Excess emissions from international shipping will be subject to a hefty carbon charge under a new plan to decarbonise the sector agreed earlier this month.
The agreement is a “momentous outcome” that sets the framework for the shipping industry to deliver on its promise to reach net zero emissions, says at University College London.
“W±đ’v±đ got here something that is unprecedented, a global carbon price for a sector,” he says. “Unlike aviation, which only has voluntary targets, here we have got mandatory targets with a carbon price.”
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But analysts have already warned the framework will struggle to deliver emissions cuts at the pace needed to meet the sector’s climate goals.
International shipping accounts for around 3 per cent of global greenhouse gas emissions, but the sector isn’t covered by the climate goals of the Paris Agreement.
Instead, it is up to the UN’s International Maritime Organization (IMO) to tackle the question of how to decarbonise the industry. In 2023, the IMO promised shipping would be a net-zero emissions sector “by or around 2050”. But until now, there was no plan for delivery.
On 11 April, years of intensive negotiations finally bore fruit. Member states of the IMO agreed to introduce an emissions pricing system that will raise money to support investment in new clean fuels.
The framework, set to come into force in 2028, sets two targets for the carbon intensity of ships with a volume exceeding 5000 gross tonnes. The lower target requires ships to cut their greenhouse gas fuel intensity – the emissions per litre of fuel – by 4 per cent by 2028 compared with 2008 levels, rising to 30 per cent by 2035. The tougher target requires a 17 per cent reduction by 2028, rising to 43 per cent by 2035.
Ships failing to meet the stretch target will have to pay $100 per tonne of emissions beyond this point, increasing to $380 for every tonne of emissions above the weaker target. Ships overperforming on the stricter target will receive a reward payment to compensate for the added cost of using low-carbon fuels. The framework still needs to pass a final vote in October before it can enter force.
The complex deal is the result of a compromise between member states who wanted a levy imposed on all emissions from ships and those who wanted a credit trading system for emissions, says at the NGO Transport & Environment (T&E) in Brussels, Belgium.
The idea was to create an incentive for ship owners to cut their emissions, while raising revenues to support the development of new “e-fuels” such as green ammonia and methanol. These fuel options are still expensive and scarce. Scaling up their use will require building out new supply chains for renewable hydrogen, for example, as well as retrofitting ports and ships to run on the new fuels. “You need to have a coordinated push to develop the infrastructure on multiple fronts,” says at the NGO Global Maritime Forum.
However, T&E says the framework will only raise around $10 billion per year, below what is needed to drive an industry-wide switch to e-fuels. It also says the package will cut emissions by just 10 per cent by 2030 and 60 per cent by 2040, short of the IMO’s target to cut emissions 20 per cent and 80 per cent by the same dates. Emissions will remain well above net zero by mid-century, T&E predicts. “It falls short of what is needed,” says Dijkstra.
There is particular worry that the framework will encourage ship owners to switch en masse to biofuels as a short-term route to cutting emissions, which could drive deforestation. “What we have at the moment is probably something which is going to incentivise a lot of biofuels, which comes with risks,” says Dijkstra.
There is a risk that ship owners will switch to biofuels and liquified natural gas in the near term, only to be stuck with assets that lose their value once tighter regulations come in in 2035, says  at UCL.
To avoid this outcome, the rules and structure of the package should be designed to incentivise ship-owners to invest in e-fuels, says Fahnestock. This could include offering more generous payments for using e-fuels, for example. This will be essential for growing the market for these technologies, he argues. “If the e-fuels don’t get a push, we could find ourselves in 2035, 2037, with very little e-fuel available.”
On a more positive note, the impact of political opposition may be more limited. The US is among the fiercest critics of the deal, warning during negotiations that it would retaliate if levies were imposed on any of its ships. But even if the US refuses to implement the framework, the real-world impacts are likely to be limited, says Fahnestock. “The worst case scenario is that all US-flagged vessels will avoid penalties under the framework,” he says. “Currently, the US flag accounts for 0nly 0.6 per cent of global tonnage, and much of the trade is probably within the US anyway, so the effects on the climate, all things being equal, are likely to be very small.”
Although the framework may not be ambitious enough to keep the shipping sector on course for net zero by 2050, it does provide a clear signal to ship owners, port authorities and the wider industry that change is on the horizon. Already, major ports such as Singapore are investigating the logistics of switching to e-fuels, says at Imperial College London. “There are places in the world where activities are going on to prepare for fuel switching,” he says.
The challenge now is to iron out the details of the package to ensure it nudges ship owners to invest in long-term climate solutions, rather than a quick fix. “The glass-half-full take is that there is something here to build on,” says Fahnestock.
