The International Maritime Organization (IMO) has made progress at its recent meeting to reduce greenhouse gas emissions from shipping. However, there’s still much work to be done to finalize specific measures, according to Marine Insight.
Just Transition
The primary focus of MEPC 82 was on advancing a global fuel GHG standard (GFS) and a levy to ensure that the “polluter pays” principle is applied, raising revenues to support a “just and equitable energy transition”.
The GFS aims to set minimum GHG intensity (GFI) requirements for marine fuels, which will become increasingly stringent over time. The GFS will include a penalty mechanism for non-compliant ships, allowing them to “pay to comply” by purchasing remedial units (RUs).
Ships that exceed GFI requirements will be able to generate surplus units (SUs) and sell them to others. However, countries such as China and Brazil argue that the penalties and SUs effectively create an indirect carbon price, negating the need for an additional GHG levy.
Despite these measures, a recent analysis by Transport & Environment (T&E) shows that under even the most ambitious GFS scenarios, only a small proportion of global shipping emissions would be indirectly carbon-priced by 2030. Specifically, the study estimates that just 14% of emissions would be priced if 50% of ships opted to “pay-to-comply.” The analysis underscores the need for a separate GHG levy in addition to the GFS to ensure that shipping companies fully bear the cost of their emissions.
Policy Architecture
The draft outlines three potential policy architectures to incentivize emissions reductions: a flexibility mechanism, a feebate system, and a combination of both. These three methodologies are distinct but also comparable to the EU Maritime Fuel Regulation, which has adopted a more straightforward carbon pricing approach by imposing a direct levy on carbon emissions.
The flexibility mechanism, while allowing ships to meet GHG reduction targets in a more adaptable manner, lacks the predictability and revenue generation potential of a direct levy. The feebate system, which combines rebates for overperformance with fees for underperformance, aims to create incentives but may still fall short in terms of providing a consistent price signal, as seen in the EU’s direct approach.
The combination of both mechanisms attempts to balance flexibility and incentives but could face challenges in complexity and implementation.
In contrast, the EU’s FUEM provides a clear carbon pricing framework that not only incentivizes the use of cleaner fuels but also generates consistent revenue to support the energy transition. This more direct approach could potentially be more effective in ensuring that the “polluter pays” principle is uniformly applied across the maritime sector.
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Source: Marine Insight
