Is shipping setting the right course for net zero?

FROM being sceptical about the need for shipping to drastically cut its CO2 emissions some years ago, the International Chamber of Shipping (ICS) has become totally committed to achieving decarbonisation and net-zero CO2 emissions.

Shipping absolutely “gets” the global warming crisis. ICS, which represents over 80 per cent of the world’s merchant fleet, is also determined to keep the regulation of shipping, including anything relating to decarbonisation, on a global basis under the auspices of the International Maritime Organization (IMO).

Meanwhile, many energy companies, machinery manufacturers, shipping companies and other maritime-related organisations are working flat out to move towards zero carbon. My e-mail inbox is always full of new developments on alternative fuels or carbon capture. Already, viable approaches and technologies are operational at sea. What will be the best, which probably means cheapest, approach is still unclear. A bewildering array of alternatives is being pursued.

Against that background, ICS recently submitted its revised proposal to the IMO, that “reaffirms the industry’s commitment to meet 2050 net-zero carbon goals and sets out the full details of how this can be achieved via a ‘Fund and Reward’ (F&R) system”.

The ICS press statement gives an overview of the F&R mechanism which explains its proposal in a little more detail than previously. According to ICS, F&R will be financed by “a mandatory contribution by ships per tonne of CO2 emitted to an IMO fund. This will reward first movers for the CO2 emissions prevented by the use of alternative fuels such as methanol, ammonia and hydrogen, as well as sustainable biofuels and synthetic fuels plus new technologies including carbon capture”.

The inclusion of carbon capture is welcome as it keeps the door open to continued use of fossil fuels. However, I can’t help but think that F&R needs a lot more scrutiny before IMO creates the first global taxation system.

ICS says that, in the new submission, it has set out details of how a mandatory flat rate (levy-based) contribution by ships will be collected by an IMO Maritime Sustainability Fund (MSF). It says: “Importantly, to achieve consensus among governments, ICS explains how the contribution by ships per tonne of CO2 emitted can be set by IMO at a relatively low level and still be sufficient to narrow the price gap between alternative and conventional fuels.

“The funds collected would be used to reward the uptake of alternative fuels by first movers, based on the CO2 emissions prevented, which will significantly reduce the price gap whilst minimising the additional cost of marine fuel to ensure that there will be no disproportionately negative impacts on trade, which is a legitimate concern among many developing economies.”

It continues: “In addition to funding the rewards programme for the uptake of low and zero-carbon fuels, the contributions by shipping companies will generate billions of dollars annually to support the production of alternative marine fuels in developing countries. The fund will also be available to de-risk the roll-out of the new bunkering infrastructure that will be required on an accelerated timescale.”

Am I the only one who is troubled by the idea of a global taxation bureaucracy collecting and distributing billions of dollars?

Simon Bennett, ICS’ deputy secretary general, comments: “The Fund and Reward mechanism put forward by ICS is intended to be as simple as possible for IMO to establish.” That is commendable, but will it really be possible to establish a simple global bunkers taxation and subsidy system?

As somebody who spends much of his time writing about the bunker industry, I think there would be logistical challenges. It would, I believe, require a universally implemented electronic bunker delivery note and a robust system to prevent fraud, which is not totally unknown in the bunker sector.

But the technical challenges could pale into insignificance against the political issues that would be likely to arise when distributing these huge amounts of money. There are bound to be rows about who gets what.

Bennett adds: “With political will, it can be readily adopted via the existing IMO Marpol Convention by 2024, so that our commitment to net zero by 2050 can remain plausible given the enormous challenge of transitioning the entire global industry to new fuels and technologies in less than 30 years.

“Our immediate goal is to ensure that some kind of levy-based global economic measure will be prioritised for rapid finalisation by the IMO Marine Environment Protection Committee at its next meeting in July. This critical meeting of governments is also expected to adopt a formal net-zero target for shipping which will only be truly credible if a measure such as that proposed by the industry is taken forward immediately.”

That last sentence says a lot about why shipping’s representative body is pressing for F&R. It needs to be able to prove shipping is serious about decarbonisation, partly to the European Union which is pushing ahead with including the industry in its ETS (emissions trading system) and also to vocal lobby groups that would like to take shipping’s decarbonisation out of IMO’s hands all together.

As ICS points out, the level of contributions to the IMO fund will be a decision for governments.

However, ICS has suggested that “total funds of about US$10 billion per annum, which would require an initial contribution quantum of about US$50 per tonne of marine fuel oil consumed, could be sufficient to fund a rewards programme up until about 2030 whilst also providing tens of billion dollars to support maritime GHG (greenhouse gas) reduction projects in developing countries”.

ICS notes that a previous economic impact assessment, prepared by ICS in collaboration with Clarksons’ Research, suggested that contributions of up to US$150 or more per tonne of fuel consumed would be unlikely to have significant impacts on countries.

To put this in context the UN’s income in 2021 was US$66 billion and the World Health Organization’s current two-year budget is just over US$6 billion. So the F&R would be up with the big global spenders, way up if the levy was US$150 a tonne.

Now, the ICS’ motives for pushing F&R are entirely understandable, laudable in fact. Essentially, F&R can be seen as the “least worst” option. IMO and the shipping industry are in danger of losing control of the decarbonisation process, probably to a patchwork of regional rules.

Nevertheless, I would suggest the shipping industry needs to be careful what it wishes for. It could be a case of get it and regret it.

Is there another way? Well yes, there is. Over the years IMO has proved itself to be reasonably competent at developing international regulations. As mentioned more than once in this column, a regulatory approach is entirely possible. It could in many ways follow the pattern set by sulphur in fuel reduction regulations, imposing mandatory limits and strict deadlines.

However, the case for implementing a plan that is already well developed, would pour money into the coffers of countries that will have a say in the IMO decision, and would answer the industry’s many critics could well overcome any reservations about going ahead with F&R.