by Lloyd's List

11 April 2025 (Lloyd's List) - THE International Maritime Organization has approved a carbon price for global shipping that would force ships to cut their carbon intensity by 65% by 2040.

Countries voted 63-16 on Friday morning in favour of a compromise plan that Pacific Islands and green groups lambasted as too weak to meet IMO green targets, and petrostates decried as too onerous.

The regulation, which leaves many important details to guidelines it has yet to agree, will go on to final adoption by the Marine Environment Protection Committee in October.

The two-tier credit trading scheme and fuel standard, known as J9, would force ships to reduce their fuel’s carbon intensity over time.

If adopted, it will be the first global carbon price agreed for any industry.

This puts shipping at the forefront of efforts to fight climate change — but at the cost of a more complex scheme with targets far lower than many of the IMO’s 176 member states had called for.

A total of 79 delegations voted and more than 20 abstained, including most of the Pacific Islands. China and Brazil surprised many by voting yes, while the US boycotted the talks.

MEPC chair Harry Conway held up a half-full glass of water on Friday, telling delegates they had started the meeting two weeks ago empty, but that the work was not over yet.

Reactions

Speaking for the Pacific Islands, Tuvalu said the plan lacked an effective carbon pricing tool, and so would fail to send the market signal the shipping industry needed to switch to costlier green fuels.

It said the plan not only denied support to some of the island states most vulnerable to climate change, but parts of it would have those countries “paying for the decarbonisation of the most-developed countries”.

Tuvalu said and the Pacific Islands had not been included enough in drafting the plan and that their exclusions raised concerns over the integrity of the process.

But the islands remained committed to finding a solution that met the goals of the 2023 Strategy and the Paris Agreement, Tuvalu said.

Those voting against included Saudi Arabia, the UAE, Russia, Iran, Iraq, Pakistan, Yemen, Malaysia, Thailand, Venezuela, Oman, Jordan and Bahrain.

Saudi Arabia said the regulation should balance energy security and affordability, climate action and economic development. It also repeated concerns the regulation would increase food prices.

The Clean Shipping Coalition said it had expected the compromise plan to fall short of action needed to align with the Paris Agreement goal of limiting global warming to 1.5°C. “But we were not prepared for this agreement, that is so unfit for purpose,” CSC said.

The green group said the regulation “allows for business-as-usual emissions until 2028, effectively writing off this critical decade for action”. It would fail to spur uptake of ZNZ fuels, did not restrict LNG, and put the burden of climate change on the poorest states.

“When it delays action, undermines ambition, deepens global inequality and creates new sacrifice zones, we must ask ourselves: A deal at what cost?”

Transport & Environment called the agreement a victory for multilateralism but a failure for the climate, arguing it would help destroy rainforests by locking in the use of first-generation biofuels like palm and soyabean oil.

The International Chamber of Shipping cautiously welcomed the agreement, which would make shipping the first sector with a global carbon price.

“The world’s governments have now come forward with a compromise agreement which, although not perfect in every respect, we very much hope will be formally adopted later this year,” ICS secretary-general Guy Platten said.

Platten, whose shipowner group has long backed a flat carbon levy instead of an ETS, said the agreement may not go far enough in providing the necessary certainty for green investments.

“But it is a framework which we can build upon,” he said.

Liner shipping group the World Shipping Council said the agreement was a “major milestone for climate policy and a turning point for shipping”.

Bryan Wood-Thomas, WSC's IMO representative, said there was considerable work left to do, but the regulations were a critical starting point.

How the regulation works

Ships with a GHG intensity higher than the baseline carbon intensity reduction, or Z factor, must pay $380 per tonne of CO2 equivalent on any emissions over the base limit, and a penalty of $100 per tonne CO2 equivalent in remedial units (RUs) on any emissions between the base tier and the second tier, called the Direct Compliance Target (DCT).

A ship with GHG intensity below the DCT pays no fees and instead generates credits called surplus units (SUs) from the below the DCT, and can bank them for two years or sell them through an IMO GHG fuel intensity registry.

Ships in carbon deficit (by using dirty fuel) can trade credits with ships in surplus. This makes it easier for ships lacking access to biofuels to comply. But it makes the market dynamics hard to predict, since we don’t know what DCT-compliant fuels will cost in the future.

Users of zero or near-zero carbon (ZNZ) fuels — those with less than 19 grams of CO2e per megajoule — will qualify for a subsidy or reward, but the tool to do this is yet to be developed.

The UCL Energy Institute’s Shipping and Oceans Research Group said the scheme looked set to raise $30bn-$40bn by the end of 2030 and would continue to grow at around $10bn a year. The funds would need to be split between subsidising ZNZ fuels and climate projects in developing countries.

“The budget could easily be fully absorbed just by subsidy/reward of ZNZ for the first decade,” UCL said.

LNG dual-fuel ships will be compliant until 2032, and from then will need to blend biogas or use carbon capture, in what one source called the “death knell for LNG” as ship fuel.

Ammonia or methanol dual-fuel ships could qualify, depending on how the fuel is made. They will qualify for subsidies, but the price of those SUs will probably be far cheaper than RUs, at least initially.

How good is this plan for the planet?

UCL said it expects absolute GHG emission reductions of about 8% in 2030 compared with 2008 levels, “significantly short” of the IMO’s 2023 GHG Strategy target of 20% striving for 30%.

The draft plan is expected to increase transport costs by around 80% in the period to 2050 with various impacts on states, including the cost and competitiveness of exports.

UCL said the expected revenues would be far below that needed to compensate poorer countries for the ravages of climate change.

The parameters of the plan can be adjusted in 2031, which could modify its stringency and the revenues available.