IMO Approves World's First Industry-Wide, Truly Global Carbon Fee

After 10 years of deliberation, IMO member nations have agreed to implement the first global carbon fee for shipping. It is the first UN-administered carbon revenue system of any kind.

At the final day of talks for the Marine Environment Protection Committee's 83rd meeting, delegates agreed to a set of binding targets for shipping's greenhouse gas emissions, including intermediate objectives of a 20-30 percent greenhouse emission reduction by 2030, a 70-80 percent reduction by 2040, and net-zero by or around 2050.

Accompanying the targets, delegates passed a set of long-debated technical and economic measures that are intended to incentivize compliance. Rather than an across-the-board carbon levy on all emissions, it is a tiered system of fees and compliance levels, and not all emissions will be taxed.

The core of the plan is a penalty of $380 per tonne of CO2 that ships will have to pay if they exceed a maximum level of emissions intensity, which will get stricter every few years on a set schedule. Ships that stay under this intensity standard will still have to pay a fine of $100 per tonne of CO2 for emissions in excess of a second "direct compliance" level. Ships that emit even less than the "direct compliance" standard get carbon credits for outperforming the requirements, which can banked or sold to underperforming ships.

The fee structure means that only emissions above a certain limit are subject to a penalty; emissions under the limit will be untaxed. And all ships under 5,000 GT - coastal vessels and workboats - are exempt.

The framework also leaves room for operators to use any alternative fuels that meet emissions criteria, including first-generation biofuels made from food crops like palm and soybean oil. These are the cheapest "green" fuels available, but they come with a significant environmental cost, as large-scale increases in production require more land-clearing.

"The IMO deal creates a momentum for alternative marine fuels, but unfortunately it is the forest-destroying first generation biofuels that will get the biggest push for the next decade," said Faig Abbasov, shipping program director for Transport & Environment (T&E).

Climate advocates and industry groups agreed that the fee structure falls short of what would be needed to compel an industry-wide transition to high-cost green methanol and green ammonia in the near term. However, based on an analysis by T&E, the IMO's schedule will result in a substantial reduction in emissions from about 2030 onward - a profound cut compared to the increases expected under a no-regulation, business-as-usual scenario. The schedule suggests that the industry will not reach net zero until some years after 2050.

Courtesy T&E

"This adoption is a first step in the right direction, with now a part – although small – of shipping emissions being subject to what is effectively a global levy. However, with an expected fall in emissions of around 10% by 2030 compared to 2008, the level of ambition is largely insufficient to meet the IMO target of emission reduction, let alone to meet a 1.5 C trajectory," said Dr. Marie Fricaudet, a senior research fellow at UCL Energy Institute.

Advocates of a stricter emissions regime blamed longtime opponents of climate action for the outcome; the Trump administration, which registered its opposition to any carbon fees earlier this week, also attracted criticism. "Let us be clear about who has abandoned 1.5°C. Saudi Arabia, the US and fossil fuel allies pushed down the numbers to an untenable level and blocked progress at every turn," said Minister Ralph Regenvanu of Vanuatu, a proponent of ambitious climate measures at IMO.

Industry groups praised the MEPC outcome as a step in the right direction, if not a full resolution.

"We recognize that this may not be the agreement which all sections of the industry would have preferred, and we are concerned that this may not yet go far enough in providing the necessary certainty. But it is a framework which we can build upon," the International Chamber of Shipping's Guy Platten said in a statement.

“This is a major milestone for climate policy and a turning point for shipping. Our industry has long been labelled as ‘hard to abate,’ but record industry investment and a new global measure can turn the tide on that,” said Joe Kramek, WSC President & CEO.

UCL cautioned that without a high-revenue IMO levy powering multibillion-dollar investments in green fuel, national-level capital flows will now determine who wins from shipping's green transition - much as China has done with its investments in solar panels, wind turbines, batteries, EVs and shipbuilding. "A significant risk now exists that the future of shipping will, like renewable energy and battery electric vehicles, be significantly owned and driven by nations with strong industrial policy," warned UCL.