A $60 per tonne carbon equivalent levy from 2025 on marine fuel oil, increasing to $150 by 2030, has been proposed by a Danish non-governmental organisation to give a financial incentive for burning green ammonia or methanol.
With revenues reimbursed as support for ship operators using green fuels, the proposal “could result in decarbonisation of shipping towards 2040… aligned with the Paris [climate] agreement,” said Green Transition Denmark.
The NGO, which participates in United Nations and European Union air pollution and climate change meetings, sees the carbon fuel levy increasing by $18 per tonne from its initial 2025 level of $60 of fuel-oil-energy-equivalent (FO-eq) to reach $240 per tonne in 2035.
Green Transition bases its calculations on green ammonia/methanol costing around $1,500 per tonne of FO-eq, due to its lower energy density, and current prices of very low-sulphur fuel oil (VLSFO)at about $500 and heavy fuel oil (HFO) at $400 per tonne.
The initial levy is based on one tonne of fuel causing five tonnes of CO2 emissions on a full life cycle, well-to-wake basis — and so equating to $300 per tonne of fuel oil. On a tank-to-wake basis, which does not take into account upstream fuel oil production emissions, it would be three tonnes of CO2.
Assuming the price of VLSFO and HFO will drop to about $100 per tonne due to reduced demand, Green Transition said a necessary levy cost for VLSFO/HFO would emerge of $750 per tonne of FO-eq in 2030. Reimbursement to green fuel users would need to be $825 per tonne of FO-eq.
“Zero carbon fuels will be attractive since the price of VLSFO/HFO will be $850 (100 + 750) per tonne and the reimbursement reduces the price of green ammonia/methanol to $675 (1,500 - 825) per tonne FO-eq,” the NGO said, with similar principles adopted for natural gas and distillate fuels.
Price increases for the end-consumer would be negligible at around 1%, the NGO added.
The shipping industry is moving closer to acceptance of a carbon tax or levy with major charterers such as Trafigura calling for a price on carbon in March, seemingly moving toward accepting a realistic level, which could be $250 to $300 per tonne of CO2 equivalent.
Four big shipping organisations — the International Chamber of Shipping (ICS), Bimco, Cruise Lines International Association and the World Shipping Council, which represent the big containership operators — conceded in April that the International Maritime Organization must consider market-based measures.
But even though the four shipping organisations admitted this was “a revolutionary call by the shipping industry, as never before has it endorsed putting a price on CO2 emissions”, it is highly unlikely they will want to consider a carbon price anywhere near as high as that proposed by the Danish NGO.
Green Transition said that in reality the levy and reimbursement would have to be adjusted in relation to actual developments in the price of VLSFO/HFO and green methanol/ammonia.
The NGO told TradeWinds that the calculations are done in a way to make costs transparent over time to stimulate long-term investments and balanced so that revenues correspond to reimbursements. They also take administrative costs into account.
