A game theoretic approach on improving sulphur compliance

Thalis P.V Zis

doi:10.1016/j.tranpol.2021.09.012

Abstract

The global sulphur cap is the final step in a series of regulations that aim to reduce SOx emissions from shipping. It affects international shipping and requires all vessels to use fuel with a maximum of 0.5% sulphur content or use abatement technologies that achieve a similar reduction in SOx emissions. The existing legislative framework poses several challenges, stemming mainly from a highly non-homogeneous and spatially differentiated system, with cases where the penalty fines are as low as the benefit that the violator enjoyed from non-compliances. The purpose of this paper is to develop a game theoretic modelling framework that improves the effectiveness of sulphur regulations enforcement and proposes a uniform violation fine system. A mixed strategy game with two players is formulated, representing the ship operator (who can either comply or not with the regulation), and an enforcement agency (that can opt to inspect or not inspect the ship) respectively. The proposed model can improve compliance rates and increase societal environmental benefits through reduced sulphur emissions. We also consider a new system with warnings issued for repeated violations of the regulation that would lead to a mandatory retrofit of the vessel with sulphur abatement technologies. Such models can ensure a level playing field for ship operators that currently have invested heavily in abatement options to comply with the sulphur regulations.

Highlights

We showed that a very heavy fine compared to potential fuel savings could increase levels of compliance among ship operators, and decrease the requirement of the port to inspect
It is extremely important that the penalties are using the same mechanism in every port that has inspection capabilities to ensure a level playing field amongst ship operators, and amongst port authorities
We propose that the monetary penalty (MP) should be very clearly stated, and the same in all geographical areas, calculated as a function of the specific ship and voyage

Summary

Introduction

Ship operators have come under increasing regulatory pres sure with a particular focus on further improving the environmental performance of the sector. Such initiatives manage to reduce emissions of pollutant species at increased operating costs for the affected ship operators and in turn leading to higher freight rates. The revised MARPOL Annex VI has set maximum limits on the sulphur content in fuel used by ship operators inside and outside sulphur emis sion control areas - SECAs (where stricter limits apply). As of January 2020 the global sulphur cap of 0.5% content (down from 3.5%) affects all ship operators.

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