Imo-zo-zo-zero strategy for global shipping starts with carbon prices but imperfect

THe IMO has adopted a framework that places prices on carbon that exceeds the target level

On Friday, April 11, the Marine Environmental Protection Committee (MEPC) from the International Maritime Organization (IMO) approved a series of medium-term steps to make this sector on the net-Zero track in 2050. This follows the implementation of short-term measurements focused on global fuel efficiency. This package will be adopted in October 2025, with details and guidelines for implementation that will be determined and approved in the spring 2026, before being included in the Marpol agreement and come into force in 2027.

The most important elements of the zero-zero frame are:

• Carbon prices on emissions-target-ascibleeding: The framework sets a price of $ 380 per ton CO2 which is equivalent to emissions that fail to meet the basic targets of 8% greenhouse gas reduction in 2030, increased to 30% reduction in 2035 compared to the level of 2008 (starting in 2027). For emissions failed to reach 21% reduction in 2030, running until 2040 but below the basic target, the cost of $ 100 is applied (see chart). The shipping company was finally able to pay up to $ 1,200 per ton of bunker fuel emitted above the basic target, which will multiply the current price and acts of force. This means that the largest shipping emission fraction remains outside the scope. Transportation and the environment expects a framework to generate revenues of around $ 10 billion to 2035. Costs will be distributed again to support greening. It seems like what exactly it still needs to be done.
• Appreciate fast driving: companies outperform the framework in terms of reducing GHK will receive a surplus unit, which they can save or sell.
• Agnostic fuel: The framework of introducing global fuel standards and taking a good approach. It does not exclude certain fuels or raw materials, but focuses on the intensity of greenhouse gases in gram CO2-equivalent per mega joules (GCO2eq/MJ).

But the policy failed to introduce a price determination mechanism that included all shipping emissions

Although the willingness to make progress in the steps to set the price encouraging, the proposed framework does not introduce the full carbon price as applied under ETS European Union for shipping. This will only make the bunker fuel less attractive, it produces more budget to support greening as well. Some market players, including leading global container liners and sender such as cargill and traffigura, have previously recommended to place prices on all emissions because this can be a strong instrument to support decarbonization. Maersk calls for levies ranging from $ 150-200 and is preferred even significantly higher to support transitions.

However, this also increases shipping costs, and adopting this may not be achieved at the current global level. However, from an economic point of view, this will eventually be needed to narrow the gap between bunker fuels and more expensive renewable fuels such as green methanol and ammonia, and support investment in infrastructure and availability.

The risk of fuel neutrality places biofuel at the front lines

The zero-zero framework takes a good approach and sees the intensity of the greenhouse gas from the fuel used by the company. It is still unclear which fuel options are eligible for subsidies and how many, but the agreement does not exclude alternative fuels (and including LNG too). Thus, companies are also allowed to use biofuel, which is often the cheapest and easiest low carbon choice because it can be used in existing fleets and does not require investment in new technology. This will increase demand temporary demand from the aviation sector also began to increase. This also raises questions about controversial raw materials (first generation) without special requirements. In addition, it can divert attention from investment in alternatives.

The target fell from the previous ambition

In terms of target setting, IMO previously adopted the goal of reducing GHK emissions by 20%, struggling for 30% in 2030, and 70%, struggling for 80% in 2040, both compared to 2008. The adopted framework seems to focus on reduction of at least 8% -21% in 2030, which looks less ambitious. At the same time, total absolute emissions in shipping have increased in recent years, underline the need for more decisive actions.

Overall, I believe this framework is a step towards the right direction, but also must be seen as a framework to be built further down.
Source: Ing