The Impact of Green Finance on the Penetration of Alternative-Fuel Vessels and Associated Greenhouse Gas Emissions Reduction

Abstract

The renewal of vessel fleet with the penetration of alternative- and green-fuel vessels is critical for the maritime transport sector to meet the net-zero greenhouse gas (GHG) emission target around 2050. However, the high upfront investment of alternative-fuel vessels is a major barrier to their market penetration. This study proposes a system dynamics method to investigate the impact of green credit and carbon trading on the penetration of alternative-fuel vessels and associated GHG emissions reduction. This framework consists of two interrelated models: a maritime transport model, which simulates freight transport processes, including freight demand, traffic flow, fleet evolution, and GHG emissions, and a green finance support model, which quantifies the mechanism of green credit and carbon trading on increasing shipping companies’ intention to use alternative-fuel vessels. The proposed model is applied to a feeder vessel fleet serving a major seaport in China. The results show that the implementation of green credit significantly accelerates the penetration of alternative-fuel vessels and reduces GHG emissions from the vessel fleet. In contrast, carbon trading shows a weaker effect on mitigating GHG emissions than green credit primarily due to its low price. The sensitivity analysis reveals that other factors, such as vessel price, the pace of the greening of methanol, and price of conventional fuels also significantly influence GHG emissions from the vessel fleet. These results indicate that a combination of multiple green financial instruments can facilitate the decarbonization of maritime transport sectors.