Regional cooperation and management of port pollution

Abstract

This paper investigates the market-based policy on pollution control in a region with multiple ports. Although the fraction of in-port pollution is modest compared to at-sea emission, port pollutions generally occur near populated areas and have a higher impact on public health. Most of the studies on maritime pollution control have focused on technical designs and operating issues over deep sea shipping. In addition, while pollution from a port's operation may spread out and has influence over a wider region, few studies have analyzed emission control across ports. This paper aims to complement this stream of research by examining the behaviors of ports and port users (i.e., shippers and shipping lines) if a certain incentive or disincentive policy is implemented. Our investigation reveals that in the absence of inter-port coordination, pollution spill-over and inter-port competition can lead to distorted pollution taxation and emission constraints. As a result, there will be excessive pollution and sub-optimal social welfare. Therefore, despite the potential competition among the ports in a region, it is important for them to coordinate their pollution control efforts. Our study recommends a regional approach in pollution control, and suggests areas where inter-port cooperation is needed among the competing ports.

Acknowledgments

Financial supports from the Hong Kong RGC (PolyU5419/08E), the Program for Innovative Research Team at University of International Business and Economics (UIBE) are gratefully acknowledged.

Notes

1. Category 3 engines are specified as having displacement above 30 liters per cylinder (L/cyl).

2. Without loss of generality, the symmetric condition is imposed in order to obtain results with clear interpretation. Although market equilibriums will be affected if asymmetric shipping lines are allowed (e.g., as reflected by different operating costs c ₁ ≠ c ₂), the key findings and conclusions will not change qualitatively.

3. For details of social welfare derivation, please refer to the Appendix.

4. It is possible that the pollution policy may be made by port operators. If service charge and the pollution tax are decided simultaneously, the port operators can group the two items as one single port charge. That is, in such a case, there is no need of considering a separate pollution tax at all. In addition, industrial groups may not care about social welfare as much as their own profit/revenue. For example, nine industrial groups in Japan opposed the carbon tax regulations in the COP-15 Copenhagen Climate Conference in 2009, as they claimed that it would harm the economy (Maeda 2009). Many ports are fully or partially privatized, which may share the same vision of industrial groups instead of government. Therefore, we consider the case when pollution tax is set by the government.

5. Under different theoretical model settings, some scholars found that an imperfect competition does not necessarily imply that the optimal tax should be lower than marginal damages, for example, Yin (2003) and Simpson (1995).