LNGC Emissions - We demand efficiency!

This week we look at a theoretical multi-stage game model, where a shipowner seeks to maximize their payout (EBITDA/NOIC) with respect to the price of potential binding carbon emission allowance. While the model is theoretical (for now), it does allow behavioral dynamism to change the regulatory rents a governing body can obtain, and use to combat the effect of the erosion of the commons.

While this model is again not exhaustive, and works under an amended general equilibrium assumption, we find that emission from the most modern LNGC increases roughly 20% and second generation (TFDE) units by about 10%. This increase however is caused by increased vessel demand within these segments, which is both economically beneficial (for a shipowner) and a macro-prudential effect of increased regulatory scope. Further, given demand effect, it is probable these inflationary costs can be passed down the energy supply chain (especially given todays environment).

First generation (ST) are rendered marginalized as the auto-regressive effect of inflation carbon and price renders their regulatory and economic benefits limited. An important caveat is however, that ST do represent >35% of the market, and their marginalization will be pro-cyclical with modern carrier demand.

MOIC 31 Jan.pdf

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