International shipping is a crucial component of global trade, responsible for transporting over 80% of goods by volume. However, it also contributes about 3% of worldwide greenhouse gas emissions. Without transitioning to zero-carbon fuels and innovative technologies, emissions from shipping are projected to increase by 90-130% by 2050 compared to 2008 levels, as published by World Bank.
Reducing shipping emissions
The International Maritime Organization (IMO), a United Nations agency, aims to reduce shipping emissions by half (compared to 2008 levels) by 2050. Member states are currently revising shipping’s climate goals to align with the temperature targets of the Paris Agreement. The IMO is prioritizing energy efficiency, the development of zero-carbon fuels and technologies, and the pursuit of cost-effective and equitable solutions for all countries.
Implementing a carbon tax is one approach the IMO is considering. A carbon tax sets a price on carbon emissions, which can help decrease greenhouse gas emissions and generate revenue. In the shipping sector alone, it is estimated that a carbon tax could raise $40 to $60 billion annually from 2025 to 2050. This revenue can be utilized to support the transition towards cleaner technologies and practices in the shipping industry.
So how could this money be put to work?
- It could be used to speed decarbonization in the shipping industry, which will require trillions of dollars in investment. Carbon revenues could finance and then accelerate shipping’s move away from fossil fuels. There is a great need for investment in zero-carbon fuel production and in maritime infrastructure – including efficient ports – that promotes decarbonization, provides development opportunities, reduces transport costs, and builds resilience in the face of extreme global events.
- Reinvesting carbon revenues into port infrastructure can help lower the costs of final delivered products – including food and other essential supplies. Transport costs add up: in Sub-Saharan Africa, for example, transport costs can represent up to 50% of food prices, and over a third of the food produced in Africa is lost due to poor logistics. Investing carbon revenues in improving ports – and their linked transport – can help make logistics more efficient and resilient. Ultimately, reducing time in transport can help to offset the cost of a carbon levy on shipping in developing countries.
- Just as importantly, the money could be used more broadly, beyond the shipping industry, to help nations and industries mitigate and adapt to climate change. Especially for countries most vulnerable to climate change, such as Small Islands Developing States (SIDS) and Least Developed Countries (LDCs), broadening the use of revenues beyond maritime decarbonization addresses equity concerns since very often their ability to spend within the maritime transport sector is limited. Making sure that the transition to zero-carbon shipping leaves no country behind is central to the debate about the next steps.
Countries that are most vulnerable to the impacts of climate change, such as Small Island Developing States (SIDS) and Least Developed Countries (LDCs), should receive increased support from the revenues generated by carbon pricing. These countries deserve a dedicated share of the funds generated from carbon pricing initiatives. Currently, there is a significant disparity between the climate finance provided to these nations and their estimated climate-related requirements. Moreover, these vulnerable countries often face difficulties in accessing climate finance due to limited capacity and resources.
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Source: World Bank
