Role of carbon emission linked financial leasing in shipping decarbonization

Carbon emission-linked financial leasing (CFL) is a type of financial service that encourages commitment by borrowers to pursue decarbonization for greener operations. The main difference between CFL and traditional financial leasing (TFL) is that the financial lease hire is dynamically linked to the actual carbon emissions. This study investigates a green shipping operations system comprising a capital-constrained shipping firm providing green shipping services to shippers and a financial leasing firm providing the financial leasing business of green ships. By imposing a hard constraint on carbon emissions, we construct game theory models for CFL and TFL. The optimal equilibrium solutions in CFL and TFL are obtained, as well as comparisons of the profits and price of shipping services in different financial leasing models. Results corroborate that CFL is more effective for decarbonization. The participants need to sacrifice their profits, even if carbon reduction cost can be shifted to shippers through the price of shipping services. Tighter carbon emissions constraints can reinforce the effects of shipping decarbonization. Furthermore, we extend our study to cap-and-trade scheme for application. Most of the results derived in the models with a hard constraint on carbon emissions are applicable in the situation with cap-and-trade scheme.