Carbon allowance allocation in the shipping industry under different economic activities

This study utilizes the Federal Fund Rate to identify three business cycles as prosperous, steady and sluggish. Then by combining the emission cap and the trade mechanism, proposes the models considering the different business cycles for the carbon allowance allocations problems (CAAP) in the shipping sector. For the CAAP, the critical issues for the decision maker is to decide a free carbon allowance level α to achieve the emission target of the Paris Agreement. The results show that the shipping freight rates in the prosperous business cycle are higher. And vessels with higher speed, the fuel costs of the total profit is higher. If comparing with the different business cycles, the proportion is higher in the sluggish business cycles. While if comparing with the different carbon trading price, the vessels with higher trading price the proportion of the emission costs of the total profit is higher. And if comparing with the different business cycles, the proportion of the shipping companies in the sluggish business cycles is higher. And for the carbon allowance allocation, in the prosperous business cycle because vessels emit more CO2, the shipping companies need to buy more carbon allowance; while in the sluggish business cycle the shipping companies can sell their allowances. Therefore, this study suggests that in the sluggish business cycles, shipping companies can save cost by reducing vessels speed.