Nov 12 2008

Amazing innovation in cargo ship technology – WIND powered vessels!

Kite Powered Ship Sets Sail for Greener Futhre – Guardian.co.uk

A German engineer has given an old technology new life to help make trans-oceanic shipping greener and least costly.

A cargo ship pulled by a giant, parachute-shaped kite will leave Germany on Tuesday on a voyage that could herald a new “green” age of commercial sailing on the high seas.

The owners of the MS Beluga, a 462ft cargo vessel, will try to prove that modern steel ships can harness wind power and reduce their reliance on diesel engines.

During the journey from Bremen to Venezuela, the crew will deploy a SkySail, a 160 square metre kite which will fly more than 600ft above the vessel, where winds are stronger and more consistent than at sea level.

Its inventor, Stephan Wrage, a 34-year-old German engineer, claims the kite will significantly reduce carbon emissions, cutting diesel consumption by up to 20 per cent and saving £800 a day in fuel costs. He believes an even bigger kite, up to 5,000 square metres, could result in fuel savings of up to 35 per cent.

Here’s a thought… reduced fuel costs to trans-oceanic shipping companies should shift the supply of such services out, as the marginal cost of shipping falls. Greater supply will mean lower prices to customers demanding such services, moving downward along the demand curve, increasing the equilibrium quantity of trans-oceanic cargo journeys.

Question: Assume all cargo ships in the world eventually incorporate the sail technology, increasing the supply and reducing the price of shipping by an average of 20% and reducing the emission of greenhouse gases of vessels by an average of 20%. What would have to be true about the price elasticity of demand for trans-oceanic shipping in order for a 20% reduction in price to result in an overall reduction of greenhouse gas emissions by cargo ships? Depending on the answer to this question, this “green” technology could actually result in greater emissions of greenhouse gases by cargo ships.

Explain…


About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

34 responses so far

34 Responses to “Amazing innovation in cargo ship technology – WIND powered vessels!”

  1. Stacy Dwyeron 08 Feb 2008 at 2:45 pm

    This "green" technology could actually result in greater emissions of greenhouse gases produced by the cargo ships, because by increasing the supply and reducing the price of shipping, the quantity demand at the new equilibrium is a higher amount. People will make more ships, because the demand is higher, but in effect, making and using more ships produces more greenhouse gases. By people thinking it is better for or less harmful to the environment to use these new "green" cargo ships, it provides an incentive for people to make more and use more. It is the same principle behind making cars safer actually kills more people. If you are less afraid to die in a car crash, you would be more willing to speed and drive recklessly; in the end causing more deadly car crashes. So, in the end, although these ships run cleaner, one of the old "dirty" ships is better than 2 of the new.

  2. Liz C.on 11 Nov 2008 at 8:59 am

    Technology such as the wind-powered cargo ship may in fact lower the overall use of fuel as a ship sails to its destination port. However, I agree with some of the other posters on the fact that construction and price of such a large sail would probably be extremely expensive and it may take a long time for the device to pay for itself.

    Aside from price, there would be 20 percent less emissions, so it depends on whether the ultimate goal is economic or environmental.

    I know that such programs such as the AMP (Alternative Maritime Power) system, which allows ships to connect to clean electricity when docked in port instead of running diesel engines, can be quite expensive to install. However, over time, initiatives such as these pay for themselves and limit emissions by quite a bit (AMP installed on one ship limits emissions by as much as one ton per day!).

  3. Laura Perezon 17 Nov 2008 at 6:15 am

    Price elasticity of demand would have to be inelastic. We can prove this logically and mathematically through the price elasticity of demand equation.

    If this new invention does cause supply to increase, due to the reduction cuts in production, this will cause the price to drop. If consumer’s responsiveness to this drop in price is elastic, or unit elastic, their demand for this product will increase, as stated in the law of demand. An increase in supply would mean more cargo ships making their way across the ocean to meet the demand; each, of course cutting emissions by 20% through the use of this technology. However, this will be contaminating more. Although the ships are 20% greener there is still that 80% that is not so green and will, in the end, affect the environment more, due to their increase in supply.

    If the price elasticity of this product is inelastic, that means people will still demand a similar quantity even if there was a change in price. That means demand will not increase as much and therefore supply will go back down. However, since the shipping costs are less, the company will still end up with higher profits. The price elasticity of demand equation shows that in order for the product to be inelastic the percentage change in quantity to this 20% change in price has to be below 20% for the coefficient to be below one:

    x/20 > 1

    If the product were elastic a solution could be for the government to tax the consumers the amount that would be reduced if the price were to increase due to the lower costs in production. So if a product cost $20 to produce before but it reduces by 20% it now costs $16 to produce. This means the price now drops from $25 to $21. However, if the government still taxes the consumer those $4, the demand will stay exactly the same. Although it is not in the best interest of the firm, it will still make higher profits. In this case government interference could really help to reduce the carbon emissions.

  4. Bastien Vogton 17 Nov 2008 at 10:43 pm

    This project would save a lot of gas and do the earth a big favor. I'm not sure if I agree with the other posts because they say that the high demand for these ships would lead to high CO2 emissions due to the production of these new ships. But cant the ships that are used for transport now be used with sails. This would not only save gas and oil but also prevent CO2 emissions from the production of new ships.

    the new Green ship acts as a substitute for the large cargo ship, although it incorporates that the cargo ships are already their it would be a step in the right direction. the demand for these nbew ships would be inelastic meaning every shipping company would use this new innovative technology.

  5. Benji Rosenon 18 Nov 2008 at 4:42 am

    I dissagree with Bastien, simply because he is going against the law of demand. The cheaper a product, the more a company will buy of it. Companies will always find a cheaper place to produce a product, what stops them is the shipping costs, if tha tis reduced, they will up their shipping up. The demand for these new ships is infact very elastic, since the company's purchasing them are multibillion dollar industries and it not being an overwhelming percent of their income they can afford to invest in it. It also depends about the long and short term effects. In the short term, the quantity demanded will be inelastic, but say over a year, it will be very slanted since companies are always reacting to changes in their costs of production. A big reduction in their costs of production will surely encourage a surge in the production of these tankers, and though dismantling old ones will probably happen gradually over time, they have crews contracts and the costs of dismantling one to consider, and it is much more likely that they will simply extend their fleet.

  6. Benji Rosenon 18 Nov 2008 at 4:45 am

    However much Co2 the inventor of this venture intended to save, the result will surely be more ships on our oceans and even though they are only producing 80% of the amount they would have without the technology, there will be more of them. Yet again, the hand of the free market has forced what was a good idea intended to help the planet, into a tool for globalization and an aid in destroying it.

  7. Dimitri Da Ponteon 18 Nov 2008 at 4:49 am

    The real determinant whether this project would result in a greater quantity of greenhouse gas emission or not is if the industry is elastic or not. If the industry is not elastic the number of cargo ships crossing the Atlantic will for the most part stay the same. This means that less gas would eventually be consumed thanks to the sails. If the industry is elastic on the other hand, firms will place more vessels in the water and eventually the sheer number of vessels will make more greenhouse gases than the vessels did before.

  8. Marc Lemannon 18 Nov 2008 at 7:14 am

    I disagree with those that have been saying that this project will decrease the costs of shipping, resulting in a greater amount of vessels needed, which would not end up reducing the total CO2 released. This shipping business is somewhat inelastic. There is no other sensible way of transporting oil and many other resources. Whatever the costs of shipping, the companies rely on these vessels to transport their resources and goods. If the costs lower, there may be some increase in demand, since the law of demand always applies, but it would be minimal and more vessels would not be needed. This project is both economically and environmentally efficient since it will save costs for the shipping company (which will initially pay for more such parachutes to be produced) , the producers that are shipping their goods/resources, and cut down CO2 emissions. Yes, Benji, they will reduce costs and increase their profits, it has nothing to do with globalization, they will do this because as we have learned, companies that are not able to reduce costs when others do, are not able to survive in the market.

  9. Jonathanon 18 Nov 2008 at 5:34 pm

    I think this sales looks better http://uk.green.yahoo.com/blog/greenbang/10/sun-s

    For this new technology to reduce the overall release of CO2 into the atmosphere the demand for shipping must be elastic, otherwise a small decrease in price will lead to an sharp increase in demand. As the supply will increase more ships will be opperating at one time producing more CO2 than before. As shipping becomes cheaper companies might use shipping more than air shipping as they are substitutes to each other. This then could lead to the decrease in CO2 as aviation produces a high percentage of the CO2 released into the atmosphere.

  10. Christian Clausenon 18 Nov 2008 at 11:03 pm

    The diesel used in ships costs four times more than the diesel or fuel we use for cars, which means this sail would pay itself off extremely quick. And there is no reason to assume that many more ships would be built, as the shipping companies are already meeting the demands of their customers, so why not just apply this sail to the ship? Every 5th ship would then sail completely 'clean'. There are several other methods of reducing fuel consumption, and if you were to combine all these methods and apply them to a ship, the overall fuel usage would be reduced by 50%. Another innovative idea is a 'pillow of air' under the ship, that is there to reduce friction, and thus fuel consumption. The only real issue is that the large companies do not want to pay up, even though it will pay off in the long run.

  11. Aleya Thakur-Weigoldon 19 Nov 2008 at 3:01 am

    I agree with Christian in saying that this method could be quite successful in reducing the greenhouse gas emission. If this project were to prove itself successful it would benefit everybody involved. Surely we would not be able to convert every ship into one that is pulled by a kite but like Christian said only a few would already improve and reduce the greenhouse gas emission. Like other people have said already the demand would have to be elastic in order for this system to work. The only concern that I have would be that if prices drop due to less gas consumption, consumers will demand more shipping and would therefore cause more ships to leave the harbours. This would create a larger consumption of greenhouse gas and would create the opposite effect than that which was intended in the first place. In general I think the idea sounds very promising but that is the only concern that I have about it.

  12. jabbobbon 19 Nov 2008 at 5:30 am

    Supply of ships and CO2 emmision will increase. Bad for the environment but excellent for the economy. The sail market would grow rapidly, meaning that there will be more jobs available. There will have to be ingenieurs and workers on these ships to work the sails. And maybe even gasoline prices are going to relax for a bit because of the 20% that is not being used by the cargo ship industry.

  13. Rohan Ron 20 Nov 2008 at 3:56 am

    This innovation would indeed reduce the emission of gases but it has its disadvantages. The more of these sailing the seas would mean more demand for ships like these and building them would lead to C02 emissions. Oil prices would relax a bit because we all know that the ship industry uses a lot of oil.

  14. Alex Telfordon 21 Nov 2008 at 1:45 am

    This reminds me of an article I read a while ago (http://www.newscientist.com/article/mg18524881.600-the-new-age-of-sail.html?full=true)

    I'll copy some important details below, the full article is free online if you are so inclined to read it.

    "The idea isn't to propel a ship by wind alone – a conventional diesel engine will help it along on days when the wind is blowing from the wrong direction, is too strong or dies away entirely. But since the kite reduces the need to use engines, the team at SkySails believes it can halve the amount of fuel a ship burns."

    "For nine years a team of naval architects in Copenhagen, Denmark, has been working on a completely new design: a 50,000-tonne cargo ship whose diesel engine will be augmented by a set of high-tech sails set on six masts. Canvas is definitely out. Aerofoils are in."

    "…why should modern hybrid sailing ships fare any better? Part of the answer is that the economies of running a ship have changed again. The small crew needed on a modern ship, combined with the low wages they are paid, means that the cost of fuel as a proportion of total running costs rose from 10 per cent in 1900 to between 25 and 60 per cent by 2000."

    "Wind-tunnel tests showed this design to be twice as efficient as the sails on a traditional windjammer. Even more importantly, the sail generates thrust when the ship is sailing close to the wind. Simulations suggest that the vessel will be able to make progress under sail even when the wind is blowing as little as 40 degrees off the bow, which is an excellent performance for a large sailing vessel. With a fresh breeze of 9 metres per second at 100 degrees – blowing only slightly from behind – the sails alone can propel the ship at 13 knots (25 kilometres per hour."

    The article then goes on to discuss the kite technology mentioned in this blog post. It's an interested possibility to use wind-assisted ships on a wide scale, and something we will probably have to consider as oil supplies start to run out.

  15. Eithanon 21 Nov 2008 at 5:55 am

    In the hypothetical situation that all cargo ships in the world incorporate the sail technology, the price of shipping would decrease by 20% and greenhouse gasses emissions would fall by an average of 20%. This would not be true if the price elasticity of still were elastic. If the price elasticity of steel were elastic, supply would shift out because the quantity demanded of steel would increase. However, this is not the case. The price elasticity of steel is quite inelastic. Hence, a decrease in price will not greatly affect quantity demanded, and steel producers will not increase supply. As a result, if all cargo ships in the world were to incorporate sail technology, both the environment and steel producers would benefit.

  16. Marc Lemannon 21 Nov 2008 at 6:56 am

    Yes Eithan, finally someone that understands. As I already posted before, both the demand for the shipping industry and the oil and steel industry is inelastic. If this parachute technology is an "add on" to already existing vessels, it really should decrease the CO2 emissions and lower costs. And since the demand is inelastic, lower costs would not mean more vessels would be added. If anything does increase the cost of shipping and greenhouse gas emissions, it will be because vessels need to be accompanied by security ships, to fend off Somali pirates…

  17. Jonathanon 21 Nov 2008 at 8:26 am

    My ship solar sails reduce fuel consumption by 40 percent lol, twice as much as the 1 in this article

  18. Oliveron 21 Nov 2008 at 11:25 pm

    I personally think that this would never really work, because it will be too expensive to create, as well as too mentain.

  19. Lisa Gon 21 Nov 2008 at 11:52 pm

    I see what Bastien Vogt means; it would be nice I the world would work that way, however, as Benji said, as the price of the shipping of the cheaper, as less gasoline is used, this would mean that more ships would sail the oceans using this technology as price has gone down. Basic laws of demand and supply, as the price of the ships down, more people what to buy/transport their good by ship. This means the number of ship crossing the ocean increase. I think that the Co2 emissions would go up, even though less is emitted by the ships, the number of ships crossing the ocean increase (producing more Co2 in total then was initial produced). I agree with what benji and eithan said on the elasticity on the price of the shipping.

  20. John the Pirate - aron 25 Nov 2008 at 8:59 am

    Good post, I like your writing style! I've added http://welkerswikinomics.com/blog/ to my feed reader, and will be reading your posts from now on. Just a quick question – did you design your header image yourself, or have it done professionally? If you had it done by a professional, who was it?

  21. Simon Strongon 26 Nov 2008 at 4:53 am

    I would actually like to disagree with the ideas of Benji and Lisa in that although shipping will be cheaper for producers which decreases their costs they will not just increase their imports. Think of it from a business prospective. When you set the price for each good you include the amount it cost you to get the good there in the first place, but only so much of a good will sell in a certain period, and it would cost a company more to hold stock in storage after having it shipped than to just order the same equilibrium amount they had been which they know they will be able to sell. So no, just because the price of their shipping goes down it doesn't mean that businesses will increase their shipping orders – that would be bad business! They have already covered their costs of shipping when they wholesale to retailers, at that moment of transaction a business has covered it's shipping costs and if they ship more than they sell then they have to find storage for the goods which costs them the extra profits they would get from the price decrease in shipping.

  22. Jonathanon 30 Nov 2008 at 5:18 am

    Simon, if its cheaper to ship, companies who before didnt ship their products instead used aviation and plans might consider to switch, which would increase shipping.

    Yes the products are at equalibium, but wait costs go down, so companies are more willing to supply more, which leads to decrease in cost then leads to a new equalibrium — So wait shipping WILL increase

  23. Simon Strongon 01 Dec 2008 at 6:56 pm

    I don't think it will increase. If companies switch from air cargo shipping to shipping by sea then I would be surprised because it already costs more to ship by air than it does by sea. Also even if shipping costs go down it doesn't necessarily mean they will ship more because companies cost shipping on a unit basis. i.e if it costs $100 dollars to ship 100 items then shipping is $1. If shipping then drops to $50 dollars for the 100 items then the company sees an increase in profits because it costs them less on a unit based shipping cost. A shift in price of shipping doesn't change the quantity demanded for a good i.e. it would not make sense for a company to increase their shipping amounts. The only thing that would change shipping is if companies drop prices to increase demand but I would be surprised just because they can keep the extra profits made from a decrease in shipping costs. So no, shipping will NOT necessarily increase.

  24. Dave Barbettaon 07 Dec 2008 at 5:50 pm

    Great Question. The price elasticity of demand would need to be less than 1.25.

    A price drop of 20% would increase the equilibrium demand from Q1 to Q2. If "E" is emission and "a" is the emission coefficient, then E1 = aQ1, and E2 = 0.8aQ2 (emissions are lowered by 20%). For E1 to be > E2, then aQ1 must be > 0.8aQ2… reduce to Q1 > 0.8Q2. If elasticity "X" is % change in quantity over % change in price, then X = | [(Q2-Q1)/Q1] / [(P2-P1)/P1] |. We know % change in price is 20%, and subbing in Q1 = 0.8Q2…

    X = (0.2Q2/0.8Q2)/0.2 = 1.25. So the elasticity of demand must be less than 1.25.

    In layman's terms, if emissions per unit are 80% what they used to be, the increase in quantity consumed must be less than 25%, otherwise the increase in quantity would more than offset the decrease in emmissions per unit (0.8 x 1.25 = 1).

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  26. Sarah Ebleon 22 Oct 2009 at 3:01 am

    The price elasticity of demand has to be elastic, meaning that people respond to the fall in price in the way that the quantity supplied increases by a high coeffcient of 20%.

    The emission of greenhouse gases should also be reduced by an average of 20%. But this is very unlikely because now there is more supply that has to be shipped around the world. There are more ships needed than before which will in the end increase the emission of greenhouse gases.

  27. Silvia Dieteron 22 Oct 2009 at 7:21 am

    The price elasticity of demand for trans-oceanic shipping would be inelastic for the greenhouse gas emission to become more damaging for the environment. A cargo ship pulled by this giant kite will travel more efficiently with less need of fuel. This will decrease the general costs of trans-oceanic shipping offering an incentive to more people to enter the market. When the demand for these cargo ships with kites increases, their supply will rise likewise. I believe that trans-ocean shipping is inelastic because it is the only/cheapest way to transport products in a certain amount of time. Increasing the use of cargo ships will be worse for the environment even though they reduce the emission of greenhouse gases by an average of 20%. When there are only a few ships with 80% use of oil the overall production of greenhouse gas emissions will greatly reduce. But once there are many vessels, the greenhouse gas emissions will be worse than it is now.

  28. Christopher Francoison 25 Oct 2009 at 1:18 am

    I think that what has to be true about the price elasticity of trans-oceanic shipping is that it as to be elastic because when the big cargo ships decide to take on this technology it will decrease their dependence on oil and therfore the price to ship by sea will decrease even less than it already is. This, however will attract new people to the market and more of these cargo ships may be demanded and then therefore built. The buidling however off these new massive ships will require other resources to be used in greater quantities therfore it could have a negative effect whilst the building of the ships takes place. After the building of the ships the polution could diminish because of all the "green" boats being used.

  29. stopiton 18 Nov 2009 at 1:49 pm

    Please stop this. I realize that academic discourse is the proper way, but look at what all this thinking has done already. Stop! Please! At the core, sailing ships are better than oil driven ships aesthetically, economically and environmentally. All this economic mumbo jumbo of price elasticity (=high school economics) is absurd.

    Let's cave man it for you:

    Sail good for boat….uhhh…uhhh….

    If you want to pose a question, do a study on the correlation between cadmium levels in halobates in the north atalntic ocean and global bauxite prices or something. Sail good, oil bad, over consumption bad, leave it be.

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