FEATURE: UN negotiators signs off on $100/tCO2e marine carbon levy
Quantum Commodity Intelligence - UN negotiators have voted in favour of a landmark agreement which will place reduction targets on the carbon intensity of marine fuels and charge a carbon levy of at least $100 per tonne CO2 equivalent (tCO2e) to ships emitting above those targets.
The agreement of the Global Fuel Standard (GFS) deal at an International Maritime Organization (IMO) committee meeting in London on April 11 came despite pushback from Saudi Arabia, which forced through the vote, and a threat from the US to retaliate against such measures.
"It was a dramatic end to long negotiations in London, where Saudi Arabia requested a vote. The vote ended with a clear majority in favour of the regulations," said Andreas Bjelland Eriksen, Minister of Climate and Environment of Norway, which led the negotiations.
"In today's geopolitical situation, this is a bright spot that shows that the world can still come together to find solutions to the climate crisis," Eriksen added.
Some 63 IMO members voted in favour of the deal, which will be formally adopted in October this year and will come into force by 2028, with 16, including Saudi Arabia and the UAE, opposing the deal while another 23 abstained.
The agreement will set two decarbonisation targets for all ships over 5,000 dwt (deadweight tonnage), which will be reviewed after three years and will steadily sharpen over time. The tougher target will be set at a 17% reduction in the carbon intensity of marine fuels by 2028, versus the 2008 baseline of 93.3 grammes of CO2 equivalent per megajoule of energy (gCO2e/MJ), on a well-to-wake basis, according to the final draft seen by Quantum.
That tougher greenhouse gas (GHG) reduction target will hit 21% by 2030, and 43% by 2035. Ships missing this target will have to pay the IMO a levy of $100 for each tCO2e emitted above this level.
The second weaker target is set at a 4% reduction by 2028 below the same baseline and an 8%
reduction by 2030, with those vessels missing the weaker target forced to pay a carbon levy of $380/tCO2e.
Credits
The proposal allows for ships to buy credits from vessels exceeding both targets by burning lower-intensity marine fuels, such as biofuel, LNG or even ammonia. This would be a potential new front for UN-based carbon trading, adding to the Paris Agreement's Article 6 and the Corsia aviation decarbonisation schemes.
However, it also risks triggering retaliation from the US, which withdrew from the negotiations earlier this week, with the Trump Administration threatening it would consider "reciprocal measures so as to offset any fees charged to US ships".
While the agreement, which aims to limit the release of climate warming gases by an industry
responsible for 80% of global trade and 3% of global emissions, was seen as a historic win for geopolitics, many observers said the deal was not strict enough.
Many NGOs pointed out that the GHG reduction targets in the agreement fall short of the IMO's own climate ambitions, which pledge to cut emissions from international shipping by at least 20% by 2030, and strive for a 30%
reduction.
"This week, IMO member states squandered a golden opportunity for the global shipping sector to show the world how it can turn the tide on catastrophic climate heating, putting their own goals — eliminating the sector's GHG emissions without leaving any countries behind — out of reach," said Delaine McCullough, president of the Clean Shipping Coalition.
McCullough added that the IMO chose "low ambition" rather than setting a stricter fuel standard and a sufficiently high price on all carbon emissions from ships.
Earlier this month, Danish shipping giant Maersk had told Quantum that the carbon levy should be $600/tCO2e minimum to be effective in prompting cleaner fuels and new vessels that are more energy efficient.
"The vast majority of shipping emissions (between the upper and lower boundaries) will be exempted from taxing, which limits the system's strength. Outperformers will be rewarded, but details still need to be clarified," said Rico Luman, senior sector economist, transport and logistics at Dutch bank ING.