Critical Year Ahead for IMO as Carbon Negotiations Advance

[By Ned Molloy]

Giant oil tankers are slow to change course. The International Maritime Organisation (IMO), the UN agency that sets minimum safety and environmental rules for the global shipping industry, has previously drawn comparisons to such vessels.

But at the latest round of negotiations (MEPC79) at its headquarters in London, there were signs that the IMO is finally turning towards a zero-carbon future.

“What we have been calling for for years, is finally happening,” said Dr Lucy Gilliam, senior policy officer at Seas at Risk, an NGO with observer status at the talks late last year. “The IMO is slowly, but without a doubt, making progress on climate.”

The evidence? More countries than ever before spoke up in favour of stronger climate targets for the sector. The size of this majority means it now looks all but inevitable that the agency will this year agree a zero emissions target by 2050 – compared to its current goal of merely halving emissions by the same date.

The big new joiner supporting this “Zero by 2050” push was Nigeria. Korea and Japan also expressed their support – powerful voices at the IMO because, together with China, they make up the three nations that build more than 90% of the world’s new ships each year.

Not only have these governments been persuaded they can protect the thousands of jobs in a strategic industry while it upgrades to zero-carbon, but they also believe they can benefit from this transition, by selling higher value-added, “eco” ships as standards rise.

Governments have been encouraged by technology and engineering progress in this sector in the last two years. Maersk has invested in “e-methanol”, produced using renewable energy, and engine manufacturer MAN Energy Solutions has developed a ship engine that can run on ammonia, also produced using renewables. Japanese shipping firms, meanwhile, are keen to expand the use of modern wind propulsion options.

Out of 175 member states, 10 countries at MEPC79 opposed increasing the IMO’s current level of ambition. These were the “BRICS” countries – Brazil, Russia, India, China and South Africa – plus Saudi Arabia, Argentina, Indonesia, Turkey and the UAE (a position which may get more uncomfortable for the UAE this year as host of the COP28 UN climate talks).

Several repeated their concerns that decarbonising shipping could increase the costs of trade, disproportionately impacting commodity exporters that were geographically far from their markets.

However, other developing countries argued that the upgrade of shipping to zero-carbon propulsion is a development opportunity. Namibia spoke about its ongoing projects to transform the country into a major green hydrogen producer and exporter, including for shipping fuels. It supports a greenhouse gas levy on global shipping, to help close the price gap between green fuels and cheaper, dirtier fossil fuels. Other African countries – Kenya, Ghana and Sierra Leone – backed Namibia’s call for faster action.

Chile, another country that moved to support a tougher 2050 target, has also been highlighted as a key country that could benefit from shipping’s energy transition. A 2019 report from the Environmental Defense Fund, a US-based advocacy group, said the country could unlock around US$90 billion of investment in its clean energy infrastructure by switching its shipping routes away from fossil fuels.

Critical year ahead

The coming six months at IMO will be critical for determining the trajectory of shipping for decades to come. Governments have agreed to adopt a revised and strengthened set of climate goals at the 80th session of the Marine Environment Protection Committee (MEPC80) in July. Before that, many decisions will be taken at two Intersessional Working Groups on greenhouses gases in March and June.

If hopes are now high that countries will converge around a Zero by 2050 target in July, outstanding questions remain on how ambitious they will be on the more immediate targets before that, for 2030 and 2040. These goals are even more important in putting shipping emissions on a downward trajectory consistent with the goal to limit global warming to 1.5C.

The outcome will significantly affect investment decisions being made this year. The closer the goal to what the climate science says is necessary (roughly halving emissions by 2030), the stronger the investment case for large-scale zero-carbon fuels projects, mass retrofitting and newbuild of wind-assisted propulsion, as well as all sorts of efficiency upgrades.

This wind-assisted cargo vessel, equipped with a hard sail, was unveiled late last year by Japanese shipping firm MOL. The company claims it emits 5–8% less greenhouse gas than a conventional vessel of the same type. (Image: Mitsui OSK Lines)

Beyond setting goals, IMO is also working on the policy levers to achieve them. Key among these is a carbon price, which would help narrow the gap in price between green but expensive fuels, and cheap, polluting, tax-free fossil fuels. It could also raise the tens of billions of dollars per year needed to upgrade the sector to zero-emission technology, and strengthen the resilience of climate-vulnerable countries.

Such a policy was proposed by several Pacific Island states in early 2021, with a starting price of $100 on every tonne of carbon equivalent emitted by the industry. From being seen as a long-shot highest-ambition option, this policy has moved firmly into the centre of discussions at the IMO.

In November 2021, more than 50 climate-vulnerable countries supported a mandatory greenhouse gas levy on international shipping as part of the Dhaka-Glasgow Declaration at COP26.

Then in April 2022, Japan, a powerhouse of the shipping industry, submitted its own proposal to the IMO in support of a similar global levy, followed by Korea in December. The EU’s agreement to expand its own Emissions Trading System to cover the bloc’s shipping routes from 2024 has also sharpened minds at IMO. Maintaining the current situation in the sector, in which it costs nothing to emit carbon, increasingly looks like a choice to just hand the job to regional and national regulators, which would erode the status of IMO.

China’s latest policy submission also suggests at least the need for a revenue-raising policy of some kind to fund investment in new technologies.

Differences remain

But as consensus has emerged on the need for a revenue-generating carbon price on the sector, large differences remain on how to spend that money. Japan and other countries with large maritime industries are keen for all revenue raised to be kept within the sector itself.

Pacific Island states insist that revenues must be available to spend outside the sector itself, to help climate-vulnerable countries adapt and strengthen their response to climate change.

The second key policy lever being discussed is a “fuel standard”, which would mandate that ships increasingly use lower-carbon and zero-carbon fuels over time. On this front, new support has come from India, Saudi Arabia, and the US for at least 5% of the fuel mix in 2030 to be “alternative” fuels  (a checkpoint that shipping experts say will be essential to meet in order to reach a fully decarbonised sector before 2050).

The devil, as always, is in the detail. Will governments at the IMO use a full lifecycle accounting that includes emissions throughout the production process of the fuel until it is used on board? And is that accounting system going to be stringently enforced? If not, poorly designed regulation could incentivise the uptake of fuels like fossil hydrogen, that don’t emit CO2 when combusted onboard, but can be even more carbon-intensive than incumbent fuels in their production on land.

Zero vs “Net Zero” is another looming battle, and for a surprising reason. No one inside the IMO has much time for the discredited notion that merely buying forestry carbon credits can reliably “offset” or negate a carbon-intensive industry’s emissions. Instead, it seems that a key focus of supporters of “Net Zero” at the IMO comes from countries and interests keen to promote carbon capture on board ships.

Sceptics say this poses major compliance risks. How would regulators verify that carbon capture equipment on board a cargo ship in the mid-Pacific was even switched on, or whether the ship was actually just burning unabated fossil fuel?

Clear direction

The question of how fast this sector genuinely cuts emissions affects us all: shipping is a vast global emitter, responsible for over 1 billion tonnes of CO2 a year, or almost 3% of global emissions. That’s more than all but the top five biggest country emitters in the world.

The IMO meeting in July will shape the regulatory framework for this sector for decades to come.

Shipping companies say they urgently need certainty in order to make large-scale investment decisions around fuels, technology and infrastructure that stretch many years into the future.

If governments at IMO fail to provide a clear regulatory pathway aligned to what climate science says is necessary, the future becomes more murky, perilous and strewn with hazards for the shipping industry – and for all of us.

But a good outcome could kickstart a wave of investment into renewable energy projects in developing countries and lay the foundations of our future zero-carbon global trading system.

Ned Molloy is a transport and climate policy consultant based in London.

This article appears courtesy of China Dialogue Ocean and may be found in its original form here.