Institute of Transportation, MOTC

       This study utilizes the Federal Fund Rate to identify three business cycles in the field of international shipping: prosperous, steady, and sluggish. Then by combining the data regarding emission caps and the trade mechanisms, this study proposes models which consider two different scenarios for shipping vessels depending on whether they are in keeping with the EEDI or not during the different business cycles based on carbon allowance allocation problems (CAAP) in the shipping sector. For the CAAP, the critical issues for the decision maker is to decide the free carbon allowance level α to achieve the emission target set by the Paris Agreement. This is critical for shipping companies which want to follow the allocated free carbon allowance to minimize their cost-benefit ratio (CBR). The results show that the shipping freight rates during prosperous business cycles are higher. In addition, vessels which travel at higher speeds use more of their total profits for fuel costs. When comparing during the different business cycles, the proportion spent on shipping is higher in the sluggish business cycles. When comparing different carbon trading prices, vessels travel at higher trading prices the proportion of the emission costs of the total profit is higher. When comparing shipping costs during the different business cycles, the proportion spent by shipping companies during the sluggish business cycles is higher. Regarding carbon allowance allocation, for vessels keeping within the EEDI scenarios and for those without, the shipping companies need to buy more carbon allowance in the prosperous business cycle because vessels emit more CO2, while in the sluggish business cycle the shipping companies can sell their allowances. Finally, for the cost-benefit analysis, during the prosperous business cycle, the shipping companies’ cost-benefit ratio (CBR) is lower, indicating their expenditures as a percentage of total profits are lower. While in the sluggish business cycle, their CBR is higher. When comparing two scenarios in which companies follow or do not follow the EEDI, it was found that shipping companies can save more costs in the former scenario. Therefore, this study suggests that in the sluggish business cycles, shipping companies can cut cost by reducing vessel speeds. In addition, if shipping companies deploy the vessels in keeping with the EEDI, they can reduce both vessel emissions and operation cost.