Maritime Decarbonization: Fuel Challenges And Regulatory Measures

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Shipping companies face significant challenges in reaching decarbonization targets set by the International Maritime Organization (IMO). IMO Secretary-General Arsenio Dominguez highlights the need for sustainable fuels that are available in sufficient volumes and at a reasonable cost to avoid negative impacts on the global economy.

IMO Decarbonization Targets and Challenges

The IMO has set ambitious targets to reduce greenhouse gas (GHG) emissions from international shipping by 20%-30% by 2030 and by 70%-80% by 2040, with the ultimate goal of net-zero emissions by 2050. However, the limited availability and high cost of sustainable “green” fuels are major hurdles. These fuels are currently two to three times more expensive than conventional fossil fuels, making the transition challenging without economic measures like a GHG tax.

Economic and Regulatory Measures

To bridge the price gap between sustainable and fossil fuels, the IMO is considering technical and economic measures, including a potential GHG levy. Initial findings suggest that a levy of $100/mtCO2e could effectively reduce emissions but also significantly increase global shipping costs. The IMO is working on finalizing these measures by 2025 for implementation from 2027, ensuring they do not adversely affect less developed countries’ economies.

Geopolitical and Safety Concerns

Geopolitical issues, such as the Iran-backed Houthi attacks on merchant ships and the use of the “shadow” fleet by Russia, complicate maritime operations. These older, less maintained ships often engage in fraudulent practices, posing risks to safety and the environment. The IMO is addressing these concerns by promoting safe operations and implementing regulations to counter fraudulent behaviors, focusing on maintaining maritime safety rather than enforcing regional sanctions.

These efforts underscore the complexity and urgency of achieving maritime decarbonization while maintaining economic stability and addressing geopolitical challenges.

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Source: S&P Global