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Does the EU ETS promote shipping decarbonization? Green investment and sustainability strategies of shipping alliances

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  • Lu, Bo
  • Fan, Lijie
  • Wang, Jian-Jun
  • Li, Yonggang

Abstract

The European Union Emissions Trading System (EU ETS) has included the shipping industry in its scope, requiring shipping companies to pay for carbon emissions and promoting green investment. However, considering the complex alliance structure dominated by shipping companies, the effects of this policy on environmental sustainability and shipping economics are still unclear. To explore the optimal emission reduction mechanism in the context of shipping alliances, we develop a game-theoretic model to assess the impact of the EU ETS on sustainability and green investment strategies in the co-opetitive market, considering shippers’ green preferences. It is shown that moderate green preferences and carbon quota prices increase freight rates and shipping demand, while the green spillover effect of alliances mitigates the free-riding behavior of companies’ green investments. However, excessive government intervention forces companies to transfer the economic burden to shippers, hindering the conversion of green preferences into actual market demand, creating a negative cycle for all stakeholders. Moreover, the EU ETS enhances social welfare by balancing the economic costs of carbon reduction for shipping companies and shippers with the environmental damage caused by emissions. Finally, aligning service differentiation, green preferences, and carbon quota prices can create a triple-win situation for shipping companies, shippers, and the government.

Suggested Citation

  • Lu, Bo & Fan, Lijie & Wang, Jian-Jun & Li, Yonggang, 2025. "Does the EU ETS promote shipping decarbonization? Green investment and sustainability strategies of shipping alliances," Transportation Research Part A: Policy and Practice, Elsevier, vol. 199(C).
    • Handle: RePEc:eee:transa:v:199:y:2025:i:c:s0965856425001971
    DOI: 10.1016/j.tra.2025.104569
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