The following article was written by Angeli Mehta and originally published by Reuters on 17 April.
Summary
Shipping on track for 10% emissions reduction by 2030
IMO deal lacks incentives for early adoption of low-carbon fuels
Greenhouse gas levy criticised as too low to be effective
Pacific island nations abstain from vote
April 17 - Governments have taken the first steps towards moving away from fossil fuels in the shipping industry in a deal that has been hailed as a victory for multilateralism, but criticised for falling well short of what is needed to meet climate goals.
Negotiators at the International Maritime Organization (IMO) last week agreed mandatory emissions limits and a global price on emissions of ships that exceed them. The measures will be binding on large ships, which account for 85% of the industry’s CO2 emissions.
It’s the first time a UN agency has put a price on emissions globally.
Numerous analyses suggest the deal, which will only come into force in 2028, if ratified in October, will lead to a 10% reduction in emissions (on 2008 levels) by 2030, compared with the IMO’s target of “at least 20% – striving for 30%”. Nor will it incentivise the early adoption of near-zero or zero-carbon fuels such as ammonia, risking the IMO missing its target for the use of those fuels.
While the IMO’s Secretary-General, Arsenio Domniguez, insisted the framework would keep the industry on track for net-zero around 2050, industry figures told The Ethical Corporation that the deal was unlikely to achieve that, but was better than having nothing.
Jan Dieleman, who heads up Cargill’s ocean transportation business, described the negotiations as a “rollercoaster”.
“We were hoping initially for something a bit more ambitious, (with) some tougher trajectories in the beginning, making sure that early movers could be incentivised a little bit more. But if you put it in the broader perspective, it's quite unique to see something actually being agreed nowadays.”
Tatsuro Watanabe, managing director of Mitsui OSK Lines (MOL) for Africa and Europe, said his company would have to “implement voluntary reductions exceeding the regulatory standards in order to achieve our net-zero target”.
The U.S. withdrew from the talks and threatened retaliatory measures against any nations that charge fees to U.S. ships. That may have emboldened fossil fuel nations such as Saudi Arabia to call for a vote, but 63 nations supported the measures and just 16 opposed.
Shipowners will have to reduce the greenhouse gas emissions intensity of the fuel that powers their ships by 30% by 2035 and 65% by 2040. But there was dismay that rather than a flat levy on all emissions, shipowners will only have to pay for a proportion of emissions above progressively reducing benchmarks. Green transport policy NGO Transport & Environment (T&E) estimates that just 10% of emissions will be subject to the levy, set at $380 per tonne of carbon dioxide equivalent.
T&E had advocated for stiffer penalties of up to $800 per tonne of emissions in order that ship owners "wouldn't be incentivised to just meet the target through the cheapest biofuel, which is probably what's going to happen,” says Constance Dijkstra, IMO policy manager at T&E. Levies have not been set beyond 2030, but Dijkstra doubts anything more ambitious can be achieved.
Andrew Forrest is executive chairman of Australian iron ore producer Fortescue, which wants to use ammonia (made with green hydrogen) to decarbonise its shipping fleet. He had argued that a flat $100 a tonne carbon levy would make green ammonia competitive as an alternative marine fuel. At present, it’s at least 3.5 times as expensive, opens new tab as the low sulphur fuel oil used by some vessels today.
The money raised from the agreed levy will go into a net-zero fund to support a just transition, including compensating developing nations for impacts such as the increased price of food because of higher shipping costs, and to support early adoption of near-zero fuels. NGOs foresee inevitable tensions in how those initial revenues, estimated at $11-12 billion, opens new tab a year, will be distributed.
“It's not nothing, but it's not a huge sum of money when you're starting to divvy it up globally,” says Bryan Comer, director of the marine programme at the International Council on Clean Transportation (ICCT). “How much is actually available for these more noble pursuits (just transition funding) compared to (investing) in some sort of production facility… is still to be decided.”
Pacific island nations, who had wanted a universal levy, abstained from the vote. Speaking for them in his closing statement, Tuvalu’s minister for transport, energy, communication and innovation Simon Kofu said: “Not only are we not receiving any of the much-needed support in this package of measures, but part of these amendments will have us poor and most climate-change vulnerable countries and maritime-dependent countries paying for the decarbonisation of the most developed countries.”
Researchers at UCL’s shipping research group also question how inclusive the transition will be. “Countries with poor access to capital, high cost of capital or low state intervention/support will be later to invest in the solutions needed. A major risk now occurs that the future of shipping will, like renewable energy and battery electric vehicles, be significantly owned and driven by nations with strong industrial policy.”
Governments also put a number on what is considered a zero or near zero fuel – 19g CO2 equivalent per megajoule of energy – compared with today’s fuels, which are almost five times more polluting. But a lot of work remains to be done to agree lifecycle emissions of competing fuels, such as biofuels.
Dijkstra of T&E notes the IMO hasn’t taken as stringent an approach to biofuels as the EU; nor does it intend to estimate indirect land use change emissions as part of the lifecycle emissions calculations, as the aviation body ICAO does for aviation fuels.
Comer of ICCT says IMO’s requirement for fuels to be certified as not contributing to deforestation offers “plenty of opportunities for fraud, for things like used cooking oil, palm oil mill effluent. It's really hard to tell the difference between a truly sustainable oil-based fuel and a fraudulent oil-based fuel once you get to the point where the fuel is made, because they all look the same.”
The IMO could agree to phase out the use of food or feed-based biofuels (as the EU’s shipping regulation does). “That would really protect against the potential for illegitimate greenhouse gas savings that happen on paper, but don't really happen in the real world,” adds Comer.
Cargill’s Dieleman says biofuels and liquified natural gas-fuelled ships already on the water will be “clear winners” in the short term, although he doubts LNG will be attractive longer term as penalties grow after 2030.
Jesse Fahnestock, director of decarbonisation at the Global Maritime Forum, expects the new framework will encourage shipowners to order dual-fuel vessels that can eventually run on e-fuels, or green ammonia as they look ahead to the longer-term emissions reductions required. But demand uncertainty over the next seven years could inhibit investment in their production.
Mission Possible Partnership’s project tracker finds just four, opens new tab of the 100 projects needed to produce near zero shipping fuels by 2030 have financing, and none is operational.
Fahnestock says national governments could provide incentives separately from the IMO. “We've been trying to make the case to the countries, for example, that already have ambitious hydrogen strategies, that they should view the shipping market as a means to help achieve their goals. It's a potentially big off taker.”
There remains a huge amount of work to be done to agree the guidelines that will make the agreement a reality in 2028 and strengthen longer-term policies to enable a transition that is inching forward to pick up speed.