Quantum Commodity Intelligence – As you read this, a meeting is taking place in London that is discussing options to put the global maritime sector on a path to meet a mid-century net-zero greenhouse gas (GHG) emissions target, including how to price emissions resulting from the use of fossil fuels.
This week the International Maritime Organization’s (IMO’s) Intersessional Working Group on GHG Reduction (ISWG-19) will meet to try and map out clearer positions on the three main options related to carbon pricing, broadly categorised as a crediting mechanism, a ‘strong’ levy, and a ‘weak’ levy.
Next week, a broader meeting of the IMO’s Marine Policy Environment Committee (MEPC) will further discuss carbon pricing options and two other important strands: a Carbon Intensity Indicator for ship efficiency standards; and a green fuel standard to reduce the GHG intensity of marine fuels.
Options
All three carbon pricing options being presented to ISWG-19 next week are based on the use of a Global Fuel Standard, which in turn dictates the maximum GHG intensity over time (measured in CO2 equivalent per gigajoule of energy) for the fuels used.
The talks are the latest in a very long process for the UN’s maritime arm to come up with solutions to deal with the sector’s greenhouse gas emissions. Maritime together with aviation, were excluded from the 1997 Kyoto Protocol and other subsequent global agreements on climate change under the UN Framework Convention on Climate Change, with authority to regulate their emissions ceded to the IMO and International Civil Aviation Organization.
Aviation has introduced a carbon pricing scheme, the Corsia decarbonisation system, but for shipping the sector has continued to debate ‘best’ options for pricing its emissions.
It seems that carbon credit trading may now be the preferred option, after the EU shifted its position in favour of a compromise ‘bridging proposal’ submitted by Singapore and also backed by China, Brazil, which favours a credit mechanism over the introduction of a levy, according to observers.
“If the EU sides with the credit mechanism, it is probable that the levy will not stand a chance once the upcoming meetings have concluded,” said Seas At Risk, an NGO that closely monitors maritime environmental policy.
“The levy offers an equitable solution, and while the carbon credit trading mechanism could bring about the energy transition, with zero-near-zero GHG emission fuels mainly produced in developing countries, there are clear underlying issues with revenue instability and market unpredictability,” the NGO added.
Most poorer and smaller developing countries are in favour of a non-carbon credit levy, which its proponents say could bring in $1,500 billion by 2050, compared with $150 billion predicted over the same timeframe under a credit-based mechanism.
Agreement
Finding agreement over the next few weeks will be crucial if the IMO is to meet an October 2025 deadline to agree mid-term measures under its revised 2023 GHG Strategy to promote energy transition in ships.
The maritime sector accounts for 2% of global GHG emissions. The IMO target agreed in 2023 aims to achieve net-zero “around” 2050 and involves non-binding interim 2030 and 2040 targets.
Although some refined proposals for mid-term measures have garnered increasing levels of support, a breakthrough this year is far from guaranteed, according to commentators. Further delay into 2026 or later would put a decision near to 30 years after UN talks that brought about Kyoto handed the baton for maritime GHG emissions to the IMO. And then there is implementation.
The IMO, in a statement ahead of the meetings, noted that if the MEPC adopts a carbon finance measure, it could enter into force 16 months later, under the “tacit acceptance” procedure.
