Environmental Port Charges Reduction Schemes: an Economic Analysis

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A recent trend in providing incentives towards improving sustainable shipping sectors has been through the use of reductions on port dues based on indexes and standards that should reward less polluting vessels. The economic implications of green port charging, however, are far-reaching and call for a more in-depth analysis, of which is the subject of this paper. The effectiveness of a port dues reduction scheme is heavily dependent on the characteristics of the traffic transiting through the port and specifically on two types elasticities. The impact of a port dues reduction on port demand depends on the elasticity of cargo demand to port charges, while the effectiveness of a reduction on the improvement of the environmental performance of the vessel depends on the absolute savings made available to the ship owner and the propensity of owners to convert such savings in environmental improvements on the ship. On the basis of these considerations the research develops an analytical model that can provide support to port authorities on the effective implementation of green port dues reduction schemes and aims to investigate the benefits of port environmental incentive schemes to reduce emissions and as forms of price discrimination in the port sector. The research highlights the complexity associated with the development of an effective green port dues reduction scheme under the financial constraints that most port authorities face. Furthermore, the research work illustrates how green port dues reduction schemes are effective only for certain types of traffic and under the wrong conditions can be ineffective in improving the environmental profile of the shipping sector or even detrimental to the finances of the port.