Question

In: Economics

ead the following: “From 2020, ship-owners must clean up their act as part of sweeping plans...

  1. ead the following: “From 2020, ship-owners must clean up their act as part of sweeping plans designed to reduce the industry’s greenhouse gas emissions by at least 50 per cent by 2050 compared with 2008. In January a sulphur cap will be adopted and later carbon emissions will be tackled. While industries such as road transport, power and even aviation have made environmental progress, shipping is one of the last bastions of the old fossil-fuel world order… S&P Global Platts analysts say the rule change could cost the global economy $1tn over five years….[] Most ship-owners will switch to lower-sulphur fuel oil while others, such as Mr. Norton’s company, are installing exhaust scrubbers to strip out the sulphur from their vessels’ emissions. While some systems store the waste on board until it can be treated on land, others discharge it into the ocean.” (Pollution: the race to clean up the shipping industry, Anjli Raval, Josh Spero and Chris Campbell, London, May 30 2019)

Answer the following based on the article extract above:

  1. (3pts) Which link in the market mechanism will be impacted first by what you read above (i.e. supply, demand or freight rate)? Supply will be impacted first
  1. (3pts each) What will happen to the following shipping industry stakeholders as a result of the Sulphur cap implementation?
    1. Supply
    2. Demand
    3. Ports
    4. Canals (like the Suez and Panama)
    5. Regulators like IMO
    6. World Fleet
    7. Shipping investors
    8. viii.Freight Rate

Solutions

Expert Solution

What will happen to the following shipping industry stakeholders as a result of the Sulphur cap implementation?

  1. Supply
  2. Demand
  3. Ports
  4. Canals (like the Suez and Panama)
  5. Regulators like IMO
  6. World Fleet
  7. Shipping investors
  8. Freight Rate

1. SUPPLY - The supply will reduce as the cost of production goes up due to installing scrubbers, waste processing, or using low sulfur oil which would cost more. You can visualize the supply curve shifting up.

2.DEMAND - The demand in the shipping industry will be impacted.

3.PORTS - With the increase in the cost of carrying out shipping activities the demand for ports will be reduced and their use would reduce.

4.CANALS - The canals will be cleaner and less congested.

5.REGULATORS LIKE IMO - The IMO's primary purpose is to develop and maintain a comprehensive regulatory framework for shipping and its remit today includes safety, environmental concerns, legal matters, technical co-operation, maritime security, and the efficiency of shipping. With sulphur capping, the work of IMO will be facilitated.

6.WORLD FLEET - The world fleet of ships will reduce as only those ships that will remain viable after accounting for the increased cost, will operate.

7.SHIPPING INVESTORS - With a reduction in profit due to an increase in cost, the investment flowing to the shipping industry will be hampered and reduced due to a reduction in expected profitability.

8.FREIGHT RATE - The freight rates will rise as the cost of fuel increases. Low sulphur oil will cost more, the installation of scrubbers and waste storage on board will increase the cost of operating ships per unit of fuel.


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