IMO Rejects Carbon Tax on Shipping (Sort-of)

The International Maritime Organization (IMO) held a critical vote last week regarding a proposed net zero framework. Ground breaking legislation that potentially changes the entire course of the maritime industry.

Potential Impact of the Net Zero Framework

If adopted, this IMO resolution would create a tectonic shift in environmental regulations for international shipping. It could affect about 85% of all international shipping. Some key details about the framework:

1. It would apply to all ships over 5000 GRT, not just new construction.
2. It effectively imposes a carbon tax, making ships financially responsible for their carbon emissions. Each ship is given a limit for annual carbon emissions. The ship must pay for any carbon emissions over that limit.
3. And the IMO intends to reduce that limit every year, eventually reaching net zero.
4. The cost for this carbon tax is sufficiently high that it definitely motivates ships to invest in green technology.
5. The framework also creates a carbon market. Ships that fall under their annual limit earn credits. They can save these credits for future use or sell them to other vessels. Green shipping can potentially become a source of revenue for the ships.

You can learn more about the details of the IMO regulations from their FAQ page, or from this podcast by DNV.

Result of the Vote

Sadly, the proposed resolution did not pass. But it didn’t exactly fail. The delegates decided to delay final voting for one year, hoping the political climate may change in that time. The net zero framework faced strong opposition from oil producing States, such as the USA, Saudi Arabia, and Russia.

I try to avoid political discussions from DMS. If you want to learn more about the various political motivations and interplay of interests that lead to the IMO vote, check out this video:

What This Means for Shipping

Green shipping technology doesn’t emerge at the snap of a finger. To meet the proposed IMO goals, we need to develop several new technologies for ship propulsion including:

1. Wind assisted propulsion
2. Methanol fuel based engines
3. Ammonia fuel based engines
4. Hydrogen fuel cells

All of these technologies are in the research and development stage currently. But it’s an epic journey to graduate from a prototype engine working in a lab up to a reliable production engine with a complete manufacturing line and global network to support for parts and maintenance.

On top of that, for new fuel technology, we also need to develop the fuel infrastructure. New refineries pumping out a lake of fuel, ready for global distribution. That also requires a network of specialized tankers, storage terminals, refueling docks, and more.

All of this amounts to billions of dollars in investment. Loans and development for every major maritime corporation in the world. The backlog of ships waiting to go into the shipyard for retrofit will extend for years. In short, the IMO resolution would start a feeding frenzy, forcing the entire maritime industry to change. And absolutely no one will risk that massive effort unless we are sure about the IMO resolution. While the resolution hangs in limbo, don’t expect any serious development efforts from industry. We need a clear directive before industry will go all in. Until then, we watch the IMO and wait.