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Economic Analysis For Business

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Introduction

This paper will examine the impact on oceans due to the release of one billion gallons of sewage by the cruise ships. Initially this paper would explain the situation in terms of externality theory and its impact on the community. Later it will explain how the government intervention will impact and improve the condition. According to Gwynn’s report published in 2014, around 20 million people board cruise ships every year and throw billion gallons of sewage into the sea.

According to Friends of the Earth group’s calculation, 3,000 persons cruise ships pumps 150,000 gallons of sewage into ocean every week. The dumped sewage collaborates with bacteria, heavy metals, viruses etc and can harm the health of aquatic bodies and human beings. The waste discharge forms layer over the ocean beds and reduces the amount of oxygen available to aquatic animals and harms the marine life due to suffocation. (Guilford, 2014)The article ‘Relative risk assessment of cruise ships biosolids disposal alternatives’ explains about the relative risk assessment of biosolids disposal alternatives for cruise ships. It evaluates the relative human health and ecological risks of dewatering, landing solids for disposal and deep ocean disposal. The studies suggest that the human health and ecological risks associated with land disposal and shallow ocean disposal are higher than those of deep ocean disposal and incineration. The predicted ecological impacts for incineration was lower relative to deep ocean disposal. (Avellaneda PM, 2018)Scientific studies established that plastics and synthetic materials are the most prominent and harmful type of marine debris that have caused injuries and deaths to almost over 267 endangered species of oceans either by entanglement or ingestion. (Derraik, 2002)

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Externality Theory

Externality is defined as the positive or negative consequence of an economic activity experienced by unrelated third parties. It occurs when the production or consumption of goods impacts a third party who is not directly related to the production or consumption. Externality increases the aggregate costs to the economy and society and makes it a negative externality. The social costs outweigh the private costs. Billions of gallons of sewage released by the cruise ships leads to negative externality. It will be discussed further by the below graph.

Quantity/Quality of water

The above graph explains the involvement of social costs along with private costs. People only consider the private costs when considering the usage of ocean water and its importance for marine life. But in reality, they have to pay higher social costs for each litre of water to be cleaned for usage. The cost benefit trade-off would look less favourable and they would choose to use less water. This could be represented by another demand curve parallelly shifted downwards by the amount of external cost as shown in the above graph. This would be represented by Dsocial on the graph. This demand curve reflects the trade-off that would be considered if external costs are taken into consideration for decision making. A smaller quantity of water would be demanded at any given market price because people will have to pay higher than the actual price to cover the external costs involved. The blue shaded triangle in the above graph represents the dead weight loss. When there is inefficiency due to externalities, the government should intervene to correct the market failure. Thus, this market failure could be corrected by government intervention thereby maximising the economic efficiency. (Karlan, Bajada, Melatos & Morduch, n. d. )

Government Intervention

Government can introduce several ways to provide solution for this problem and thus help in removing externalities. The flag states provide incentives to ship owners to purchase and install equipment such as incinerators on board. The government encouraged research and development of technology for the compliance with MARPOL for ships and ports. According to the international law, the discharge of sewage and garbage into port area is strictly prohibited. Restricted discharge is permitted only beyond the territorial limits. The Discharge Standards for Sewage under MARPOL Annex IV20 regulates the discharge of sewage into the oceans by providing for sewage treatment plants on board of the vessels, by obligating the ports and terminals to provide for sewage reception facilities and by means of surveys and certification. Every sea going vessels should have an International Sewage Pollution Prevention Certificate, which is issued by the concerned flag state. As per the revised Annex every ship of 400 gross tonnage and above carrying 15 or more persons need to have equipped with an approved sewage treatment plan on board or a sewage commuting or disinfecting system or at least a holding tank. The ship owners should ensure that the requirements on board for garbage disposal are in accordance with the revised Annex V and the crew is well-informed and trained of the same. The solid bulk cargo as per regulation VI/1-1. 2 of SOLAS, other than grain, is now be classified per the criteria in the new appendix I of MARPOL Annex V, and the shipper shall then declare as to whether or not the cargo is harmful to the environment (HME).

A new form of the Garbage Record Book (GRB) has been included in appendix II to MARPOL Annex V. The GRB will be divided into two parts: Part I for all garbage other than cargo residues, applicable to all ships and Part II for cargo residues only applicable to ships carrying solid bulk cargo. (Puc. overheid. nl, 2018)

Conclusions

There is a negative externality due to dumping of sewage into the oceans by the cruise ships. The reduction of discharge of sewage and garbage into the oceans will facilitate protection of marine environment. This can be achieved by implementing the objectives set out in MARPOL 73/78, by reducing on board ship generated waste, improving the availability of port reception facilities and the enforcement regime.

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