Chapter 1 Introduction

Emissions from the global maritime sector currently account for about 3% of global greenhouse gas emissions and are projected to increase by 150–250% in 2050 under business-as-usual scenarios with a tripling of world trade. (Bouman et al., 2017, p. 413)

To try to address these issues, on January 1, 2020, the International Maritime Organisation (IMO) implemented new regulations for a 0.5% global sulphur cap for marine fuels.

Under the new global cap, ships will have to use marine fuels with a sulphur content of no more than 0.5% (against the previous limit of 3.50%) to reduce sulphur oxide emissions. The Emission Control Areas (ECAs) will remain at the 2015 standard of 0.1% content.

Current mitigation policies include switching to the 0.5% low sulphur fuel oil (LSFO) or the non-petroleum fuel such as LNG or installing exhaust gas cleaning systems (scrubbers) (IMO 2020 Sulphur Regulations, 2020).

No enforcement policy is in place, rely on trust and voluntary participation

This document outlines the simulation analysis from the theoretical framework developed in my thesis.

1.1 Research Question :

  • How can we design and analyze the emissions dynamics that exist between slow steaming and free-riding incentives, into an applicable game-theoretical framework?
  • How do we solve for an optimal emissions abatement path as a non-cooperative game among heterogeneous agents with different cost structures?
  • Are there stable coalitions that occur in the absence of enforcement policies?
  • Does the design of taxation policy influence incentive structures as well as the stability of industry level emissions coalitions?

Run hundreds of simulations, varying key assumptions and key parameter to investigate how a subset of shipping companies might individually or collectively react to the IMO policy within a game of emissions standards

Understand the derivers of environmental governance stability with heterogenous agents.

Understand relationships between market share, fleet size, age, cargo type, etc. on an individual firm’s incentive for environmental compliance.

Identify how cartels might emerge based on abatement strategies costs and benefits

Investigate basic incentive structures of firm-level strategic behavior and identify conditions under which abatement efforts are offset by other free-riding agents.

compute whether the industry’s simulated emission levels will more often fall below or surpass the predefined cap.

Investigate which firms form a stable international cartel by simulating different structures and determining which agents are most crucial to its sustainability.

Depending on market factors including demand elasticity, determine when and whether some agents might choose to avoid the policy, by passing the burden of any penalty to the shipper (consumer). Further, this assumes financial penalties can be imposed by Port State Control (PSC) authorities if an agent is caught.