UN approves carbon pricing regulations for global shipping

The United Nations International Maritime Organisation (IMO) has agreed on an ambitious climate policy aimed at making the global shipping industry more environmentally friendly.

This new policy is part of a larger effort to create a set of legally binding rules designed to cut down on Greenhouse Gas (GHG) emissions from ships worldwide by around the year 2050.

The development was disclosed Friday by the IMO Secretary-General, Arsenio Dominguez, during the closing plenary of the 83rd edition of Marine Environment Protection Committee (MEPC 83) in London on Friday.

The decision was reached after 63 out of 103 member states voted in favour of the new framework deal to cut emissions from the global shipping sector amidst ongoing effort to address the lingering scourge of climate change ravaging economies across the world, particularly in the Global South.

“The approval of draft amendments to MARPOL Annex VI mandating the IMO net-zero framework represents another significant step in our collective efforts to combat climate change, to modernise shipping and demonstrates that IMO delivers on its commitments,” Mr Dominguez said.

He said: “Now, it is important to continue working together, engaging in dialogue and listening to one another, if we are to create the conditions for successful adoption.”

PREMIUM TIMES has learned that the new policy, known as the IMO Net-zero Framework, was developed following extensive discussions among stakeholders during the IMO Climate Summit, which took place from 7 April to 11 April. This policy is set to be officially adopted in October of this year, although some details are still being finalised.

The IMO is the United Nations specialised agency responsibility for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships.

Its primary purpose is to create a level playing-field so that ship operators cannot address their financial issues by simply cutting corners and compromising on safety, security and environmental performance, hence encouraging innovation and efficiency.

In 2023 the IMO agreed that both economic and technical measures such as carbon pricing and Global Fuels Standard (GFS) among others, are necessary to deliver on its climate commitment—20 per cent emission reduction by 2030, 80 per cent emission reduction by 2040— to reach net zero by/around 2050 in an equitable manner.

However, at the technical negotiations on 31 March – 4 April in London, countries moved forward with a single policy encompassing both elements.

This mechanism was eventually finalised at the MEPC 83 summit on 7-11 April and is expected to be adopted in October, before entry into force in 2027. Thereafter, it will become binding on large ocean-going ships with over 5,000 gross tonnage, estimated to emit about 85 per cent of the total Carbon dioxide emissions from international shipping.

Some elements on “revenue distribution” still remain to be resolved, PREMIUM TIMES learnt.

Key elements of the IMO Net-Zero Framework

The newly adopted mechanism requires ships to pay fees for non-compliance with two sets of carbon intensity targets—easy to achieve “base target” and more strict “direct compliance target”— and trade credits to comply.

For instance, a ship continuing to use conventional (fossil) bunker fuel by 2028 would have to pay $380 per tonne per tonne on the 4 per cent chunk of emissions above the base target, and $100 on the remaining 13 per cent (17% – 4%) of emissions above the Direct Compliance target.

Some parties argued that the agreement will achieve only 8 per cent absolute emission reduction by 2030, falling short of the IMO’s own goals in the Revised Strategy adopted in 2023.

A coalition of Pacific, Caribbean, Central American and African countries were said to be pushing for a full emission coverage within the now agreed framework.

These blocs were opposed by China, Brazil, Saudi Arabia and other petro-states who disagreed with a flat levy. This minority group–aided by the IMO as well as EU countries who rolled back on their own flat levy proposal–undermined the majority support of over 60 countries for a universal carbon levy, which formed ahead of the talks.

Stakeholders argued that a compromise is expected to raise $30-$40 billion by 2030 ($10 billion per year), likely to be used to fund clean energy use on ships. However, Pacific Island states said it is not enough to fund the “just an equitable transition” IMO committed to.

Following objections from Saudi Arabia, UAE and other petro-states on procedure and disagreement over the “high” level of ambition in the discussions, who called for a vote. Countries voted on the Chair’s compromise.

63 countries including Brazil, China, the EU, India, Japan, Korea, South African, Singapore, Norway and others, voted in favour.

16 countries including Saudi Arabia, UAE, Oman, Venezuela, Russia, Venezuela and other fossil fuel producing nations voted against.

24 countries abstained from the voting process. This includes Uganda, Ghana, Egypt, Kiribati, Fiji, Republic of the Marshall Islands, Solomon Islands, Seychelles, Argentina, and others.

Despite being a member of the IMO since 1962, Nigeria was not on the list of countries that voted.

According to the UN, the IMO Net-Zero Framework will be included in a new Chapter 5 of Annex VI (Prevention of air pollution from ships) to the International Convention for the Prevention of Pollution from Ships (MARPOL).

The IMO said MARPOL Annex VI currently has 108 Parties, covering 97 per cent of the world’s merchant shipping fleet by tonnage, and already includes mandatory energy efficiency requirements for ships.

It said the goal is to achieve the climate targets set out in the 2023 IMO Strategy on the Reduction of GHG Emissions from Ships, accelerate the introduction of zero and near zero GHG fuels, technologies and energy sources, and support a just and equitable transition.

Under the draft regulations, ships will be required to, among several other measures, comply with:

Global fuel standard where ships must reduce, over time, their annual Greenhouse Gas Fuel Intensity (GFI)—that is, how much GHG is emitted for each unit of energy used. This, the IMO said, is calculated using a “well-to-wake approach”.

Also, ships emitting above GFI thresholds will have to acquire remedial units to balance its deficit emissions, while those using zero or near-zero GHG technologies will be eligible for financial rewards.

Concerns

The newly adopted policy has generated controversy among representatives of participating countries and experts.

In his reaction to the framework adopted, Emma Fenton, Senior Climate Diplomacy Director, Opportunity Green, said the IMO has made a historic decision, yet ultimately one that fails climate vulnerable countries.

The official described the framework as a “weak measure” and that it means aiming for a low bar and dragging Parties feet to get there.

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“It will neither ensure sufficient emissions reductions, nor raise the revenues needed for a just and equitable transition,” he said.

The Climate expert noted that the IMO has turned down the historic opportunity to champion the perseverance, leadership, and ambition of climate vulnerable states, amongst them Pacific Islands, Caribbean and African states, who are on the frontlines of the climate crisis.

“That many of these countries abstained from the vote shows the measures are far from what was needed to address the crisis,” he said.

He said the only response now is for Parties to double down on their determination and that vulnerable countries must work hard to remedy the situation they are left with, both nationally and regionally.

“This is not the end, and we must look to the future to ensure ambition is raised and a just and equitable transition is guaranteed,”