5 -9,999 dwt D-4,999 dwt

Using a similar methodology, we produce Figure 2, which

compares the MAC of different size categories only for new ships. We
assume that all technologies can be retrofitted on new ships to reduce
the energy consumption and increase the ship’s EEDI. No operational
18
measure can be applied, except for the speed reduction, which is a
proxy for the designed speed reduction. The designed speed reduction
has been recognized as a powerful parameter to influence the EEDI.
Capturing the effect of this parameter is helpful for the EEDI
discussion.
Figure 2 shows more obvious economies of scale than Figure 1.
For almost all ship types, the MAC increases when the ship becomes
smaller. Again, such a trend is most palpable for the smallest ship
sizes.

19
 500
150
150
1000
400
1000
1200
100
100400
1000
800
300
800
300
50
300
800
600
200
50600
200
0
200
0600
400
100
400
-50
100 1 2 3 4 5
-50 400
2000 1 2 3 4 5
-100 0
200
0
200
-100
-100
-150 0 11 2 2 3 3 4 4 5 56
-100
0 1 2 3 4 5
-100
-200 0 1 2 3 4 5 6 7
-200
-150
-200 1 2 3 4 5 6 7
m

1 2 3 4 5 6 7
)M

-200
-250
-200
-300
m
)M Mm lA
C
p
b
$ g
in

-300
-400
o
e a

-200
lA s

Containe rsheip
C

Clrru
Tais
plA
C
b
($
o
e p
($
g
in
ao
sb
te rg
ina
t
)
( r

Chem
Buic
lka
e nker
)Mm s

-400
pC
($
olA
b rg
in t r

-300
te a

Produc
CrudetTa
Tnk
ank
erer
s

-250
A
A8,000+ teugt
100,000+ General GCargo
B5B-7,999enera
teulwith
60-99,999 C
gatrgo C3 -4,999
TEU teu gt
C10-59,999
A 200,000+dwtA 20,000+dwt B100 -199,999B10 -19,999
dwt dwtC60 -99,999dwt
D 10,000+
A dwt,
D100+
D
200,000+
A 60,000+
dwtTEU
22-9,999
-2,999
dwtgt E 5,000
teu B -9,999
EB
1E20
120-1,999dwt,
gt100+
teu
-199,999
-59,999
-1,999 dwt
dwtTEUF -999CFC-4,999
teu
10 dwt, 100+
80-19,999
-119,999dwt
dwtTEU
D35A-59,999
10,000+ dwt
C5 -9,999 dwt
dwt E10 -34,999
D-4,999
B5,000-9,999 dwtdwtdwt F -9,999 dwt dwt
C-4,999
D60D-79,999
5 -9,999
dwt
dwt EE
10-4,999
-59,999
dwt
dwt F -9,999 dwt

Applying Equation 4, we calculate the average MAC by ship type

and ship size. The result is demonstrated in Figure 3. Figure 3 shows
that the average MAC becomes higher when the ship size gets smaller,
although this is not unanimous for all ship types and all ship sizes:
there are some exceptions for crude tanker, bulk carrier, and cruise
ships. For most ship types, Figure 3 shows positive abatement costs for

20
the smallest size category and negative abatement costs for other size
categories.
Figure 4 shows the average MAC for new ships. Similar to Figure 3,
it shows a higher average MAC for smaller ships and some outliers in
crude tankers, bulk carriers, and cruise ships. Figure 4 reiterates that
the MAC of the smallest ship is much higher than the MAC of other ship
sizes.
Some conclusions can be drawn from Figures 1 - 4. Although there
are some exceptions with crude tankers, bulk carriers, and cruise
ships, larger ships generally have more options to reduce CO2, and can
do so more economically. Ships in the smallest size category incur a
much higher average MAC when existing and new ships are combined
together. If only new ships are considered, the MAC of the smallest
ships is much higher than the MAC of other sizes, with the exception of
the crude tanker and the bulk carrier. Even for these two types of
ships, the MAC of smallest ships is higher than the average MAC of all
ships.

21
 150
500
600
250
600
200 A100,000+ B60-99,999 C10-59,999 D2-9,999gt E -1,999gt
-20
500
500
100 gt gt gt
1500
-40
400
400
A 8,000+ B5 -7,999 C3 -4,999 D2 -2,999 E 1 -1,999 F -999 teu
10050
-60
300
300 teu teu teu teu teu
-50
50
-80
200
2000
0 D10,000+dwt, 100+ E5,000-9,999 F -4,999 dwt, 100+
-100
)C p
n
($
eo
-100
mC p
rn
)ot($s
100
e
100 A 200,000+TEU
p
nC
($
eo r
s
)t

-50 B120 - C80dwt,

- 100+D60 -
TEU E 10 - FTE
-9,999
U
s

-50
rt

dwt 199,999 119,999 79,999dwt 59,999 dwt dwt

W

-120
00
M

0
W m M W

-100
m lA

-150
M bd
ig
n
h

dwt dwt
lA
b td
rn
aig
heae

-100 AA
lA r
t

20,000+ dwt B 10-59,999

-19,999 dwt C5dwt
-9,999D
dwt D-4,999 dwt dwt
bd
ig
n
h
ae

-100
-140 A 10,000+
60,000+ dwt
B20 B 5,000-9,999
C 10 -19,999 5 C -4,999
-9,999 dwt
E -4,999
r
t

-100
-100
-150 dwt dwt dwt dwt
-200
-160
-150
-200
-200
Chemical
Containership
Cruise
General
General
Crude Tanker
Cargoship
with
nkerTEU
Tanker
Cargo
Product Ta

22
 40 300
350
300
400
200
250
10
350
250
300
250 A 8,000+ B5 -7,999 C3 -4,999 D2 -2,999 E 1 -1,999 F -999 teu
20 -20
200
0 teu teu teu teu teu
300
200
250
200
0 -40
-10
250 D10,000+dwt, 100+
150
150
200
E 5,000-9,999 F -4,999 dwt, 100+
150
A-20
100,000+gt BTEU60-99,999 gt C10-59,999
dwt, 100+gtTEU
D2-9,999 gt E -1,999 gt
TEU
-20 -60
200
100
150
100
100
-30
-40 -80
150
100
50
-4050
mC

50
)C )o
p
rn
t($
e op
rn
t($
e s
100
C s
)

-60 -100
p
rn
t($
e o

0
50
-50
s

0
W

50
W M

-5000 AA200,000+
m

-60 B120 - C80 - D60 -79,999 E 10 -59,999 F-9,999 dwt

M lA

-80 -120
m W b td
rn
aig
he

200,000+ B100dwt
- 119,999
C60 -dwt D35 dwt- E 10 - F-9,999
W MlA
b td
rnig
he

-50
m M a

dwt 199,999 dwt

lA

0
b d
ring
h

A 10,000+ dwt-59,999 BC5,000-9,999

59,999dwt 34,999Cdwt
-4,999 dwt
lA te
a

-70
b td
rn
aig
he

-50
-100 dwt
A 60,000+ 199,999
B20 99,99910dwt
-19,999 dwt
D 5 -9,999 E -4,999dwt
dwt
-100 -50
-140
-100
-50 A 20,000+
-80 dwt dwtdwtB10 -19,999 dwt C5 -9,999
dwt dwtdwt D-4,999 dwt
-100
-150
-120 -160
-150
-90
-100
CrudeTanker
Product Tanker
Containership
Cruise
Bulke
GeneralChemical
Cargo
General Ship
Carrier
Tanker
with
Cargo
Container

4. Conclusion:
This paper has shown that there are significant economies of
scales with the CO2 reduction cost in the shipping industry. Generally
speaking, it costs less for bigger ships to reduce their CO2. Although

23
there are some exceptions, economies of scale exists for both existing
and new ships.
As the IMO is moving toward reducing ship-based CO2, there are a
host of policy options to reduce CO2 from existing and new ships, such
as the EEDI and the ship energy efficiency management plan (SEEMP).
The EEDI focuses on improving energy efficiency of new ships. Ships
smaller than 400 GT are exempted from the EEDI proposal. The SEEMP
focuses on the energy efficiency improvement of existing ships [17].
The IMO has used both the EEDI and the SEEMP as a voluntary and
interim package since MEPC 59, and it proposed the draft mandatory
texts in MEPC 60. It is likely that both the EEDI and the SEEMP are
adopted as the mandatory approach in MEPC 61. Other policy options,
such as emission trading and carbon tax, are under discussion too. The
international community is also making progress to enhance ship-
based CO2 reduction.
The potential CO2 reduction regulation is likely to have a profound
influence on the shipping industry. Enlarging ship sizes can
significantly reduce the average compliance cost. It will add to the
existing momentum of increasing ship sizes. The smaller ships will be
hit especially hard because they have a significant disadvantage in
average CO2 reduction costs. The only exception seems to be the
crude tanker, where the medium size has the lowest reduction cost.
Shipping firms operating mostly small ships may feel the pain.
These firms are usually from small developing countries, or from
countries that defend their shipping industry from foreign competition.
The United States, for example, may be hurt due to the domestic
protection imposed by the Jones Act. The maritime transportation and
international trade costs may also increase because the market lacks
competition to drive down costs or to incentivize shipping firms to
order larger ships.
The trend that ships, especially containerships, are getting bigger
has already challenged port and canal infrastructures. The potential
CO2 reduction regulation and its uneven impact on different ship sizes
24
are likely to provide extra incentives to ship owners to order larger
ships, and they may create extra burden on port and canal authorities
to upgrade their infrastructures.
Enlarging ship sizes can also reduce unit CO2 reduction. More
commodities can be packed into one ship and thus reduce frequencies,
enabling shipping firms to further reduce ship speed. Quantifying this
effect, however, is out of scope of this work.

Reference:
1. IMO, Updated Study on GHG Emissions From Ships. 2009, MPEC.
2. Corbett, J.J. and P.S. Fischbeck, Emissions From Ships. Science,
1997. 278(5339): p. 823-824.
3. Endresen, Ø., et al., Emission from International Sea
Transportation and Environmental Impact. Journal of Geophysical
Research, 2003. 108(D17): p. 4560.
4. Wang, H., D. Liu, and G. Dai, Review of maritime transportation
air emission pollution and policy analysis Journal of Ocean
University of China, 2009. 8(3): p. 283-290.
5. Crist, P., Greenhouse Gas Emissions Reduction Potential from
International Shipping, in International Transport Forum. 2009:
Leipzig, Germany.
6. Wallis, K. NYK joins rush to reduce ship speeds. 2008 [cited
2010 September 1]; Available from:
http://www.lloydslistdcn.com.au/archive/2008/jan/10/nyk-joins-
rush-to-reduce-ship-
speeds.http://www.lloydslistdcn.com.au/archive/2008/jan/10/nyk-
joins-rush-to-reduce-ship-speeds
7. Mongelluzzo, B. Solar-Pushed NYK Ship Arrives at Long Beach.
The Journal of Commerce 2009 [cited 2010 August 30];
Available from: http://behindthewheelnews.toyota.com/?
id=229.http://behindthewheelnews.toyota.com/?id=229
8. Kat, J.O., et al., An Integrated Approach towards Cost-Effective
Operation of Ships with Reduced GHG Emissions, in SNAME
Annual Meeting 2009: Rhode Island.
9. CE Delft, Technical support for European action to reducing
Greenhouse Gas Emissions from international maritime
transport. 2009, CE Delft.
10. Wang, H., et al., Marginal abatement costs and cost-
effectiveness of energy-efficiency measures. 2010, Soceity of
Naval Architect and Marine Engineers: Jersey City.
11. Jansson, J.O. and D. Shneerson, Economies of Scale of General
Cargo Ships. The Review of Economics and Statistics, 1987.
60(2): p. 287-293.

25
12. Jansson, J.O. and D. Shneerson, The Optimal Ship Size. Journal of
Transport Economics and Policy, 1982. 16(3): p. 217-238.
13. IMO, Consideration of the energy efficiency design index for new
ships guideline for the uniform definition of electric power table
for EEDI Submitted by Cruise Lines International Association.
2009, MEPC59: London.
14. Notteboom, T. and B. Vernimmen, The effect of high fuel costs on
liner service configuration in container shipping. Journal of
Transport Geography, 2009.
15. NASA. Learning Curve Calculator. 2005 [cited 2010 May 21];
Available from:
http://cost.jsc.nasa.gov/learn.html.http://cost.jsc.nasa.gov/learn.h
tml
16. McDibakdm, A. and L. Schrattenholzer, Learning rates for energy
technologies. Energy Policy, 2001. 29(4): p. 255-261.
17. IMO, Consideration of the energy efficiency design index for new
ships. 2009, MEPC59: London.

26