The shipping industry generates approximately 2-3% of global carbon emissions, which many might consider to be low and of lesser significance. However, this percentage represents a significant and rapidly increasing emissions volume, underscoring the industry’s urgent need to meet its emissions reduction targets. Since most maritime emissions occur on the open seas, beyond national borders and regions, reducing them necessitates international collaboration and legislation.
Within the transportation sector, shipping is the third-largest contributor to carbon dioxide emissions, accounting for 11% of the total, trailing closely behind passenger vehicles at 39% and medium to heavy trucks at 23%. With the rise in global trade and the growing demand for maritime transport of goods, the sector’s carbon footprint, primarily from CO2, is projected to surge by 50% to 250% by 2050 if proactive measures are not taken.
Is a worldwide carbon tax going to happen?
A worldwide carbon tax on shipping is being seriously considered as a solution, alongside introducing a form of Zero Emission Shipping Fund.
This article explores the potential impact of a tax levy on the shipping industry and the essential part ports play in this transition.
In July 2023, the International Maritime Organization (IMO) adopted a new climate strategy for net-zero greenhouse gas emissions ‘by or around’ 2050. The strategy includes targets to reduce emissions by 20-30% by 2030 and 70-80% by 2040, compared to 2008 levels.
A study made in 2020 by UMAS and the Energy Transitions Commission for The Getting to Zero Coalition estimates that achieving the IMO target of reducing carbon emissions from shipping by at least 50% by 2050 will require a cumulative investment of approximately USD 0.8-1.2 trillion between 2030-2050. Full decarbonization by 2050 would require total investments between USD 1.2 and 1.6 trillion.
Approximately 87% of the total investment will be needed to fund the development of land-based infrastructure and production facilities for low-carbon fuels. About half of this will be allocated to storage and bunkering infrastructure.
In 2022, five proposals for global carbon pricing schemes for shipping were submitted to the IMO. It has taken until 2024 to gain significant plans to move forward. This happened at The Maritime Environment Protection Committee (MEPC 81), which met in London from 18 to 22 March 2024. A significant way forward took place with a proposed legal process towards adopting global regulations was discussed.
From the meeting, a draft outline illustration of a possible IMO net-zero framework listed regulations under the International Convention for the Prevention of Pollution from Ships (MARPOL), which will be adopted or amended to allow for a new global fuel standard and a new global pricing mechanism for maritime GHG emissions.
Read the article Why Understanding CO2, NOx, and SOx Emissions in Shipping and Ports is important
These may include a proposed new Chapter 5 of MARPOL Annex VI containing regulations on the IMO net-zero framework, to include:
- A goal-based marine fuel standard regulating the phased reduction of marine fuel’s GHG intensity.
- An economic mechanism(s) to incentivize the transition to net zero.
The possible draft outline for the IMO net-zero framework will serve as a starting point to consolidate the different proposals into a possible common structure, supporting further discussions with the understanding that this outline would not prejudge any potential future changes as deliberations progress.
The IMO’S next steps on carbon tax
In addition to progress on the legal framework, MEPC agreed on the following next steps ahead of its next meeting (MEPC 82), scheduled for 30 September to 4 October 2024:
- A comprehensive impact assessment on the impact of the proposed mid-term measures on Member States is to be finalized and submitted to MEPC 82.
- A two-day expert workshop (Fifth GHG Expert Workshop – GHG-EW 5) will be held to discuss the preliminary findings of the comprehensive impact assessment, covering all aspects, including the modelling of revenue disbursement. The outcome will be reported to MEPC 82.
- The Seventeenth Intersessional Working Group on Greenhouse Gas Emissions (ISWG-GHG 17) to meet to consider the outcomes of the comprehensive impact assessment, the GHG-EW5, and other submitted documents for further discussions around the development of mid-term measures and report to MEPC 82.
- ISWG-GHG 17 will develop draft terms of reference for a Fifth IMO GHG Study.
- The establishment of a GESAMP Working Group on the Life Cycle GHG Intensity of Marine Fuels. GESAMP is the Joint Group of Experts on the Scientific Aspects of Marine Environmental Protection. The GESAMP-LCA WG is tasked to provide the best possible scientific and technical assessment of issues related to implementing the LCA Guidelines. These guidelines allow for calculating GHG emissions over the full production cycle and end-use of marine fuels, known as “well-to-wake.”
- Two correspondence groups were also established, which will report to MEPC 83: the first group is tasked to develop a work plan on the development of a regulatory framework for the use of onboard carbon capture systems and to look into Tank-to-Wake methane and nitrous oxide emissions; the second group will look into social and economic sustainability themes and aspects of marine fuels for possible inclusion in the LCA Guidelines.
PortXchange and many other leading maritime organizations and bodies are urging the IMO to move forward with this work as quickly as possible after the September meeting. Time is of the essence, and we know we have the technology, including our EmissionsInsider, to help make this happen. Now, we need the legislative powers to be implemented to make this happen quickly.
What else should we be looking at?
The IMO’s Energy Efficiency Design Index (EEDI), approved in July 2011, is the first globally binding design standard to prohibit climate change from shipping. It applies to (almost) all new ships and entered into force in 2013. The index requires new ships to become more energy efficient, with standards that will be increasingly stringent over time. Standards are compared to the baseline, set as the average efficiency of ships built between 1999-2009.
In May 2024, a Seatrade Marine poll revealed that 58% of respondents were pessimistic about the shipping industry’s ability to meet the 2030 emissions target. Specifically, 17% believed the target would not be met, and 41% thought it was unlikely. Meanwhile, only 11% were confident it was achievable, and 31% felt the target was achievable but only if it was supported by increased investment in efficiency and alternative fuels.
At the ESPO conference in May 2024, the CEOs of the panel of ports were asked if ‘ports will achieve net zero by 2050?’, Pino Musolino, President of MedPorts Association, said, “No one will achieve net zero by 2050”.
Yet IMO remains optimistic. During a news conference on 18 March 2024, when the IMO Secretary-General, Arsenio Dominguez, was asked about the prospects of a carbon emissions levy for shipping, he said that he was “very confident that there’s going to be an economic pricing mechanism by this time next year.” However, he was unclear about the details.
Understanding the Global Carbon Tax
A carbon tax is a price imposed on the burning of carbon-based fuels (coal, oil, gas). The primary objective is to reduce greenhouse gas emissions by making fossil fuels more expensive, encouraging the adoption of cleaner energy sources. International bodies are discussing current proposals for a global carbon tax on shipping.
Key stakeholders include the IMO, governments, shipping companies, environmental groups and global trade organizations, all working towards a consensus on the best implementation and how to enforce such a tax.
The Maritime Industry’s Carbon Footprint
The industry’s carbon emissions are expected to rise if no substantial measures are taken. While there are existing regulations aimed at reducing emissions, such as the IMO’s 2020 sulphur cap, these measures have proven insufficient in achieving the necessary reductions to meet global climate targets.
CO2 reduction measures in ports, including a key one at berth, have a significant impact. Introducing clean energy shore power would substantially affect reducing air pollution. However, it is not currently being considered within global carbon tax schemes where some of the money raised could help ports implement changes and shore-based power.
PortXchange wants to see Port Air Quality Strategies becoming mandatory and global support for port infrastructure investment, including grant funding and rebates from a carbon tax scheme.
The Proposal for a Zero-Emission Shipping Fund
In 2023, in recognition of the urgency to move forward with workable solutions to meet ambitious net zero targets, the International Chamber of Shipping (ICS), alongside the Commonwealth of The Bahamas and the Republic of Liberia, submitted a detailed proposal to the IMO for a Zero Emission Shipping Fund (ZESF).
This fund aims to accelerate the transition to net zero emissions by 2050. The ZESF will incentivize the production and uptake of zero GHG marine fuels and technologies and provide billions of dollars to support the transition in developing countries. Governments are urged to approve fit-for-purpose proposals to meet their commitment to adopt a maritime GHG emissions pricing mechanism by 2025.
Schemes like the one proposed by ICS will only be able to be fair and credible if it is part of the scheme that sets a standard for tracking and reporting emissions for transparency across the sector. This is possible now, so it should be easy to incorporate (link).
The timeline for a scheme like the one proposed by ICS will likely take at least two years as it is a complex process and will need the IMO to work at a speed it is not used to.
Impacts of a Global Carbon Tax on the Shipping Industry
Despite differences of opinion, IMO member states are still attempting to agree on global measures to avoid more countries targeting the industry nationally. This would fragment the market with varying local standards and cause an international headache for international trade and shipping lines. But this is a reality if the IMO cannot reach an agreement.
The EU has already said it may bring more international shipping emissions into its local CO2 market if the IMO does not agree to a global emissions price by 2028. Bimco, the Cruise Lines International Association, the World Shipping Council and others have backed the call for a Global Tax scheme.
Such a tax will almost certainly lead to extra costs for shipping companies that will be passed on to their customers, which could be problematic for export-dependent economies and therefore, take even longer for the IMO to agree. This would affect global trade dynamics, impacting supply chains and consumer prices.
A carbon tax, coupled with initiatives like the ZESF, will serve as a powerful incentive for the shipping industry to innovate. Companies will be encouraged to invest in cleaner, more efficient technologies to reduce their carbon footprint and minimize tax liabilities. This could lead to advancements in alternative fuels such as liquefied natural gas (LNG), hydrogen and ammonia, as well as improvements in ship design and propulsion systems.
Regulatory Impacts
Implementing a global carbon tax will necessitate harmonizing international regulations to ensure a level playing field. This may present compliance challenges, particularly for regions and shipping lines lacking robust environmental regulations. However, it also allows the shipping industry to standardize practices and improve the overall environmental performance.
The Role of Ports in the Transition
The IAPH (International Association of Ports and Harbours) has called for revenues from Market-Based Measures to be invested in port infrastructure. Focusing on financial support to developing countries could help a fair and equitable energy transition.
IAPH Managing Director Patrick Verhoeven commented, “We all know that decarbonizing shipping is about much more than decarbonizing ships; It’s about the whole supply chain. A lot of the investments will have to be made on land and in ports. Our proposal is to consider port-related infrastructure, including bunkering infrastructure, as part of the investments that could be funded through such market-based measures, especially in developing countries, in order to close the gaps in the energy transition. We hope that with this contribution, we will help to bridge the divides in the IMO on this very delicate discussion.”
Ports must upgrade their infrastructure to support the new technologies and fuels that shipping companies will adopt. This includes LNG bunkering facilities, shore power (cold ironing) provision, and the development of refuelling stations for alternative fuels. Ports that can offer these services will become more attractive to shipping lines looking to minimize their carbon tax burden.
In addition to infrastructure changes, ports must adjust their operations to handle the logistics of new fuel types and technologies. This could involve new procedures for refuelling, maintenance, and storage. This is why a tax or fund must also include ports, which will require help and funding to assist them in making the necessary changes. It is also recognized as a vital infrastructure for electricity connectivity for shore-based charging and cold ironing.
Upgrading infrastructure and adjusting operations will require significant financial investment. However, ports that embrace these changes will be well-positioned to capitalize on the shift towards greener shipping. They can become innovation hubs, attracting business from forward-thinking shipping companies and contributing to regional economic growth.
Several ports worldwide have already begun adapting to greener shipping practices. For example, the Port of Barcelona is progressing towards introducing cleaner fuels for ships. There were 618 port calls of LNG-powered ships during 2023 at the port. This made it possible to reduce their NOX emissions by 10% of the total port calls. The Port of Barcelona also plans to build zero-emission fuel production plants at its facilities. Similarly, the Port of Los Angeles has implemented shore power systems to reduce emissions from ships at berth. These examples highlight the challenges and opportunities of adapting to a greener future.
Patrick Verhoeven further states, “This matter belongs to the much broader issue of narrowing the divide between developed and developing countries in terms of port infrastructure related projects and initiatives targeting the decarbonization of shipping beyond bunkering. This includes the provision of Onshore Power Supply and that of port incentives to low-emission vessels, as well as optimization of port calls. This is also clearly recognized under the IMO-Norway GreenVoyage2050 project, which targets capacity building in developing countries in all four key areas identified by the 2019 IMO Ports Resolution. IAPH has signed up as an official partner of GreenVoyage2050 to assist in training and capacity building.”
The IMO Ports Resolution was adopted in 2019 due to the initiative initially taken by the government of Canada and IAPH, which was to encourage voluntary cooperation between the port and shipping sectors to contribute to reducing GHG emissions from ships. One key identified action was to promote the safe and efficient bunkering of alternative low-carbon and zero-carbon fuels in ports.
‘We firmly believe that market-based measures, in whichever mutually agreed form, are essential to incentivize the shipping industry to adopt greener fuels and more efficient operational practices thereby enabling us to significantly reduce our carbon footprint. Ports will play a critical role in this transition by fostering collaboration across the industry and investing in sustainable solutions. Together, we can achieve our emissions reduction targets and ensure a cleaner, healthier planet for future generations.’ Abhishek Nair, Director of Business Development at PortXchange
What can shipping stakeholders do right away?
All stakeholders in the shipping industry must act now and collaborate to support the implementation of a global carbon tax. By investing in technological innovation, adopting greener practices, and fostering cooperation between ports and shipping companies, we can pave the way towards a more sustainable future for the industry. Embracing this opportunity for environmental improvement will help secure a cleaner and healthier planet for future generations.
Currently, very few ports and shipping lines are publishing their Scope 3 emissions in sustainability reports. This is a significant issue as Scope 3 emissions can account for up to 98% of port emissions. Yet, they are not being reported in their entirety because it is not mandatory. If we are truly serious about achieving carbon neutrality, we must take the lead and include Scope 3 emissions in our reporting. This transparency is essential to accurately measure our impact and make meaningful progress towards our environmental goals.
