Tax regimes, investment subsidies and the green transformation of the maritime industry

Abstract

Maritime nations aim at establishing an environmentally sustainable shipping industry by 2050. We use insight from real options theory to target tax reforms that may facilitate the industry’s transformation to sustainability. We demonstrate that a zero-cost tax package, which includes subsidies on green investments and a return to a regular income tax regime, can reduce investment thresholds. “Flags of convenience” and tonnage tax systems do not contribute to the sharing of risk between shipowners and governments. From a shipowner’s perspective a higher degree of risk sharing reduces the value of waiting to invest, which may shift an individual investment decision towards a sustainable optimum level.