Carbon tax: gap between 50% and full decarbonisation could be under US$20/tonne

Multiple parties are advocating that a carbon levy be set within IMO. Notably the International Chamber of Shipping (ICS), which claims to represent 80% of the shipping industry, submitted a proposal backing a carbon levy ahead of IMO’s upcoming Marine Environment Protection Committee’s (MEPC) 77th meeting in November 2021.

The ICS proposal is tied to an earlier proposal backed by a number of IMO member states and shipping trade bodies for the creation of a US$5Bn IMO Maritime Research Fund (IMRF), "which will provide guaranteed levels of funding to accelerate the development of zero emission ships, without requiring governments to use taxpayers’ money. This is because the IMRF will be funded by mandatory R&D contributions from shipowners globally, via a US$2 levy, which the shipping industry wants in place by 2023".

The lowest estimated introductory carbon levy price cited in the UMAS proposal is US$11/tonne CO₂ beginning in 2025, and that price level is considered as a potentially problematically low starting point by the UMAS analysis.

"Even though the carbon prices as modelled in the two scenarios start at a very low level, they make two significant price increases over the following decade. These two price jumps may be challenging from both a political and practical business perspective; thus, it could be better to set the initial carbon price at a higher level than the model and follow a smoother increase, thereby easing potential economic shocks of sharp price increases," the UMAS report cautioned.

Speaking at the Annual Offshore Support Journal Conference, Awards and Exhibition in November, Kongsberg Maritime senior vice president Oskar Levander said that, based on a survey of industry attitudes toward transitioning to low- and zero-carbon fuels, "carbon taxation starts to have an impact after around €130/tonne CO₂ (roughly US$150/tonne)", at which price bioLNG and biogas were the most popular fuels named.

Ultimately, the UMAS policy paper advised that a basket of measures – not just a carbon levy – are needed to enable a fuels transition and that the market alone cannot solve the current competitiveness gap between fossil and zero-emissions fuels.

Among the other suggested policy tools, the brief included global fuel mandates supporting non-fossil fuel alternatives, national and regional policies to transition domestic fleets that account for up to 30% of shipping GHG emissions away from fossil fuels and voluntary initiatives to encourage supply-side investment and capacity building that would enhance similar, direct funding efforts aimed to ensure an ’equitable transition’ away from fossil fuels between more and less developed and more and less climate-change-impacted states.