Shipping push for world-first CO2 charge stalls at IMO talks

Shipping’s global regulator signaled that a tiny CO2-based charge on vessels’ fuel consumption will not be approved at a meeting this week, underscoring the challenge facing the industry in its bid to decarbonize.

While the proposed price is low, the levy is significant because it would be the first ever mandatory, global “fee-based” carbon price, according to the World Bank. The plan was discussed at international talks on Wednesday and, with many countries raising concerns, provisionally deferred to a future meeting.

The plan, backed by multiple countries and a major trade organization, is not billed as a tax and isn’t intended to change shippers’ behavior. Instead, the idea is to raise about $5 billion for research and development into clean fuels and propulsion systems for international shipping, which is almost exclusively powered by oil and spews more CO2 into the atmosphere than Germany and the Netherlands combined.

The stalling of a plan for a tiny charge highlights the challenges shipping faces to decarbonize. Any CO2 levy explicitly designed to actually change shippers’ behaviour and bridge the price gap between marine fuels made from oil and cleaner alternatives would be far more expensive. A.P. Moeller-Maersk A/S and Trafigura Group Pte, two large industry participants, have proposed figures that are hundreds of times higher.

The proposed payments in this plan equate to $2 per ton of oil-derived marine fuel, less than 0.5% of the cost of very low-sulfur fuel oil, a common fuel, in Europe’s trading hub of Rotterdam. A CO2 price of 62.4 cents a ton is the basis for the charge, meaning any ships burning lower-carbon fuels—like LNG—would pay less per ton consumed.

The talks, held virtually by the International Maritime Organization, a UN agency, continue Thursday.

Pollution Payment

The upshot is that even though the proposed figures are very low, the R&D fund would establish the basic idea of mandatory payment for pollution caused by using marine fuels. And it would ultimately be a UN organization that gave the scheme the go ahead.

“It relies on a global organization, as opposed to a sovereign nation, taxing shipping to generate revenues,” said Faig Abbasov, shipping director at Transport & Environment, an NGO. It’s the same controversy which surrounds so-called market-based measures, he added. MBMs are rules that push for behavioral change by using financial incentives, like a carbon tax.

The R&D plan is supported by the International Chamber of Shipping, a trade group representing more than 80% of the world’s merchant fleet. In Wednesday’s meeting, it pointed out that the proposal required no money from governments or taxpayers, with funds instead coming from the industry.

“If we can’t find a way to rapidly accelerate research and development, we risk putting back the decarbonization of shipping by several years,” said Simon Bennett, deputy secretary general at the ICS. The trade group has made a separate proposal for a global carbon levy.