Shipping industry calls for global GHG fee in new proposal

An annual greenhouse gas (GHG) emission fee is at the heart of a new proposal seeking to ensure net zero shipping emissions by 2050.

The proposal has been presented by the International Chamber of Shipping (ICS), working with the governments of Bahamas and Liberia. It aims to stimulate the delivery of the UN International Maritime Organization’s (IMO) target to achieve net zero GHG emissions from international shipping by or around 2050. 

The proposal is centered around a GHG fee, charged to ships per tonne of CO2 equivalent (CO2e) emitted, combined with a “feebate” mechanism to incentivize the accelerated production and uptake of zero/near-zero GHG marine fuels, such as green ammonia, hydrogen and methanol, sustainable biofuels, and new technologies such as on-board carbon capture.

While the principal purpose of the proposed maritime GHG pricing mechanism is to narrow the significant cost gap with conventional marine fuels, around $2.5 billion per year would also be allocated to an “IMO Net Zero Shipping Fund” to support maritime GHG reduction efforts in developing countries. This is to help ensure that shipping’s transition to net zero will be truly global and that green fuels will be available in all ports worldwide.

ICS said it takes no view on the quantum of what the GHG fee should be, which would depend on the reward rate agreed per tonne of GHG emissions prevented by the use, by ships, of zero/near-zero GHG energy sources. But if, for the first five years of implementation, IMO sets the reward rate at about $100 per tonne of CO2e prevented (including upstream emissions), the proposal suggests that a GHG fee initially equivalent to about $60 per tonne of conventional fuel oil consumed by ships could be sufficient to achieve the purposes of the measure.

As explained, the primary objective of the proposed IMO “mechanism” is to accelerate the production and uptake of new green marine fuels by reducing their cost disadvantage, with feebates (rewards) being disbursed to ships for the CO2e emissions prevented by not using conventional fuel oil.

GHG fees will be collected, and feebates disbursed, via a web-based automated IMO “mechanism”, the prototype for which ICS has already developed and submitted to IMO.

From the revenue generated from the GHG fee, an amount equivalent to 20% of the revenue allocated to support the feebate program will be transferred annually to the newly proposed IMO Net Zero Shipping Fund, with this proportion subject to adjustment within five years of entry to force.

“A GHG pricing mechanism using a flat rate GHG fee and a feebate element will be vital to bring about the rapid development and uptake of green marine fuels. To incentivise the production and use of green marine fuels our proposal includes a carefully thought out feebate mechanism, which is fuel neutral, to incentivise prevention of up to 100 million tonnes of GHG emissions per year during the first five years,” Guy Platten, ICS Secretary General, commented.

“This will help de-risk investment decisions and enable shipping to rapidly reach a “take-off” point in the use of green marine fuels, something which is needed urgently as their current availability is virtually zero.”

“It is time for governments ‘bite the bullet’. Unless a distinct GHG pricing mechanism and feebate programme are included in the IMO regulations adopted next year, we genuinely fear that shipping’s transition to net zero by or around 2050 will be unlikely to succeed,” Guy Platten further said.

“In addition to the implications for the achievement of United Nations climate change goals, any failure to agree a flat rate GHG Fee applicable to all ships globally would also lead to a proliferation of piecemeal, unilateral GHG charges being applied to shipping worldwide – regionally and/or nationally – with regulatory chaos, economic inefficiency, the risk of supply shocks and disruption to seaborne trade, and damage to IMO’s authority as shipping’s global regulator,” ICS Deputy Secretary General added.

“In the view of ICS, a maritime GHG emission pricing mechanism means all ships should contribute GHG fees equally on the basis of their actual GHG emissions, consistent with fair competition and the ‘polluter pays’ principle.”

The latest proposal from Bahamas, Liberia and ICS will be discussed at the next round of IMO negotiations, which resume in London on September 23, to develop a new package of mid-term GHG reduction regulations for international shipping, for adoption by governments in 2025.

As part of its revised GHG Strategy adopted in 2023, all IMO Member States have already unanimously agreed to GHG reduction goals for international shipping. These include net zero emissions by or close to 2050, 5% to 10% of the energy used by international shipping to come zero/near-zero GHG sources by 2030, and an absolute cut in total GHG emissions from the sector, regardless of trade growth, of between 70% and 80% by 2040.

In addition to setting out the regulatory architecture for a maritime GHG emissions mechanism, including the collection of GHG fees and the disbursement of “feebates” for the use of green marine fuels, the new proposal to IMO suggests how this can be linked with a fuel standard for ‘the aggressive reduction’ of the GHG intensity of marine fuels as part of an integrated “IMO Net Zero Framework”.

Ships will pay a GHG surcharge fee for the emissions that result from any under-compliance with the fuel standard, to be collected annually via the GHG emissions pricing mechanism in addition to the GHG fee per tonne of CO2e emitted.