by Lloyd's List
14 April 2025 (Lloyd's List) - THE International Maritime Organization has made history by agreeing the first globally binding UN carbon price on any industry.
Whether it could do so was in serious doubt until practically the last minute, when the MEPC83 voted 63-16 for the new ‘Net Zero Framework’.
A complex greenhouse gas fuel standard (GFS) will require operators to reduce their ships’ carbon emissions intensity by 17% by 2028 compared with 2008 levels, rising to 21% by 2030.
Those that fail to do so will have to pay the IMO $100 per tonne of CO2 equivalent above the target. Those that miss the baseline target of 8% by 2030 must pay up to $380 per tonne CO2e in so-called remedial units (RUs).
The fees must be paid into an IMO Fund to support decarbonisation. Big emitters can also buy surplus units (SUs) generated by overperforming ships.
The scheme is the result of policymaking by consensus, or close to it, so its climate ambition is paltry.
The regulation as written expected to reduce shipping emissions by about 8% by 2030, far short of the 20%-30% the IMO set itself just two years ago.
The Pacific Islands had led calls for a $150 per tonne CO2e carbon levy, which the IMO ended up ruling out as politically impossible despite having broad support. The small island states mostly abstained from voting on the final scheme, protesting its weakness.
Global Centre for Maritime Decarbonisation chief executive Lynn Loo has estimated a medium-range tanker consuming 5,000 tonnes of HFO a year in 2028 would tot up $242,000 in direct compliance penalties and $114,000 in base penalties.
Assuming a fuel cost of $400 per tonne, that amounts to $2m. “This penalty represents a 20% surcharge for continuing business as usual,” Loo said.
For shipping, the first obvious result will be a rush for biofuels, which will make compliance fairly easy in the early years. But if biofuel costs increase beyond the penalty price — and there is good reason to expect they will, since aviation and road transport will jostle for supplies — then companies will simply pay to comply rather than switch.
The outlook is dimmer for LNG, with penalties to ramp up from 2033. Those who have invested in gas will look for bio- and synthetic methane in future years, but this pathway is expected to be costlier in the long run than ammonia.
The regulations will be reviewed every five years. Their ambition should be strengthened to give zero-carbon fuel producers certainty to invest. The IMO must clarify what exactly counts as a green fuel, and ensure its new rules are workable and enforceable in the years to 2028.
There is much still to be done. But for all its faults, the regulation takes the IMO’s non-binding 2023 GHG Strategy and sets clear goals. It is a remarkable feat of diplomacy.
It sends a message to other industries that the UN system of rule-making can survive amid today’s fractious geopolitics. (The US’ loud complaining from the sidelines ultimately achieved nothing.)
It sends a message, however faint, that shipping is headed for net zero. Considering the constraints on the IMO today, and on rules-based free trade in general, that is something to celebrate.
