- Trade association proposes new fund to bridge price gap.
- Shipowners could have financial incentives for low-carbon choices.
- Fund can also be used to finance GHG reduction in developing states.
The International Chamber of Shipping has proposed a new fund where shipowners using oil bunkers subsidize their peers consuming alternative fuels, the London-based trade association said Jan. 31 in a bid to help the shipping industry reach decarbonization targets, reports Platts.
Zero Emission Shipping Fund
Last year, the UN’s International Maritime Organization — shipping’s global regulator — set targets to reduce life-cycle greenhouse gas emissions from cross-border shipping by 20%-30% by 2030 and 70%-80% by 2040 versus 2008, before reaching net-zero emissions close to 2050. IMO member states have separately set a goal of having 5%-10% of global bunker consumption from zero- or near zero-emission energy by the end of this decade.
In a proposal co-sponsored by Liberia and the Bahamas submitted to the IMO, the ICS said a Zero Emission Shipping Fund should be established based a “feebate” mechanism to incentivize a switch from conventional, oil-based marine fuels from alternatives with lower GHG intensity.
Under the mechanism, shipowners will need to make a mandatory, flat-rate contribution based on the amount of GHG emissions from their oil bunker consumption to the fund, which in turn will distribute a rebate to those using alternative fuels based on their GHG reduction. “We think this can work,” ICS’ secretary-general, Guy Platten, told reporters in a briefing. “We do see this as a route to net zero.”
The ICS, whose members are national shipowners’ associations that represent 80% of the global merchant fleet, has stated it does not advocate any rate level for the shipping fund. “We don’t have a view on what the rate should be … that’s a political decision” among IMO member states, Simon Bennett, deputy secretary-general at the ICS, said.
Crunching numbers
But ICS calculations, presented in the proposal, suggest the shipping fund’s size might need to reach $5 billion-$10 billion for the IMO’s 2030 bunker goal to be hit. This would be equivalent to a rate of $20-$40/mt of fuel oil consumption, according to the proposal.
Some island nations earlier proposed a GHG levy of $100/CO2e during IMO meetings. Assuming 0.5% sulfur bunker oil — the prevalent marine fuel — is used, shipowners would need to pay an extra of $315.1/mt of fuel consumption under such a scheme.
Platts, part of S&P Global Commodity Insights, assessed the bunker price for 0.5%S fuel at $585/mt in Rotterdam on Jan. 31. Industry estimates suggest low-carbon methanol could be at least two to three times more expensive currently.
A second fund
Administered by the IMO, the shipping fund will also contribute “billions of US dollars” to a separate new fund called “IMO (GHG) Maritime Sustainability Fund” for “an equitable transition” of marine energy, the ICS said in the proposal.
The sustainability fund can be used to finance GHG reduction projects like low-carbon bunker infrastructure in developing countries, in particular small island developing states and least developed countries, according to the proposal.
The IMO is due to discuss the proposal, as well as other GHG pricing mechanisms during meetings on March 11-22. Member states have aimed to finalize new decarbonization regulations by 2025 and bring them into force by 2027.
“A global GHG pricing mechanism for shipping urgently needs to be agreed next year which will de-risk investment in zero GHG marine fuels … The groundwork has been done and the regulatory architecture has been carefully laid out,” Platten said, referring to the ICS proposal that consolidate some earlier ones. “All that is needed is political will from governments to implement this fit for purpose solution quickly and effectively.”
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Source: Platts
