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Trafigura proposes carbon levy for shipping to hasten decarbonization


Shipping CO2 emissions projected to rise drastically

Decarbonization pathway necessitates market-based measure

Levy to help R&D, develop zero-carbon fuels

Singapore — Trafigura, one of the world's largest ship charterers, Sept 25 proposed that the International Maritime Organization introduce a carbon levy of $250-$300/mt of CO2 equivalent on shipping fuels, to make zero- and low-carbon fuels more economically viable and more competitive.

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According to the Fourth IMO Greenhouse Gas Study, published in August, GHG emissions from shipping have increased to over 1.076 billion mt in 2018 from 977 million mt in 2012.

Emissions are projected to continue to increase significantly if mitigation measures are not urgently undertaken, Trafigura said in its proposal for an IMO-led global shipping industry decarbonization program.

Further, currently there are no public comprehensive global proposals in place to address zero-emissions shipping, it said.

"We believe that only through the introduction of a significant levy on carbon-intensive fuels can sufficient progress be made towards the decarbonization of the global shipping industry," it said.

The IMO, in April 2018, laid out its strategy, aiming to reduce the shipping industry's total GHG emissions by at least 50% from 2008 levels, by 2050, and to reduce CO2 emissions per transport work by at least 40% by 2030.

Application of levy

Trafigura said that the revenue raised by a levy could primarily be used to subsidize and promote low and zero carbon fuels and subsequently also be used to fund the research and development of alternative fuels. It could also be used in part to help Small Island Developing States and other developing countries with the energy transition and to mitigate the impact of climate change, it said.

In 2019, the international shipping industry submitted a proposal to the IMO for an International Maritime Research and Development Board, which would create a Research and Development Board and Fund, financed by a global tax of $2/mt on all bunker fuels.

According to the estimates in the IMRB proposal, the global tax would generate about $500 million a year for research and development purposes.

"Significant work went into the proposal and much of it can and should be built upon," it said.

"Using the IMRB proposal as a starting point, we suggest that IMO member states come together and agree a market-based measure. Whether this measure takes the form of a cap-and-trade system or an outright levy, only a market-based measure will bring about the required market shift," it added.

To further support Small Island Developing States, the company proposes a dedicated IMO mandate for the Green Climate Fund.

"With even as little as one percent of the proposed carbon levy, this could generate as much as $2 billion per year for the Green Climate Fund, a sizeable sum compared to the just over $8 billion raised since its inception in 2010," it added.