Maersk CEO: Global regulator must ensure price parity between green and fossil fuels

September 20, 2024, by Naida Hakirevic Prevljak

Vincent Clerc, CEO of Danish shipping and logistics giant Maersk, has reiterated the importance of introducing a global maritime fuel standard and a pricing mechanism that would reduce the existing price gap between green and fossil fuels.

To enable a complete and successful transition in the global shipping industry, alternative fuels will need to be widely available, widely used and cost-competitive.

“It’s imperative that the International Maritime Organization and its member states agree on making green maritime fuels as affordable as fossil fuels. This can be achieved through a global maritime fuel standard and a pricing mechanism that ensures price parity for fuels that support large-scale green fuel projects,” Clerc pointed out in a LinkedIn update.

In early 2024, the World Shipping Council, a trade association representing the international liner shipping industry, proposed a solution to the challenge of crafting a global greenhouse gas (GHG) pricing regulation that encourages investment in green fuels.

Specifically, the Green Balance Mechanism (GBM) introduces a novel approach to greenhouse gas pricing, aiming to minimize the cost disparity between fossil fuels and green alternatives by implementing a fee structure that reallocates fees from fossil fuels to green fuels, ensuring an equal average fuel cost. The mechanism incentivizes greater financial allocations for fuels that demonstrate higher greenhouse gas emission reductions throughout their lifecycle. Collected funds are determined by the volume of green fuels used, initially resulting in a relatively low fee during the transition.

The mechanism also establishes a fund supporting just transition and benefiting developing nations in particular as it facilitates their energy transition.

A detailed proposal, including design updates and regulatory text for the Green Balance Mechanism, has been submitted to support the timely development of effective climate regulations for shipping at the International Maritime Organization’s (IMO) next round of meetings.

“Governments at the IMO have only 6 months to a reach consensus on effective measures that will make green energy projects bankable in the short term, and we urge them to make tangible progress at MEPC82 meeting taking place in just a few days. By doing so, they will enable cargo owners to reduce scope 3 emissions on time and move the sector forward. These measures must be finally adopted in 2025,” Clerc added.

Will discussions on a global carbon price at the UN be fruitful?

The penultimate round of negotiations on key shipping climate laws–including a carbon price will kick off at the UN’s International Maritime Organization (IMO) in London this September.

The talks will take place as a two-part summit, technical talks (ISWG-GHG-17) on September 23-27 and a climate summit (MEPC 82), on September 30-October 4.

The UN maritime body is expected to advance negotiations on what could be “the world’s first universal carbon price” on a global polluter. This policy sees consistent, growing support among the IMO’s 175 member states.

Governments agreed under the IMO’s 2023 Revised Strategy that shipping needs a ‘GHG emission pricing mechanism’, and to adopt it in 2025. The September/October talks hope to get clarity on the design of the future policy, including crucial questions about the price and revenue distribution.

“As we prepare now for the MEPC 82 and ISWG 17, the urgency to finalize our carbon pricing mechanisms and economic policies has never been greater. Our task now is to ensure that our strategies not only drive down emissions but also safeguard the interests of the most vulnerable nations. It’s imperative that we act decisively to turn our commitments into tangible results, fostering both climate justice and sustainable growth for all,” Albon Ishoda, Marshall Islands Special Envoy for Maritime Decarbonization, stressed.

At the last talks in March 2024, a clear majority of countries favored this mechanism to be in the form of a levy.

A report by UNCTAD found that a levy is necessary to lower the impacts of shipping decarbonization on global GDP growth, and to promote global economic equality.

The policy is negotiated as part of a ‘basket’ of various measures, as an ‘economic measure’, intended to deliver agreed emission cuts in an equitable way: 30% by 2030, 80% by 2040, to reach zero by 2050. The basket also includes a green fuel standard (GFS), a ‘technical measure’, aimed at further incentivizing the use of zero-emission energy on ships.

MEPC 82 will also open the revision process of the IMO’s existing framework for energy efficiency (Carbon Intensity Indicators, or CII), whose ambition needs to be increased to deliver the agreed emission reduction before 2030.

Experts agree that achieving the IMO’s climate commitments will require all three components: an ambitious and equitable levy of at least $150/tonne GHG; a strong fuel standard, and an improved energy efficiency of vessels.

“Currently, ISWG-GHG 17 and MEPC 82 are the only meetings scheduled before the Spring meetings, and critical decisions related to the measures are still yet to be made. Delegations have put forward detailed proposals […]. While these proposals demonstrate growing support for a GHG levy on all lifecycle emissions from ships, many unanswered questions remain, including on how a pricing mechanism will work, how the revenues will be managed, and how they should be disbursed.[…] The way these revenues are distributed will have a direct impact on the nature of shipping’s decarbonisation and on whether the IMO fulfils its commitment to secure a just and equitable transition,” Ana Laranjeira, Senior Manager, Opportunity Green, said.

“[…] For too long, frontline countries and communities have been fighting the most negative impacts of climate change with a lack of funding to help them do so. According to the Polluter Pays Principle, the emitter should bear the cost of their pollution. For this reason, we must ensure any revenues generated from a shipping levy are distributed fairly, so that no one is left behind,” Blánaid Sheeran, Project Officer at Opportunity Green, noted.

“Wind technology is available now and can be fitted on most vessels. Hybrid ships that use both fuels and wind, through appropriate scheduling, route choices and weather forecasting, can take advantage of the strong winds that are prevalent on the high seas around the globe,” Anais Rios, Shipping Policy Officer, Seas At Risk, commented.

“We urge the IMO to adopt a high levy, allowing vulnerable countries to take advantage of the revenues to decarbonise their shipping industry and reduce the effects of climate change. Wise choices need to be made to reach the IMO’s goals and deliver its decarbonisation strategy, and we must focus on technologies that are clean, readily available, and that make practical sense,” Rios concluded.