Unravelling IMO policy measures towards a just and equitable energy transition

Several proposed policy measures and combinations currently on the table at the IMO. This Brief zooms in on how different elements of these measures can contribute to the Strategy’ broader objectives of promoting an energy transition and enabling a just & equitable transition.

Energy Transition

In terms of the energy transition, the industry faces two basic scenarios for its energy transition: an incremental transition and a two-speed transition. The latter allows for learnings from early adopters to help reduce costs, develop skills and labour force, and incrementally develop the new energy supply chains and infrastructure, as well as reduce the risk of stranded assets. Several elements in the policy measures can support delivering on this objectives:

• GHG Pricing Mechanism:  If the GHG price and/or any revenue using a subsidy regime is not targeted at SZEF use, it could end up only stimulating transition technologies and driving an incremental energy transition. A GHG pricing mechanism could provide the certainty and strong signal needed to achieve a rapid ramp-up in investments across the sector. Even with a high price and high revenue use, there is no guarantee or mandate for lower GHG intensity operation, which could increase investment uncertainty. Therefore, a price and revenue mechanism should be combined with a technical measure.
• Regulating GHG Intensity: Command-and-control measures such as a Global Fuel Standard (GFS) mandate progressive reductions in fuel or energy GHG intensity over time, supporting the energy transition by setting clear requirements and a more predictable emissions reduction pathway. A fuel standard should directly impact the shipowners’ and fuel suppliers’ choices, as the GFI limit first makes operation solely on incumbent fossil fuel non-compliant, until near-zero and zero-emission fuels become the only compliant fuel choice (by around 2040). Nevertheless, it is likely to stimulate an incremental transition and requires a GHG price and revenue disbursement mechanisms to enable a two-speed transition.
• Flexibility Mechanisms: flexibility comes with the cost of added complexity (both for administrators and the sector’s value chain), and could risk increased uncertainty for the timing of the business case for investment as, for example, the likely behaviour by shipowners in relation to flexibility will need to be factored into decision making.

Just & Equitable Transition

To enable a just and equitable transition, it is crucial to recognise that such a transition has varying implications for individual nations as policy changes and climate change impacts have different impacts on different states. Several elements on the table can contribute to such a transition:

• Flexibility Mechanisms: Flexibility mechanisms in the policy measures could help support a just and equitable transition but also risk undermining the effort. For example, route exemptions risk leaving the exempted regions behind and reduce incentives for investing in zero-emission technologies there. Furthermore, a risk exists that the benefits of exemptions won’t accrue to the exporting countries in the Global South.
• Revenue disbursement: Revenue disbursement from the policy measures is required to enable a just and equitable transition. Revenues can, in particular, address the disproportionate negative impacts of measures, support in-sector mitigation in developing countries and unlock global opportunities for fuel production, support technology and knowledge transfer between developing and developed countries, and support vulnerable countries in their adaptation and mitigation efforts.

Conclusion

A two-speed energy transition is the most likely means to deliver on the strategy in a cost-effective, just, and equitable way. Any one measure currently on the table (GFS or GHG pricing) might achieve the strategy’s GHG reduction targets but this depends on their scope, clarity, and stringency. However, to deliver on the objectives of stimulating early adoption of scalable zero-emission fuels, ramping-up use of such fuels in towards 2040, and enabling a just & equitable transition, requires a combination of a GHG pricing mechanisms, a global fuel standard based on well-to-wake, and revenue disbursement mechanisms.

As the IMO progresses through the finalisation of measures, the focus on achieving an energy transition and ensuring a just and equitable path forward remains paramount. The upcoming debates and discussions at MEPC 81 and MEPC 82 will be crucial in shaping the implementation of these measures, and the shipping industry’s commitment to sustainable practices will be closely monitored as it strives to meet the ambitious targets set forth in the IMO’s Revised GHG Strategy.

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