Skip to main content

Author’s bio: Michael Dobson, is a Climate Advisor with Independent Diplomat.

Thanks to a successful public campaign over the last few years, if people know one thing about emissions from shipping, it’s that they account for roughly 3% of global greenhouse gases annually. 3% might seem small, but in fact it is a huge amount – if shipping was a country, it would be a top 10 emitter.

Yet the most unusual thing about international shipping emissions is not so much their quantity but their quality: they are truly international emissions. That is, they are governed not by one country, but by every country jointly. So, even while countries have been decarbonizing their domestic energy systems, industries and buildings, the emissions from international shipping have been left unpriced and largely unabated.

At the International Maritime Organization (IMO), the UN body responsible for regulating shipping, countries agreed in 2023 that the sector would be decarbonized by mid-century. They agreed to choose appropriate policy measures to make this happen by 2025.

What has emerged in response is a wide array of different proposals from countries and industry groups for how to put a price on shipping emissions, and to govern the industry’s transition. As reported by The New York Times in March this year:

Last week, in a consensus vote, I.M.O. member nations detailed the decisions that still need to be made about pricing carbon. How would a price be calculated? Would it be a flat fee or part of a trading mechanism between companies? Who would collect the money and distribute it? And which fuels are considered low-carbon? Countries are looking at seven different proposals, in which prices range from $20 to $250 per ton of carbon emissions, according to the maritime organization.

The stakes in how these questions are answered go well beyond 3% in their significance to the global energy transition, and indeed the global economy. In London this week, countries will gather at the IMO to further discuss the various proposals on the table.

Shipping is fundamental to modern commerce, and decarbonizing it will come with a cost. Each of IMO’s 176 Members will feel these costs differently. Each is already paying differently for the damage inflicted by the emissions shipping has already generated.

The way the world regulates this transition – which set of proposals it decides to adopt – will either set the poorest back further, or help power them forward. Anyone who cares about climate action and global equity should therefore understand what is at stake in choosing an approach.

How would a price be calculated? Would it be a flat fee or part of a trading mechanism between companies?

We know already that there will be a price put on shipping emissions: IMO Members agreed in 2023 to adopt a “maritime GHG emission pricing mechanism,” to be in force by 2027. The questions that remain are whether it should price all emissions, or only a subset, and whether the price should be set by the IMO or the market.

Over the past year, the IMO’s Comprehensive Impact Assessment has been investigating these options. Among other options, the Assessment considered what would happen if shippers only paid for emissions that exceeded an agreed limit (a GHG fuel standard). A price could then be set by trading between vessels over- and under-complying. It also considered pricing all emissions, with the price set by IMO Members either as a flat charge (a levy) or to recover the costs of promoting low-carbon fuels (a feebate).

Of all the options considered, the Assessment found a price on all emissions (a levy) drove the fastest changes in the shipping sector, with ships incentivized to be more energy efficient from the outset. Transitioning with a levy was also found to be the most beneficial to global GDP in 2050.

Who would collect the money and distribute it?

The IMO will need to get ready to distribute considerable sums: as much as $982 billion over the lifetime of the measures. Members must decide how to channel any revenue, including into research and development, low-carbon fuel production, ship construction, port facilities and seafarer training in the safe handling of new fuels.

But their discussions have also turned to a broader theme: equity. All options for pricing shipping emissions bring costs, and these costs are – in every case – spread unequally. Hiding behind a policy that brings a 0.16% drop in global GDP, for example, is a 0.40% drop for the least developed countries, 0.12% for developed countries. Many Members see a role for the revenue raised by a levy in balancing out these disproportionate impacts.

IMO Members are also being affected by rising temperatures, in part as a result of shipping emissions, and will be contending with climate impacts while trying to make the transition. Revenue could also help address the climate damage that shipping emissions have already caused and will continue to cause until decarbonization is complete, which is already being felt unequally across IMO Members.

How much is available to distribute will depend on the policy chosen. While a feebate only generates revenue to support low-carbon fuels, the IMO’s impact assessment found that levy approaches generated revenues of $18-121bn each year beyond this. The higher the levy, the greater the funds available for disbursement to countries: including for climate action, to reduce costs of the transition, or to invest in defenses against sea-level rise, extreme weather and drought.

Which fuels are considered low-carbon?

Most policy designs would see ships paid a direct subsidy for every energy unit of low-carbon fuel used. Which fuels are “eligible” for this subsidy is not yet finalized, but the decision is likely to draw heavily from the IMO’s Life Cycle Assessment process, through which countries agree a shared set of assumptions about the emissions of each type of fuel. Currently, biofuels dominate the lower-carbon technology options available to shippers, but countries widely recognize the need to enable the use of other fuels, particularly ammonia and hydrogen, to reach net-zero shipping at scale.

Among their considerations will be whether some policy options incentivize a better transition to net zero than others. While proponents of traded certificates see this policy providing flexibility as the sector adapts, those supporting a levy worry this would mean more investment for the countries already ahead in the global transition, leaving the fleets of poorer countries buying certificates to comply. Given that poorer countries are also struggling to pay to adapt to climate change, and for the impacts already being experienced, this means an additional cost – and no improvements to the technology that their shipping industry relies on. A levy can incentivize strong action from day one, and support the widespread deployment of long-run solutions.

So, what’s the best option?

Support behind a levy is growing, particularly among developing countries, including those in Africa and small islands, which are highly affected by the climate crisis. They see the levy as a way to mitigate the climate crisis while also providing a source of funding to address shipping emissions impacts and ensure the transition doesn’t leave them behind. The UK and EU also back a levy approach. Many more countries are still making up their minds, but have said that they support various elements of proposals – like spending money outside of the shipping sector, or ensuring that climate change impacts are addressed.

One thing is clear: change is coming to the shipping sector. But will this be a rising tide that raises all boats, or only some? That’s what IMO Members now need to decide.