The economic & environmental

challenges of Cruise Ship Pollution

Group 2 :
Velda Rifka Almira
Ma Xin Yue
Nurazuin
Jiang Ruitong
Introduction

● Sewage discharge from cruise ships introduces harmful

substances into the ocean, causing eutrophication and
biodiversity loss. This situation highlights a key challenge in
environmental economics: the externalization of environmental
costs by industries, such as the cruise industry, due to inadequate
regulations and enforcement.

● This leads to negative impacts on the public and the environment.

Due to lax regulations and enforcement, the cruise industry often
externalizes environmental costs, leaving the public and
environment to bear the negative impacts (Carić 2016).
Environmental Impacts

Environmental Impact: Cruise ship pollution introduces harmful

pathogens, damages coral reefs, causes eutrophication, and
creates unsightly water conditions, severely affecting marine
ecosystems.

Economic Impact: This pollution leads to health care costs,

hampers tourism and fishing industries, and incurs legal fines
and environmental cleanup expenses, undermining local and
national economies (Qian 2019).
 Economic Implications

The pollution from cruise ships can not be simply considered as an economic
problem just because it's bad environmentally. From economic perspective, this is
beneficial although it causes pollution. However, there are some other factors to
take into consideration that suggests an economic problem exists.

Cruise liners are not bearing the full costs of the cruise, since this is lowering their
costs & prices, which increasing the quantity. There is a lack of awareness of the
fact that water is a scarce resource, and there is an opportunity cost here.
 Economic Implications

Moreover, it impacts other markets which are not involved in the transaction such
as fishermen, swimmers, tourism. The excessive discharge of waste from the
growing number of cruise ships causes problems for the seas, wildlife, and people,
suggesting that the number of cruise ships in operation may be excessive.

These are ‘third party’ or externality effects, and these are a problem of welfare
economics.
What does this suggest?

The report indicates negative externalities, and we have what is known as

market failure, and an over-supply of cruises. In this discussion we model
this environmental externality and draw the demand and supply curves
(numbers are purely illustrative). The defined market are cruise ships, only
taking into account private costs.
The current competitive solution
Problem : The cruise ships have no incentive to consider the externality, assuming currently price
$2000 and 5000 cruise passengers.
Result : Competitive solution is inefficient
Illustratively, we use the slope coefficient b = 0.125 for demand curve; and d = 0.075 for supply
curve. Obtaining the following equations :
P = a – bQ 2000 = a – (0.125 x 5000); a = 2625
Therefore, demand equation : P = 2625 – 0.125Q
As for supply curve,
P = c + dQ 2000 = c – (0.075 x 5000); c = 1625
Therefore, supply equation : P = 1625 + 0.075Q
Modeling on efficient solution
In the competitive solution, Supply is MPC and Demand is MPB :

MPC = 1625 + 0.075Q ; MPB = 2625 – 0.125Q

Therefore, to find the efficient solution :

- Let Marginal External Cost (MEC ) = 0.05Q

- Marginal Social Cost (MSC ) = MPC + MEC

MSC = 1625 + 0.075Q + 0.05Q → MSC = 1625 + 0.125Q

- Assuming no external benefits (MEB = 0) MSB = MPB

- Set MSC = MSB

1625 + 0.125Q = 2625 – 0.125Q

Solving Qe = 4000; Pe = $2125

Figure 1 : Supply and demand graph
The market for Cruise Ships
3000

2500
2125

2000
2000
Price ($)

1500

1000

500

0
0 1000 2000 3000 4000 5000 6000 7000
Quantity (Passengers)

MPB (Demand) MPC (Supply) MSC Efficient Point Initial Point

Current Policies & Problems

Previously, we already considered how the problem was

externality which gave rise to market failure. This
problem means that the unconstrained pricing system
fails to send the correct indications, and there is an
arguable justification for government action. If legislation
is successful, it will raise the cruise ships’ costs in having
to deal with wastewater, which leads the supply curve to
move to the left & prices of cruises to rise.
Current Policies & Problems

By simply adopting a regulation will not prohibit the

market from working, since corporations have
incentives to cheat. Without adequate police, policy
becomes optional.

The problem (including the cost) of obtaining

information on violations (e.g illegal dumping) is also
another major element.
 Case for Policy Change

● Banning the dumping of greywater everywhere poses economic considerations. While

greywater disposal can have environmental impacts, a blanket ban may entail substantial
costs for cruise ship operators. Implementing and enforcing such a ban could lead to increased
operational expenses, affecting ticket prices and overall industry profitability.

● Alternatively, investments in advanced treatment technologies for greywater could mitigate

environmental concerns while allowing continued operations.

● Striking a balance between environmental protection and economic viability is crucial.

Regulatory measures should be carefully designed to encourage sustainable practices without
unduly burdening the cruise ship industry, fostering a harmonious coexistence between
economic interests and environmental responsibility.
Conclusion

Based on our key findings and insights, we concluded several points:

1. The analysis focuses on economic & environmental challenges of cruise ship
pollution
2. We found that although pollution can not be directly translated as ‘economic
implication’, but in this analysis we found that the pollution acts as negative
externalities
3. Cruise ships not paying for sea waste disposal leads to negative externalities,
neglecting environmental and public health impacts.
4. The diagram reveals market failure, emphasizing the need for corrective measures,
such as fees or regulations, to promote sustainability.
References

Qian, X. (2019). "Modeling and Analysis of the Impact of Marine Environmental Pollution on Cruise
Tourism Based on Economic Model." Ekoloji Dergisi(108).

Carić, H. (2016). "Challenges and prospects of valuation–cruise ship pollution case." Journal of Cleaner
Production 111: 487-498.