Impact analysis of environmental policies on shipping fleet planning under demand uncertainty

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Impact analysis of environmental policies on shipping fleet planning under demand uncertainty

Chua, Yonzheng Jerry / Soudagar, Irfan / Ng, Szu Hui / Meng, Qiang

Abstract Considerations to decarbonize maritime shipping by implementing the Emissions Trading System (ETS) are underway at the International Maritime Organization (IMO). This study seeks to investigate the impact of ETS on short-term fleet deployment decisions of liner shipping companies. Considering pragmatic scenarios of demand uncertainty and transshipment, we extend state-of-the-art maritime operational planning under climate policies and propose a fleet planning model accounting for carbon emissions to evaluate the decision-making nuances of a liner company. Numerical experiments are conducted to analyze ETS implementations with varying policy design parameters for their efficacy in mitigating emissions and potential impact on stakeholders. The findings indicate that, for liner shipping which is cross-regional by nature, regional ETS implementations are inadequate due to carbon leakage; the efficacy of open ETS policies is limited, particularly when carbon prices are low; strict carbon purchase caps integrated with robust carbon price-setting mechanisms are critical to designing an effective ETS.

Highlights • Regional Emissions Trading Systems are limited in their decarbonizing efficacy. • Low carbon prices complemented with strict carbon caps induce reduction in CO2. • Preference for strict carbon caps or high carbon prices depend on policy timeline. • Transition to LNG is not ideal at current free carbon allowance allocation levels. • Incentive schemes must be devised to encourage transition to intermediate fuels.