IMO’s GHG Workshop Reviews Mid-term Measures for Reducing Shipping Emissions

The International Maritime Organization (IMO) recently concluded its Fifth GHG Expert Workshop on the Further Development of the Basket of Mid-term Measures (GHG-EW 5), focusing on potential strategies to reduce greenhouse gas emissions from the shipping sector. A comprehensive impact assessment (CIA), submitted by the United Nations Conference on Trade and Development (UNCTAD) in June, provided key insights into how these measures might affect the global economy. This analysis was based on various scenarios proposed by the classification society DNV, which explored both technical and economic solutions for the shipping industry.

Economic and Technical Measures: A Global Pricing Mechanism

A major part of the discussion centered on a global pricing mechanism for GHG emissions from ships. One of the primary economic proposals is a CO2 levy, which would be paired with technical measures such as a global fuel standard for marine fuels. These measures aim to reduce emissions while generating significant revenue for the shipping industry, with estimates suggesting total revenues could range between $776 billion and $982 billion between 2027 and 2050, according to DNV’s study. The introduction of a carbon levy ranging from $150 to $300 per metric ton of CO2-equivalent (mtCO2eq) would be a key driver of this revenue, supported by a revenue disbursement system but lacking any feebate mechanisms.

In comparison, a lower carbon levy of $30 to $120/mtCO2eq, combined with a global fuel standard based on tank-to-wake (TtW) emissions, would generate more modest revenues, estimated at $139 billion during the same period. If the fuel standard is expanded to consider well-to-wake (WtW) emissions, the potential revenue could rise to $244 billion, supplemented by flexibility mechanisms but again without the inclusion of a feebate system.

Global Economic Impact

The UNCTAD report highlighted that a higher CO2 levy, in the range of $150 to $300/mtCO2eq, would result in the most significant reduction in global GDP, with a potential decrease of 0.07% by 2030 compared to a business-as-usual scenario. A lower levy would have a milder impact, with global GDP reductions of 0.03-0.04% by the same year. In the long run, however, the economic outcome could shift. If revenues generated from the CO2 levy are distributed primarily to small island nations and least-developed countries, global GDP could see a reduction of 0.08% by 2050. Paradoxically, a lower CO2 levy may lead to a greater reduction in global GDP, reaching 0.14%, if revenues remain targeted at under-developed economies.

Technical Measures

The report further emphasized the risks of implementing technical measures without corresponding economic measures, such as a CO2 levy. In this case, the least-developed economies would suffer the greatest negative impact, with a predicted 0.16% reduction in world GDP by 2050, compared to a business-as-usual scenario. Developed economies would see relatively minimal effects, making it crucial to consider both technical and economic approaches to ensure a balanced global impact.

Ultimately, while short-term economic challenges are anticipated, the long-term benefits of adopting comprehensive mid-term measures are expected to outweigh the costs, particularly if revenue distribution is carefully managed to support vulnerable economies.