Evaluating Feebates for Decarbonization by Required Freight Rate

The economics of ship operations are investigated when a feebate system of carbon dioxide equivalent (CO2e) tax levies or subsidies are applied. The CO2e intensity of the ship has been proposed as a means of aiding achieving the IMO goals for reduced shipping emissions. The intended impact on operational costs should spur behavior to reduce emissions, introduce more efficient ships and change to lower carbon fuels. The Required Freight Rate (RFR) was first proposed in the 1960’s as a way to analyze the economic features of a particular ship and its service over its lifetime. It proved to be a means of identifying the optimum vessel characteristics for design and construction, the speed at which it would most economically operate and the required revenue per unit weight of cargo to meet financial goals. The RFR analysis is utilized herein to determine the vessel profitability and fuel consumption at alternate operating speeds along with the impact of a tax levy or subsidy. The result is a rational evaluation of operations with the amount of CO2e and tax or subsidy as variables.