Evaluating environmental policy instruments for ships

Licentiate thesis, 2025

Shipping is crucial for international trade, but has significant environmental impacts at local, regional, and global levels. Ship operations contribute to climate change, air pollution, and marine ecotoxicity through emissions of greenhouse gases, sulfur oxides, nitrogen oxides, particulate matter, and contaminants from sources like antifouling paints. Although the International Maritime Organization (IMO) aim to mitigate environmental impacts from shipping, the sector’s environmental policies often lag behind land-based measures, highlighting the need for stronger policies and comprehensive policy evaluations. 
This thesis investigates the effectiveness of environmental policy instruments in reducing emissions from shipping, with a focus on three policy cases addressing different policy approaches: port and fairway fee discounts (Paper I), inclusion of shipping in the EU Emission Trading Scheme (EU ETS) (Paper II), and the IMO global sulfur cap (Paper III). By examining these policy cases, the thesis analyzes how these policies influence shipping companies´ decisions to invest in different abatement strategies. Additionally, this thesis evaluates how different national, regional, and global policy instruments, both individually and in combination, influence shipowners' decisions to invest in abatement strategies. It also examines the subsequent impact on emissions beyond those directly targeted by the policies. 
The first case (Paper I), which addresses Swedish environmentally differentiated port and fairway fees, shows that the discounts provided to shipowners are insufficient by themselves to motivate significant investment in abatement strategies. The second case (Paper II) evaluates the inclusion of shipping in the EU ETS, indicating that while abatement strategies such as batteries, e-methanol, and liquid hydrogen show potential, their high costs, in combination with the current EU ETS price, hinder broad adoption. Bio-methanol can for some ships and scenarios be a cost-effective fuel choice, however biofuels are limited by the amount of sustainably sourced feedstock. Overall, the Swedish environmentally differentiated port and fairway fees (Paper I) and the EU ETS policy cases (Paper II) highlight that while environmental policies are relevant, their current designs often fail to provide sufficient financial incentives for significant technological investment and emission reductions. The third case (Paper III) focuses on the IMO global sulfur cap, which successfully has reduced sulfur oxides emissions to the atmosphere but instead lead to a widespread use of scrubbers, generating new environmental concerns from scrubber water discharges. The results also highlight that combining the effects of the Energy Efficiency Design Index, a potential global scrubber ban, and an expanded EU ETS (including 100% of incoming and outgoing traffic) have synergistic effects that will reduce abatement costs for shipowners and thereby stimulate emission reductions or directly reduce emissions. However, abatement costs per amount avoided CO2-emissions for retrofitting to use e-methanol are still more than four times higher than the current EU ETS-price. Furthermore, the results show that including smaller ships in EU ETS is important for reducing direct GHG emissions, further highlighting the need for a broader regulatory scope.