Conference Agenda

This paper examines the equilibrium impacts of emissions regulations on the time path of CO2 emissions for the maritime shipping industry. Notably, it explores the interactions between travel speed, price, and capital turnover: Fleet fuel efficiency improves when larger ships replace existing ones, but the long lifespan of ships makes turnover slow. Regulations that reduce travel speeds lower emissions quickly, but also limit the supply and increase the price of shipping, thereby impacting shipbuilding and scrapping incentives. To quantitatively assess these mechanisms and their time horizons, I construct a dynamic model of the dry bulk shipping industry with endogenous entry, exit, and travel speed, as well as fleet heterogeneity across age and size. Using a rich dataset on the global fleet and its operation, I structurally estimate the model and use it to simulate the dynamic effects of a fuel tax, an efficiency standard that limits speeds, and an entry subsidy. I find that a fuel tax has a persistent impact, while the effect of a speed limit diminishes considerably over time due to induced ship building. Counterintuitively, rather than hastening the exit of older ships, both policies initially suppress exits, even while reducing emissions. An entry subsidy is more effective at removing old ships from service.