There is significant potential to improve the fuel efficiency of ships and thus contribute to reducing greenhouse gas emissions from maritime transport. It has long been recognised that this potential is not being fully exploited, owing to the existence of non-market barriers.
This report analyses the barriers to implementing fuel efficiency improvements, and concludes that the most important of these are the split incentive between ship owners and operators, a lack of trusted data on new technologies, and transaction costs associated with evaluating measures. As a result, in practice about a quarter of the cost-effective abatement potential is unavailable.
There are several ways to overcome these barriers. The split incentive can – to some extent – be overcome by providing more detailed information on the fuel efficiency of vessels, making due allowance for operational profiles. This would allow fuel consumption to be more accurately projected and a larger share of efficiency benefits to accrue to ship owners, thus increasing the return on investment in fuel-saving technologies. This would also require changes to standard charter parties.
The credibility of information on new technologies can be improved through intensive collaboration between suppliers of new technologies and shipping companies. In order to overcome risk, government subsidies could provide an incentive. This could have the additional benefit that governments could require publication of results.