Subsidy policy selection for shore power promotion: Subsidizing facility investment or price of shore power?

Abstract

Government subsidy is recognized as a promising measure to promote the application of shore power technology. In this paper, two widely adopted subsidy strategies, i.e., subsidy for facility investment and subsidy for the price of shore power, are analytically discussed and compared in the Stackelberg game framework. In this game model, the government acts as the leader that sequentially determines the subsidy strategy and amount of subsidy to minimize its total cost. The port operator, acting as the follower, decides the investment scale and price of shore power to maximize its net profit. Furthermore, we consider the investment and pricing decisions of a government-owned port and compare its performance with that of a privately-owned port under the two subsidy strategies. Results show that: (i) Two subsidy strategies have the same effects on the application of shore power with excess subsidy allowed. But if excess subsidy is not allowed, subsidizing the price of shore power is better than subsidizing facility investment in terms of government cost when the marginal benefit of emission reduction is relatively large and the government budget is sufficient; (ii) When ships are price sensitive, government subsidies can induce ports to set a favorable price to attract ships to use shore power; (iii) Compared with a privately-owned port, a government-owned port significantly increases investment scale and reduces the price of shore power, thus attracting more ships to use shore power which leads to lower emissions.