The external costs of port activity for port cities: An environmental efficiency analysis of Spanish ports

Port activity brings economic benefits to port cities but also generates negative environmental externalities. These negative externalities derived from pollutants represent a social cost for port cities and coastal areas close to ports, and include costs derived from damages to urban buildings, damage to vegetation and damage to the health of the local population. This raises the question of whether ports may have scope to reduce external costs and thereby improve air quality in port cities and/or increase their existing level of service. To address this, we estimate the environmental efficiency of 37 Spanish ports observed in 2016 for which data on inputs, outputs and local external environmental costs are available. Using Data Envelopment Analysis, we estimate a hybrid model with non-separable good and bad outputs. Undesirable output is measured for the first time by local external costs of air pollution instead of tons of pollutants released, which better reflects the differential damages caused by the individual pollutants. Two definitions of undesirable outputs are used: total local external costs and local external costs per capita. In both versions of the model, we find evidence of high levels of environmental inefficiency in Spanish ports, with over half of the ports found to be inefficient. We rank efficient ports using a super-efficiency version of the model with external costs per capita and identify ports which appear to be references for best practice.