Cost-effectiveness of reducing sulfur emissions from ships

We model cost-effectiveness of control strategies for reducing SO2 emissions from U.S. foreign commerce ships traveling in existing European or hypothetical U.S. West Coast SO(x) Emission Control Areas (SECAs) under international maritime regulations. Variation among marginal costs of control for individual ships choosing between fuel-switching and aftertreatment reveals cost-saving potential of economic incentive instruments. Compared to regulations prescribing low sulfur fuels, a performance-based policy can save up to $260 million for these ships with 80% more emission reductions than required because least-cost options on some individual ships outperform standards. Optimal simulation of a market-based SO2 control policy for approximately 4,700 U.S. foreign commerce ships traveling in the SECAs in 2002 shows that SECA emissions control targets can be achieved by scrubbing exhaust gas of one out of ten ships with annual savings up to $480 million over performance-based policy. A market-based policy could save the fleet approximately $63 million annually under our best-estimate scenario. Spatial evaluation of ship emissions reductions shows that market-based instruments can reduce more SO2 closer to land while being more cost-effective for the fleet. Results suggest that combining performance requirements with market-based instruments can most effectively control SO2 emissions from ships.