Liner shipping lobby group the World Shipping Council (WSC) is asking shipping regulators at International Maritime Organization (IMO) to consider an economic measure designed to close the price gap between lower-cost fossil fuels and more expensive low-carbon fuels
The proposal lays out an economic measure WSC calls the ’Green Balance Mechanism’, with the goal of closing the price gap between fossil fuels and their alternatives, "at the lowest possible overall cost".
To achieve this, the mechanism would use a traditional levy on fossil fuels whereby the fees taken in the levy system were applied to offset the cost of lower and zero-carbon fuels "so that the average cost of fuel is equal", WSC said.
Measuring greenhouse gas (GHG) emissions reduction on a well-to-wake lifecycle basis, the mechanism would allocate graduated levels of investment in fuels, with the fuels that reduce GHG consumption most receiving the most funding.
WSC has submitted the proposal, one of several, for review by IMO’s Marine Environment Protection Committee meeting (MEPC 81) in March 2024. IMO has said it will adopt a "basket" of technical and economic measures by 2025 in a bid to facilitate the decarbonisation of the shipping industry.
"The monies collected in any given year [are] determined by the amount of green fuels used, allowing for a relatively low fee at the start of the transition. The minimum fee necessary to offset the price differential in a given year is collected and allocated to ships using green fuels that meet a specific greenhouse gas threshold. This ensures that green fuels can be produced and used and does so with the least possible cost to transport," WSC said.
The Green Balance Mechanism would see the levels of emissions reductions required for a given fuel to receive a price-balancing allocation linked to IMO decarbonisation requirements, "increasing in stringency toward the 2050 net-zero goal".
"The Green Balance Mechanism is adaptable and fully integrated with a greenhouse gas fuel-intensity standard. It can be used as a targeted greenhouse gas pricing mechanism or a possible addition to an integrated measure," WSC said.
In its description of the economic measure, WSC said its use does not preclude the use of other levies that could, for example, raise funds for climate mitigation and research, development and demonstration projects dedicated to a just and equitable transition between developed and developing countries.
Chief executives from across the largest companies in container shipping have signed on to the proposal, including Maersk, MSC, Hapag-Lloyd, NYK Line, Evergreen, ONE, OOCL, X-Press, PIL, Wallenius Wilhelmsen and Swire.
"IMO is at a crossroads that will determine our ability to decarbonise the shipping industry and achieve net-zero emissions. To get there, we need mechanisms that can bridge the transition from fossil-based to green fuel, and we call on IMO member states to take decisive actions that reward early adopters by compensating truly green vessels corresponding to their emissions reductions. This approach is critical for accelerating the retirement of fossil-fuelled vessels,” Maersk chief executive Vincent Clerc said.
There are varying levels of resistance to the mechanisms and measures proposed and under discussion among IMO member states, and insiders within IMO’s working group on the GHG strategy reported particular division over the economic impacts of a carbon emissions levy in the week leading up to MEPC 80 in July 2023. Recent headlines in the run-up to MEPC 81 have shown overall division over a GHG levy receding, but opposition remaining among a smaller number of powerful countries, including China.
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