Description

The main objective of this project is to propose a uniform penalty system for violations related to sulphur regulation in maritime shipping. The project utilizes a game theoretic approach that seeks to enhance compliance amongst ship operators, and ensure a level playing field. Case studies within SECAs and post-2020 (with the global sulphur cap taking effect) will be used to illustrate the benefits of using game theory in this setting. The project builds upon prior research by the Principal Investigator on maritime logistics, port operations, and Emission Control Areas.

Background

Climate change and the health impacts of manmade activity has been at the centre of attention in recent years. While maritime shipping is considered the most fuel-efficient mode of transport (responsible for less than 3% of CO2 emissions, but moving more than 90% of transported freight by volume), its contribution to other pollutant species is more serious, and increasing attention has been given to the issue of sulphur emissions from shipping.

Since January 1st 2015, the sulphur limit within SECAs has been lowered to 0.1%, to which ship operators can only comply by using pricier ultra-low sulphur fuel (such as Marine Gas Oil – MGO), or through investing in abatement technologies such as scrubber systems. All options can significantly increase ship operating costs, but the resulting environmental benefit is significant. It is therefore imperative to ensure a level playing field between ship operators within SECAs that adhere to the regulation, and violators. The issue of enforcing the regulation is still an open issue, and complements the global cap of 0.5% that will be implemented in 2020. This project deals with the issue of improved sulphur enforcement that will guarantee high levels of compliance and ensure that the significant monetary sacrifices of clean ship operators are not in vain.

Research Plan

The project comprises of four work packages (WP) as seen in the Figure below.

WP1 will be critical in collecting the state of the art and practice of sulphur enforcement within SECAs and EU ports. A review on existing monitoring technologies for the compliance of vessels both during sailing (near coastlines) and at-berth will also be conducted as part of this project. Data on inspection costs and rates, fuel consumption, fuel prices, and scrubber costs will be collected. The objective of the data acquisition is to identify realistic costs for each inspection incident from a regulatory body at different configurations (ship type, size, location, and port). The final part of WP1 will review literature on game theoretic applications in similar problems.

WP2 is the backbone of the proposed project. The objective of WP2 is to provide scientific evidence that the current enforcement rules associated with the SECA limits are lacking, and cannot guarantee adequate levels of compliance. A 2-person game will be setup where one player is representing the ship operator (with the options of complying or not with the regulation -e.g., use low sulphur fuel, or use scrubber systems), and the other player (i.e., enforcement authorities) has the option of inspecting a vessel or not. The game will be setup as a mixed strategy game, whereby there is a different probability level that each player follows one of two pure strategies (comply/not comply, inspect/not inspect). We adopt a mixed strategy game approach to account for the uncertainty of each player’s strategy and in doing so obtain a realistic equilibrium. The next Figure illustrates the envisoned game. 

WP3 seeks to propose a new penalty system such as that the best Nash equilibrium (from a system’s point of view) is achieved. In the envisaged game, both players are aware of each other’s preferences and utility functions  and thus will decide their mixed strategy based on this knowledge. Mixed strategy games always have a Nash equilibrium, whereby each player has nothing to gain from changing their strategy. This optimal equilibrium will be the one that ensures the highest compliance at a reasonable cost. After the basic game with known utility functions has been developed and solved, other types of games (e.g. incomplete, or imperfect information) may be considered.

WP4 is connected to all previous WPs and deals with the dissemination of project results. It is envisaged that the project results will be disseminated also through conference presentations, and the project will culminate into at peer-reviewed academic journal publications. The final policy recommendation will be disseminated in the form of a white paper to relevant policy bodies for their consideration.

The project is funded by the Orients Fond