Report: Signs of Movement on Carbon Levy at IMO

On Friday, the IMO greenhouse gas working group concluded its deliberations ahead of MEPC 80, which will be held next week in London. Some observers who followed last week’s negotiations are wary that the IMO revised GHG reduction strategy is headed in a direction that is not 1.50 C-aligned, and risks backsliding on a just and equitable transition.

The primary policy that industry insiders say is required to actualize the green transition is an IMO carbon levy, or market-based measure. Without a predictable tax on carbon and a corresponding subsidy for green fuel, there is no price signal to underpin multiyear investments in expensive green ammonia or green methanol (at industry-level scale). “What's missing is the consensus on carbon pricing," said Margaux Moore, head of energy transition research at Trafigura earlier this year. "We do need a price on carbon in order to support the adoption of these low-carbon fuels. Without it, it doesn't happen."

A carbon levy has always been a hard sell for oil-reliant IMO member states, but this year there are signs that it could be headed for consideration.  According to a readout of last week’s GHG working group, provided by consulting firm UMAS, a majority of IMO members showed support for a number of key mid-term policy measures, including a GHG pricing proposal. A draft carbon levy proposal is currently moving forwards towards finalization, despite "significant and coordinated opposition" from a minority of member states.

2050 ambitions

MEPC will also be considering whether and how much to raise the IMO’s level of GHG reduction ambition. At present, IMO’s ambition is to achieve half of the Paris zero-emissions goal. Environmental advocates and some industry groups support resetting IMO’s target for 2050 to the same level as the shoreside economy.

However, UMAS questions whether the working group’s proposed ambitions for MEPC 80 are aligned with the Paris agreement, and suggests that member states made little progress in this area during the pre-meeting last week.

For instance, the 2030 and 2040 interim GHG reduction targets, to be called indicative checkpoints, are reportedly less ambitious. The current leading proposal is to have a 20% GHG reduction in 2030 and a 70% GHG reduction in 2040, on a well-to-wake basis. If these numbers are approved at MEPC 80, UMAS claims that the IMO GHG strategy could fail to align with the Paris Climate Agreement.

The other elements yet to be agreed include whether to measure well-to-wake emissions to avoid shifting emissions from sea to land; and the timeline for when the mid-term measures to compel reductions might be adopted and enter into force.

“Like the emissions they hope to reduce, much remains in the air after last week’s IMO negotiations on the Revised GHG Strategy and candidate measures. Like some of the vulnerable climate areas, the member states too, found themselves poles apart on key issues. As all eyes turn to MEPC 80, the member states must strive to deliver a strategy that is 1.5-aligned and committed to a just transition for shipping,” said Dr. Aly Shaw, Policy Lead at UMAS.

With IMO targeting 2023 as its year of decisive climate action, and departing Secretary General Kitack Lim hoping to leave a legacy of environmental progress at his last MEPC, member states will be facing more pressure than ever to take action. Advocates and industry groups will be watching closely as the meeting unfolds next week.