A game theoretic approach on improving sulphur compliance

Abstract

The global sulphur cap is the final step in a series of regulations that aim to reduce SO_x emissions from shipping. It affects international shipping and requires all vessels to use fuel with a maximum of 0.5% sulphur content or use abatement technologies that achieve a similar reduction in SO_x emissions. The existing legislative framework poses several challenges, stemming mainly from a highly non-homogeneous and spatially differentiated system, with cases where the penalty fines are as low as the benefit that the violator enjoyed from non-compliances. The purpose of this paper is to develop a game theoretic modelling framework that improves the effectiveness of sulphur regulations enforcement and proposes a uniform violation fine system. A mixed strategy game with two players is formulated, representing the ship operator (who can either comply or not with the regulation), and an enforcement agency (that can opt to inspect or not inspect the ship) respectively. The proposed model can improve compliance rates and increase societal environmental benefits through reduced sulphur emissions. We also consider a new system with warnings issued for repeated violations of the regulation that would lead to a mandatory retrofit of the vessel with sulphur abatement technologies. Such models can ensure a level playing field for ship operators that currently have invested heavily in abatement options to comply with the sulphur regulations.