The principal-agent problem in hierarchical policy making: A failure of policy to support the transition to LNG as an alternative shipping fuel

Abstract

This paper addresses the role of policy in driving technology change to reduce maritime transport emissions. While liquefied natural gas (LNG) is little better than fuel oil from a carbon perspective, it emits very low levels of other pollutants Sulphur Oxides (SOx), Nitrogen Oxides (NOx) and Particulate Matter (PM). However, despite a great deal of policy effort, the switch from fuel oil to LNG has not occurred at significant scale. Policy makers are already turning towards other fuels such as hydrogen. This paper explores the failure of policy to support the transition to LNG through the lens of the principal-agent problem, examining the influence of its key challenges at the intersection of three geographical scales (international, supranational and national) in the European Union. The case analysis reveals a lack of incentive alignment between both different levels of public actors (the EU and member states) and between public and private actors, producing a lack of agency and an uncertain policy environment, exacerbated by a lack of monitoring and sanctions by the EU of its member states. This research provides a better understanding of the shortcomings of transition policy in the case of LNG which provides lessons on the need for more coherent, comprehensive and stringent policy that could prevent another policy failure in the transition towards other alternative fuels.