Allocation and trading schemes of the maritime emissions trading system: Liner shipping route choice and carbon emissions

In September 2020, the European Union (EU) decided to include the maritime industry into the EU emissions trading system to effectively control carbon emissions from ships, namely the maritime emissions trading system (METS). Various allocation and trading schemes are adopted in practice. This paper investigates a comparison of allocation and trading schemes of the METS from the perspective of liner shipping carriers and regulators, respectively. We explore how to determine the optimal allocation and trading scheme of the METS and how the liner shipping route (LSR) choice decision (following or avoiding the METS) and carbon emissions will be affected. For liner shipping carriers, we use a mixed-integer linear programming model that aims to reduce carriers' costs to formulate our problem. For regulators, we present a bi-level programming model that aims to reduce carbon emissions. In numerical experiments, we further analyze the impact of joining the METS on the scheme choice, LSR choice and emissions by considering the European Economic Area and the Red Sea being covered by the METS. Numerical experiments are provided to show the effectiveness of our proposed models.