Countries at the IMO are moving towards establishing a levy on shipping’s 1 billion tonnes of annual greenhouse gas emissions.
The levy is negotiated as an ‘economic measure’ under a ‘basket’ of mid-term measures aimed to reduce emissions in accordance with the IMO’s Revised Strategy (30% by 2030 and 80% by 2040, reaching net zero by 2050). This basket also includes a green fuel mandate a.k.a. fuel standard, a ‘technical measure’ aimed at gradually increasing the uptake of green energy in shipping and phasing out fossil fuels.
The levy will help close the price gap between currently more costly clean fuels, and cheap dirty fossil fuels, making the transition economic. It could also be an important source of much-needed climate funds of up to dozens of billions of dollars a year.
The mechanism saw great media attention during the Paris New Global Financial Pact Summit in June 2023, where it received fresh support from 22 countries and the European Commission.
Over 100 countries so far have publicly supported a GHG levy on shipping:
- 55 Climate Vulnerable Forum countries (CVF) under the Dhaka-Glasgow Declaration launched at COP26 in November 2021: Afghanistan, Bangladesh, Barbados, Benin, Bhutan, Burkina Faso, Cambodia, Colombia, Comoros, Costa Rica, Democratic Republic of the Congo, Dominican Republic, Eswatini, Ethiopia, Fiji, the Gambia, Ghana, Grenada, Guatemala, Guinea, Guyana, Haiti, Honduras, Kenya, Kiribati, Lebanon, Liberia, Madagascar, Malawi, Maldives, Marshall Islands, Mongolia, Morocco, Nepal, Nicaragua, Niger, Palau, Palestine, Papua New Guinea, Philippines, Rwanda, Samoa, Saint Lucia, Senegal, South Sudan, Sri Lanka, Sudan, Tanzania, Timor-Leste, Tunisia, Tuvalu, Uganda, Vanuatu, Viet Nam, Yemen.
- 22 countries and the European Commission at the Summit for a New Global Financial Pact in Paris in June 2023: Barbados, Cyprus, Denmark, France, Georgia, Greece, Ireland, Kenya, Lithuania, Marshall Islands, Mauritius, Monaco, Netherlands, New Zealand, Norway, Portugal, Slovenia, Solomon Islands, South Korea, Spain, Vanuatu, and Vietnam.
- 7 African countries in their submission to an IMO’s meeting in June 2023 (ISWG-GHG-15), and India at the same meeting: Angola, Gambia, Ghana, Kenya, Liberia, Namibia and Sierra Leone.
- The US, Canada, and the UK at an IMO meeting in July 2023 (MEPC 80), stating that the revenue generated should be only used in-sector only, as opposed to wider climate adaptation/mitigation efforts;
- 20 African countries at the Africa Climate Summit in September 2023: Kenya (the host), Burundi, Central African Republic, Chad, Comoros, Congo (Brazzaville), Democratic Republic of Congo (DRC), Djibouti, Egypt, Eritrea, Ethiopia, Ghana, Libya, Mozambique, Rwanda, Sahrawi, Senegal, Sierra Leone, South Sudan, and Tanzania.
The IMO is yet to decide on the price and the revenue distribution of the future levy measure, with two leading proposals on the table:
- The Pacific levy: The Marhsall Islands and Solomon Islands are proposing a levy of $100/tonne of greenhouse gas, on well to wake basis, generating around $60-80 billion per year, according to the World Bank estimates. This, according to the proposal, could be used for climate-related projects inside and outside the maritime industry in developing countries, but primarily in SIDS and LDCs. This proposal is backed by a number of other nations in the region, such as Fiji, Tuvalu, Vanuatu, Kiribati and New Zealand. The World Bank also came in support of the revenue distribution proposed by the Pacific states in March 2023.
- Japan’s levy: Japan is proposing a levy with a starting price at $56/tonne of CO2 in the first phase from 2025 to 2030, before rising to $135 from 2030, and up again every five years, to over $1,000/mt in 2040s. The plan suggests keeping the revenue inside the maritime industry, namely investing it in zero-emission vessels. The only flows of money to SIDS and LDCs would be to help them develop green shipping infrastructure.
An Impact Assessment of the candidate mid-term measures, including the levy, is currently being prepared by UNCTAD, to be completed end 2024.
IMO timeline on the levy:
- March 2024: technical discussion at the IMO
- April 2024: IMO MEPC 81 climate summit
- October 2024: IMO MEPC 82 climate summit
- Q4 2024: UNCTAD assessment on the potential impacts of mid-term measures
- Q4 2025: finalisation of measures under the basket
- 2027: entry into force
How would a GHG price on shipping impact global trade?
Research by Clarkson has previously shown that shipping decarbonisation would have minimal impacts on the cost of trade, with a business-as-usual fuel price volatility expected for a levy of up to $500/tonne of GHG. Moreover, any potential impact on trade could be mitigated by a strategic use of the levy revenue. UNCTAD finds that improving port infrastructure and digitalisation reduces costs of shipping by 4.1% and 4.4%, respectively.
In 2023 Review of Maritime Transport, UNCTAD also finds that the costs of inaction on climate change would be greater for developing countries than any economic impacts of the levy.
What can you do?
IMO delegates should support a levy measure that:
- Is aligned with the IMO’s Revised Strategy, aiming for a 1.5°C-aligned transition that countries committed to under the Paris Agreement;
- Has a starting price of at least $100/tonne of greenhouse gas;
- Is on well-to-wake basis;
- Accounts for all greenhouse gases;
- Directs revenue to primarily developing countries, especially SIDS and LDCs;
- Allows for both in-sector and out-of-sector revenue spending.
