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Maritime sector eyes carbon price on bunker fuels as possible decarbonization solution


Industry may see climate ambitions raised next year

Carbon price floated as 'most cost-effective way forward'

Net-zero goal requires $191-$360/mt CO2 price

  • Author
  • Jasmin Melvin
  • Editor
  • Valarie Jackson
  • Commodity
  • Energy Transition Oil Shipping

Putting a price on carbon from bunker fuels is gaining traction among the maritime industry as it seeks to slash at least half of the greenhouse gas emissions from international shipping by 2050 and could see that target elevated to a net-zero emissions goal next year, industry stakeholders said Feb. 17.

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"Many maritime stakeholders are already calling for this level of ambition to be raised to full decarbonization of the sector by the middle of the century," as the International Maritime Organization prepares to finalize its GHG strategy next year, Katharine Palmer, global head of sustainability at Lloyd's Register and shipping lead for the UN High-Level Climate Champions, said at the Transforming Transportation forum, which the World Bank and World Resources Institute hosted.

"In order to achieve these climate objectives in an economically efficient way, analysts agree that the upcoming regulatory framework will likely need to include a market-based measure," she said, and pointed to carbon pricing as "the most cost-effective way forward."

On this issue, "the maritime industry has the historical opportunity to be ahead of the curve, ... as it can shape one global multilateral framework, [whereas] other industries need to implement many national frameworks where there's a risk of free riders and no global enforcement," said Jan Hoffmann, head of trade logistics for the UN Conference on Trade and Development.

He added that delaying action toward implementation of a multilateral framework with a predictable price for carbon "may lead to higher freight rates than a levy itself because the resulting uncertainty among shipowners and shipbuilding investors will delay investments which in turn will lead to a shortage of shipping supply."

'Competitiveness gap'

Ingrid Sidenvall Jegou, project director of the nonprofit Global Maritime Forum, said research has found that a carbon price between $173/mt and $264/mt CO2 would be needed to achieve a 50% reduction in maritime emissions by 2050. A price between $191/mt and $360/mt CO2 would be needed for the full decarbonization of the sector.

"But under the current policy and technology frameworks, fossil fuels remain readily available, reliable, fairly still cheap, and they're compatible with existing ships and engines, [creating] a competitiveness gap that the market really cannot solve alone," she said. "And this hinders the energy transition, so this is why government action is really called for."

Her organization has called on governments to deliver policies and drive investments needed to reach zero emissions by 2050 while enabling an equitable transition. "If equity concerns aren't acknowledged and addressed, there simply won't be political support for such measures, so it's very much in the industry's interest and, of course not to mention, the moral imperative to really make sure that no one is left behind," Sidenvall Jegou said.

However, she contended that policy action to close the competitiveness gap cannot revolve around only one solution. Global market-based measures, she said, could be combined with standards, for instance.

A pathway to reaching zero emissions in the maritime sector "is still possible, but action really must be taken now," she added. "By the 2040s, zero-emission fuels need to be the dominant fuel choice so this really requires the development of international policy frameworks that accelerate and enable a just and equitable and effective transition."

Benefits, challenges

Panelists highlighted that in addition to making alternative fuels more competitive, a price on carbon would also generate funds to support the energy transition, climate-vulnerable communities, and those that stand to lose from the transition. Carbon revenues raised from international shipping could also be reinvested into the sector to improve trade logistics and lower maritime transport costs through better port infrastructure, trade facilitation, and shipping connectivity.

Hoffman added that it would also create opportunities for developing countries to proposer from the zero-carbon shipping business as alternative fuel providers. He noted that the bunker fuel market has historically been a very non-inclusive market.

Despite these benefits, Hoffman said there will still be some countries reluctant to support a carbon price for the sector. Yet, he was optimistic that they would see among the different options, including imposing a speed limit and prohibiting certain technologies, that the market-based solution was the least costly.

"But the devil is in the details," he said, predicting that there will be fights over what to do with the money, about delegating authority and competence. "There are loads of very complicated details. I can only hope that the majority of the delegates, countries, members have the vision to see any alternative would be worse."