Environmental performance implications of technology and operational levers 47

We now thoroughly outline our set of hypotheses regarding the impact of technology and oper-ational levers on environmental performance. Our set of hypotheses is clustered into three main pillars, each connected to one main technology or operational lever, namely, (i) environmental per-formance implications of alternative fuel adoption, (ii) environmental perper-formance implications of a vessel’s lifetime, and (iii) environmental performance implications of emission prevention. While all these levers determine the design features linked to the environmental performance of existing vessels in operational use, we refer to pillars (i) and (iii) as technology levers, as they relate to technologies. Further, we refer to a vessel’s lifetime [i.e., pillar (ii)] as an operational lever, due to its relation to the managerial decision to adapt an existing vessel to prolong its operational use, which we elaborate on in section (2.4.1.2). For better readability, the hypotheses include assertions about “the range of energy efficiency (and slack).” However, to be technically precise, we only make statements about theconditional and not the unconditional energy efficiency (and slack) distribution of our sample.

2.4.1.1 Environmental performance implications of alternative fuel adoption

Prior research in the transportation sector suggests that the adoption of clean technologies can con-siderably reduce carbon footprints and, thus, improve the environmental performance (Avci et al., 2015; Wang et al., 2013). In addition, we draw from the Porter Hypothesis in our theorizing of the

relationship between the adoption of clean technologies and environmental performance. Generally speaking, this theoretical argument highlights the positive effect a well-designed environmental pol-icy can have on innovation efforts to comply with the regulation (Porter & Van der Linde, 1995).

For our conjecture, of special interest is the “weak” version of the hypothesis, presuming a positive relationship between a strict but flexible environmental policy and the development and adoption of clean technologies (Jaffe & Palmer, 1997). However, note that the departing point in our study is different: our objective is to examine the effect that the decision to adopt clean technologies has on regulatory compliance. We therefore presume a positive relationship between clean technology adoption and environmental performance.

We focus on one particular clean technology, namely, alternative fuels. The adoption of alternative fuels is seen as one of the main technology levers to improve the environmental performance of ship design; consequently, they are a focal point of concern among ship owners and regulators in the maritime industry (DNV, 2019). Currently, many efforts in the maritime industry are devoted to the adoption of already available alternative fuels, such as biofuels or liquefied natural gas (LNG), and to the development of newer alternative fuels, including alcohol-based ones (e.g., methanol and ethanol), other cryogenic gases (e.g. hydrogen), and non-cryogenic gases (e.g., ammonia). Fur-thermore, the decision to adopt alternative fuels should have a direct lowering effect on a vessel’s energy efficiency rating because these fuels get assigned a lower carbon factor when computing the attained EEDI. Based on these reflections, we presume a positive impact of the adoption of alternative fuels on environmental performance, which is formally stated in hypothesis 1.

Hypothesis 1(a) (H1(a)). The adoption of alternative fuels has a positive impact on vessels’

energy efficiency across the range of energy efficiency.

Hypothesis 1(b) (H1(b)). The adoption of alternative fuels has a positive impact on vessels’

slack across the range of slack.

2.4.1.2 Environmental performance implications of a vessel’s lifetime

We suggest that the link between a vessel’s lifetime and its environmental performance is of high interest. A plausible presumption about this relationship is that vessels later in their lifetime have less efficient ship design features with respect to environmental performance than vessels earlier in their lifetime. Given a certain point in time, a ”younger” vessel had access to more recent technology systems and advanced ship designs in the design process than an ”older” vessel and, thus, should have a better environmental performance (see, e.g., Angell & Klassen, 1999; Zhu

& Sarkis, 2004). As vessels are capital-intensive investments with an average lifetime span of 28 years, the current fleet will operate and impact the environment for a long time (Clarksons, 2019).

Therefore, a vessel’s lifetime raises an intriguing decision for ship owners seeking to improve the environmental performance of the assets and overall fleet they are operating, while complying with regulatory requirements. Decision makers with this goal can decide to adapt an existing vessel later in its lifetime (i.e., retrofitting) to improve its performance and, thus, prolong its operational use or can replace it with a new vessel with better performance.

Note that the data set yields empirical support for the prevalence of the managerial decision con-cerning this operational lever in practice. While mostly targeting newly-built vessels, the EEDI regulation is also a requirement for existing vessels undergoing a major overhaul. Because we measure lifetime with a vessel’s age, age together with the EEDI rating can be used as a proxy for vessels that have been retrofitted. In other words, if a ship was built before 2013 and has an EEDI rating, it is in most cases due to being retrofitted during the regulation horizon. In our data set, roughly 10% of vessels meet this criterion. From a practical perspective, the operational decision to adapt existing vessels to improve environmental performance is vital to reduce carbon emissions in the maritime industry (Green Ship, 2020). In addition, due to the higher projected costs of alternative fuels, the importance of energy efficiency increases from a financial standpoint over time (Green Ship, 2020). To summarize, we theorize that a vessel’s lifetime has a negative effect on environmental performance.

Hypothesis 2(a)(H2(a)). The later vessels are in their lifetime, the lower their level of energy efficiency across the range of energy efficiency.

Hypothesis 2(b) (H2(b)). The later vessels are in their lifetime, the lower their level of slack across the range of slack.

We are especially interested in such a relationship concerning vessels with poor environmental per-formance due to their high relevance to the green transitioning process in the maritime industry.

Drawing from our empirical context and theoretical lens allows us to theorize further about the relationship between a vessel’s lifetime and its environmental performance. As described in sec-tion (2.2), the EEDI regulasec-tion increases the minimum performance standard over time, meaning vessels later in their lifetime had to comply with less stringent reduction targets. Based on be-havioral theory, decision makers seek satisficing solutions for the minimum performance standard to they are subject. Consequently, decision makers could seek less satisficing solutions for older vessels, as these are subject to lower reduction target levels. In summary, it seems plausible that the effect outlined in H2(a) and H2(b) is increasing over the range of energy efficiency and slack, respectively (i.e., more pronounced for vessels with relatively poor environmental performance).

This presumption is summarized in hypothesis 2(c).

Hypothesis 2(c)(H2(c)). The effect described in H2(a) and H2(b) is increasing across the range of energy efficiency and slack, respectively.

2.4.1.3 Environmental performance implications of emission prevention

In the literature, emission prevention technologies to avoid pollution have been linked to improved environmental performance for a long time (Klassen & Whybark, 1999b). In this spirit, previous empirical studies have posited a positive relationship between technologies for pollution prevention and environmental performance (Fu et al., 2019; Kroes et al., 2012). For our purpose, we refer to emission prevention as adapting the ship design to avoid carbon emissions. In the maritime industry, the main source of carbon emissions is the combustion of fuels to provide propulsion for transportation services. Thus, reducing the energy requirements of a vessel should have a direct positive effect on environmental performance. The main energy requirement of most vessels is its

main machinery technology providing propulsion, and we focus on this technology lever for emis-sion prevention in our analysis.

The relationship between a vessel’s machinery technology and its environmental performance is of high practical relevance. Three main ship design features directly related to the main engine technology are speed, propulsive power, and specific fuel oil consumption. Based on insights from maritime engineering, it is generally accepted that adjusting these features are effective ways to improve energy efficiency (Molland et al., 2017). To give the reader some specific examples, be-cause the required power varies approximately as speed cubed, reducing a vessel’s speed should lead to a reduced fuel consumption and, in turn, higher energy efficiency. Further, reducing a vessel’s speed is seen as an effective and easy measure to comply with the minimum performance standards of the EEDI regulation (Anˇci´c et al., 2018; Lindstad & Bø, 2018). Similarly, reducing the propulsive power, while keeping the ship’s speed and dimensions fixed, increases the propulsive efficiency of the vessel and, thus, should improve its energy efficiency. Therefore, based on practical and theoretical insights, we hypothesize that emission prevention with respect to the machinery technology has a positive effect on a vessel’s environmental performance.

Hypothesis 3(a)(H3(a)). Lower levels of emission prevention with respect to the machinery tech-nology, have a negative impact on vessels’ energy efficiency across the range of energy efficiency.

Hypothesis 3(b) (H3(b)). Lower levels of emission prevention with respect to the machinery technology, have a negative impact on vessels’ slack across the range of slack.

Figure (2.3) graphically illustrates our hypotheses. Based on the conceptual model in Figure (2.2) and empirical evidence, we theorize about the relationship between key technology and operational levers and environmental performance, which is operationalized through a vessel’s energy efficiency and regulatory slack. With respect to technology levers, we focus on the adoption of alternative fuels and emission prevention related to machinery technology. We hypothesize that the adoption of alternative fuels has a positive impact on energy efficiency levels (H1(a)) and regulatory slacks (H1(b)). Furthermore, we posit that the relationship between emission prevention measures and

energy efficiency (H3(a)) and slack (H3(b)) is positive. The key operational lever of the analysis is a vessel’s lifetime. We propose that vessels’ lifetime is negatively associated with their energy efficiency (H2(a)) and slack (H2(b)). Further, drawing from our empirical context and theoreti-cal lens, we posit that this effect is increasing across the range of energy efficiency and slack (H2(c)).

Figure 2.3: Research model

2.5 Method