Shipowners hail ‘pragmatic’ levy scheme for green fuel incentives

Shipowners have agreed to pay billions of dollars for their greenhouse gas emissions to fund a shift to more expensive cleaner fuels, under plans published on Thursday.

The “Fund and Reward” programme, promoted by the International Chamber of Shipping and supported by Liberia and the Bahamas, aims to raise the estimated $10bn needed to hit the International Maritime Organization’s first decarbonisation goals for 2030.

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The ICS proposal is an update on a previous plan and one of several competing visions as regulators grapple with the question of who will foot the vast bill as shipping aims for a rapid transformation to become a clean industry.

The ICS, which represents shipowners behind 80% of the world fleet, believes that ships will have to contribute between $20 and $40 per tonne of fuel oil consumed to generate the estimated $10bn needed to hit the IMO target of 5%-10% of shipping energy coming from zero-emission sources by 2030.

A pricing mechanism needs to be agreed on by spring 2025 at the IMO to meet the 2030 target. Failure to do so would jeopardise the whole decarbonisation drive, the ICS warned.

Under the scheme, operators will be rewarded with money from the pot of cash built up from fuel oil levies — the Zero Emission Shipping Fund, or ZESF — if they opt for more expensive greener alternatives.

Billions more will be needed for a separate Maritime Sustainability Fund to support developing countries facing huge capital costs to rebuild shipping infrastructure to align with the IMO’s decarbonisation ambitions.

The ICS has not put a price on the cost of emissions, the amounts earned from using greener fuels or the sums paid to the sustainability find. It said that was for countries and regulators to decide.

But it said its plan had the benefit of transparency and simplicity and would use existing fuel data collection under the auspices of the IMO. It said the ZESF could be implemented quickly to fulfil the demands of the IMO’s tight timetable.

Pragmatic plan

“We’ve tried to come up with a pragmatic system that can work. It’s one that everyone understands readily, and the smallest operator to the biggest operator can work the system,” ICS secretary general Guy Platten told reporters.

“Whatever the figures are, if you burn ammonia only, you’re going to be able to take money out which will bridge the price cap.

“The first IMO target for 2030 is less than six years away. If we don’t achieve a take-off point in the production and uptake of zero greenhouse gas marine fuels by 2030, it’s hard to see how net zero will be achieved by 2050.”

Operators would need a statement of compliance to confirm that emissions payments had been made for a ship to allow them to keep trading. Port state control and flag states would have the responsibility to ensure owners paid their dues.

ICS officials said their plans were based around the IMO’s decision last year to set more ambitious targets for a greener industry. It also draws on previous proposals by Japan, which put forward its own fund and reward, or feebate, scheme.

The chamber said it was also responding to pressure from island states for a fund to help with the energy transition, and from European Union states at the IMO for a flat-rate levy-based system based on the use of fossil fuels.

Tensions have been building: one of the world’s largest flag states increased its suggested price for a carbon levy at the COP28 summit in Dubai in December as it faces becoming a registry without a home because of climate catastrophe.

Albon Ishoda, the Marshall Islands’ presidential special envoy for shipping, called for a starting point of $150 per tonne of CO₂ for all international shipping voyages, a 50% increase from the demand it made with a group of Pacific Island states earlier last year.

The Global Maritime Forum’s Getting to Zero Coalition — a grouping of 200 organisations including major shipping companies — called for an initial $200 per tonne levy in 2022. Japan has put forward an alternative plan of an escalating levy starting at $56 per tonne of CO₂.

The ICS said it had commissioned research that suggested added costs of up to $300 per tonne of fuel oil would not have a big impact on cargo prices.

The United Nations Conference on Trade & Development has said the levies would go towards an annual bill of up to $118bn to decarbonise ships and create a green fuel network by 2050.