Ship Compliance in Emission Control Areas: Technology Costs and Policy Instruments

This paper explores whether a Panama Canal Authority pollution tax could be an effective economic instrument to achieve Emission Control Area (ECA)-like reductions in emissions from ships transiting the Panama Canal. This tariff-based policy action, whereby vessels in compliance with International Maritime Organisation (IMO) ECA standards pay a lower transit tariff than noncompliant vessels, could be a feasible alternative to petitioning for a Panamanian ECA through the IMO. A $4.06/container fuel tax could incentivize ECA-compliant emissions reductions for nearly two-thirds of Panama Canal container vessels, mainly through fuel switching; if the vessel(s) also operate in IMO-defined ECAs, exhaust-gas treatment technologies may be cost-effective. The RATES model presented here compares current abatement technologies based on hours of operation within an ECA, computing costs for a container vessel to comply with ECA standards in addition to computing the Canal tax that would reduce emissions in Panama. Retrofitted open-loop scrubbers are cost-effective only for vessels operating within an ECA for more than 4500 h annually. Fuel switching is the least-cost option to industry for vessels that operate mostly outside of ECA regions, whereas vessels operating entirely within an ECA region could reduce compliance cost with exhaust-gas treatment technology (scrubbers).