The evasion strategy options for competitive ocean carriers under the EU ETS

Abstract

To cut pollution at sea, The European Union Emissions Trading System (EU ETS) plans to include the shipping industry. Carriers may evade EU ETS by adding a non-EU port-of-call as their first port-of-call to EU ports. In this context, we develop a game model to analyze the incentives of two competing carriers to adopt the port-of-call strategy and the effect of EU ETS. Moreover, based on the European line, an empirical study is carried out to explore potential ways to improve the effect of the EU ETS. We show that carriers have a stronger incentive to adopt the port-of-call strategy when the carbon quota price is high. It is observed that a win-win situation arises when both carriers adopt the port-of-call strategy, which represents the Pareto-optimal choice. Conversely, if both carriers opt for the direct access strategy, it will result in a lose-lose situation similar to the typical Prisoner's Dilemma. Interestingly, we also find that EU ETS is not always effective in reducing emissions and may, in some cases, even increase carbon emissions.