Shipping Emissions Pact Faces Test

Shipping's Green Transition: Landmark Emissions Deal Faces Choppy Waters

After nearly a decade of protracted discussions, the world’s nations have forged a global agreement targeting greenhouse gas emissions from maritime transport. This landmark deal covers the vast majority of international commercial shipping. It requires vessel owners to progressively adopt cleaner fuels beginning in 2028 or face financial penalties. The measure secured approval despite last-minute hurdles. These included a vote called by Saudi Arabia and the withdrawal of United States representatives from the London negotiations. The accord marks a significant, albeit controversial, step towards regulating a major source of global pollution.

Dissatisfaction and Doubts Linger

Despite the agreement's passage, small island nations and environmental advocacy groups voiced considerable dissatisfaction. They pointed to the absence of a comprehensive carbon tax as a major weakness. Many critics labelled the accord insufficient for achieving meaningful climate goals. The shipping industry contributes approximately 3% of global greenhouse gas emissions. Unlike other sectors, it has struggled significantly to reduce its reliance on diesel and similar fossil fuels. Progress in lowering its environmental impact over the past ten years has been limited, making this new pact a crucial, if contested, development.

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Updated IMO Strategy Sets Higher Bar

The initial agreement paved the way for a more ambitious framework adopted by the International Maritime Organization (IMO) in July 2023. This revised strategy significantly strengthened the initial 2018 goals. It now targets net-zero greenhouse gas emissions from international shipping "by or around, i.e. close to 2050". The 2023 IMO GHG Strategy establishes indicative checkpoints. These demand emissions reductions of at least 20%, striving for 30%, by 2030, compared to 2008 levels. A further target requires reductions of at least 70%, striving for 80%, by 2040. These targets consider the full life-cycle emissions of fuels.

Focus on Fuel Intensity and Clean Energy Uptake

Alongside overall emissions cuts, the 2023 strategy mandates improvements in carbon intensity. It aims for an average reduction across international shipping of at least 40% by 2030 compared to 2008 levels. This focuses on reducing CO2 emissions per unit of transport work. A key new ambition involves the uptake of zero or near-zero GHG emission technologies and fuels. The strategy targets these alternatives representing at least 5%, striving for 10%, of the energy used by international shipping by 2030. This signals a clear push towards adopting fuels like green ammonia or methanol.

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Binding Measures and Ongoing Reviews

While the 2023 strategy itself acts as a framework, the specific measures implemented to achieve its goals can be legally binding through international treaties like MARPOL. Short-term measures like the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) entered force in 2023, though their current effectiveness is debated. The IMO plans further development of "mid-term measures", including a fuel standard and an emissions pricing mechanism, expected for adoption in 2025 and entry into force around mid-2027. The entire strategy faces review by autumn 2028.

Navigating Contentious Negotiations

Securing even the initial steps required overcoming significant obstacles. The agreement necessitated a formal vote, a deviation from the IMO's usual consensus-based decision-making process. Saudi Arabia, finding limited support among other oil-producing states like Russia, initiated the ballot request. Despite their opposition during the vote, these nations, as IMO members, remain bound by the agreement's terms. The process highlighted the deep divisions and competing interests involved in global climate regulation, particularly within energy-reliant industries. The withdrawal of the US delegation over specific funding proposals further complicated talks.

The Persistent Rise of Shipping Emissions

Despite ongoing efforts to enhance ship efficiency, pollutant output from the sector has continued to climb. This increase mirrors the growth in global trade volume, approximately 90% of which relies on maritime transport. The sheer scale of global shipping makes reducing its footprint a complex challenge. While technological improvements can help, the fundamental driver of emissions remains the volume of goods moved across oceans. Addressing this requires not just technical fixes but potentially broader shifts in global consumption and trade patterns, a far more complex undertaking.

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The Economic Hurdle of Green Fuels

Transitioning vessels from conventional heavy fuel oil to environmentally sustainable alternatives represents a potent decarbonisation strategy. However, this shift faces substantial financial barriers. Faig Abbasov, leading Transport and Environment's shipping division, highlighted the exceptionally low cost of current ship fuel. This residual material, leftover from crude oil refining after more valuable products are extracted, involves minimal processing. Abbasov argued no alternative fuel could realistically compete on price due to this fundamental difference in production complexity and cost.

Cost Disparity: Fossil Fuels vs. Alternatives

Manufacturing cleaner fuels like green ammonia or e-methanol involves complex processes, such as extracting hydrogen from water molecules. This electrolysis requires significant energy and capital investment. Figures from various analyses, including the World Economic Forum and recent industry reports, suggest production costs for these cleaner fuels could be three to four times higher, or even more, than traditional bunker fuel. Recent estimates show bio-methanol could be over 4.5 times more expensive than Very Low Sulphur Fuel Oil (VLSFO), and e-methanol over 6 times more expensive, highlighting the immense cost gap.

Bridging the Price Gap: Incentives and Penalties

Refke Gunnewijk, focusing on sustainable maritime transport from Rotterdam Port, stressed the vast price difference separating standard and carbon-neutral marine fuels. Gunnewijk argues that bridging this gap requires both strong incentives and deterrents. However, within maritime shipping, the financial penalties currently proposed or implemented may lack sufficient strength to compel widespread adoption of costly green alternatives. The economics strongly favour sticking with cheaper, polluting fuels unless regulations make it significantly more expensive not to switch. This remains a central challenge for policymakers.

A New Framework: Fuel Standards and Pricing

Recent IMO discussions, particularly at MEPC 83 in April 2025, solidified a "basket of measures" approach. This combines a technical element – a goal-based marine fuel standard regulating the phased reduction of GHG intensity – with an economic element based on emissions pricing. The agreed framework features tiered GHG fuel intensity requirements. Ships must meet annual targets starting in 2028. Non-compliance triggers penalties, creating a form of carbon pricing, although a flat global levy faced opposition and was not adopted as the primary mechanism.

The Agreed Carbon Pricing Mechanism

The system approved in April 2025 sets annual targets for reducing fuel GHG intensity through 2035. Shipowners failing to meet lower "base" targets must pay a penalty, effectively buying "remedial units" from the IMO at $380 per tonne of CO2 equivalent. A higher, more ambitious "direct compliance" target also exists. Failing to meet this triggers a lower penalty of $100 per tonne, or compliance can be achieved by purchasing surplus credits from over-performing vessels. This complex system replaces earlier proposals for a simpler, potentially higher, universal levy.

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Criticism Mounts: Ambition Questioned

Despite being hailed as a first for any global industry, the agreed measures faced immediate criticism. Environmental groups and some nations, particularly vulnerable small island states, argued the targets and penalties lack ambition. Vanuatu’s Minister for Climate Change, Ralph Regenvanu, explicitly blamed the US, Saudi Arabia, and fossil fuel allies for weakening the potential impact during earlier negotiations. Delaine McCullough, representing the Clean Shipping Coalition, lamented that the IMO squandered a chance for the industry to truly demonstrate climate leadership, making its own stated goals harder to achieve.

Projected Emissions Reductions Fall Short

Consultancy UMAS initially projected an 8% emissions decrease for the sector by 2030 under the type of measures first discussed. This fell significantly short of the IMO's earlier 20% target for the decade. Even under the strengthened 2023 strategy aiming for 20-30% cuts by 2030, concerns remain. Some analyses suggest the current penalty levels and intensity targets may still result in only around a 10% reduction by 2030, insufficient to align with the Paris Agreement's 1.5°C pathway. Climate Action Tracker rates the IMO's ambition as "Insufficient".

The Role of Major Nations

The final agreement structure reflects compromises made to accommodate diverse national interests. China and Brazil, initially concerned that a high, flat carbon tax could inflate costs for essential goods like food, ultimately supported the package voted on in April 2025. The United States' earlier opposition, particularly regarding the redistribution of funds generated by penalties, reflected broader challenges to international climate action under the previous administration. Although US-flagged vessels represent a small fraction of the global fleet tonnage, its negotiating position influenced the outcome.

Funding the Maritime Green Transition

Funds generated from the agreed penalties will flow into a dedicated IMO mechanism, likely termed the "Net Zero Fund". This money aims to support decarbonisation efforts within the maritime sector. This includes promoting research and development into greener fuels and technologies. It also intends to assist developing countries, potentially compensating for negative economic impacts arising from the transition, such as increased shipping costs. However, the decision to keep funds strictly within the sector disappointed those hoping it could generate broader climate finance for vulnerable nations.

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Debate Over Fund Redistribution

The concept of redistributing funds internationally proved contentious, contributing to the US delegation's temporary withdrawal from earlier talks. The US government at the time expressed concerns about the mechanism potentially acting as an inflationary tariff and threatened reciprocal measures if certain tax proposals were approved. This stance, while contradicting previous US positions at the IMO, aligned with wider scepticism towards international climate agreements. The final agreement channels funds back into the sector, avoiding the wider redistribution initially proposed by some parties.

Future Fuels: Ammonia, Methanol, Hydrogen

The transition hinges on the successful development and scaling of alternative fuels. Green ammonia and green methanol are currently seen as leading contenders. Both can be produced using renewable electricity but face challenges. Ammonia is toxic and requires careful handling, while methanol has lower energy density than traditional fuels. Hydrogen is another possibility but presents storage and infrastructure difficulties. Biofuels also play a role, though concerns exist regarding sustainable sourcing and potential land-use impacts, like deforestation for palm oil.

Investment and Infrastructure Challenges

Successfully transitioning requires massive investment, not just in new ship engines but also in production facilities for green fuels and the necessary port infrastructure for bunkering. Experts like Jesse Fahnestock from the Global Maritime Forum have questioned whether the current penalty levels provide sufficient incentive to drive the trillions of dollars needed for this transformation. Building new ships is capital-intensive, and shipowners hesitate without clear signals on dominant future fuel pathways and regulatory certainty. Moody's Ratings highlighted this regulatory gap and fuel shortage as significant risks.

Looking Ahead: Implementation and Revision

The agreed measures, including the fuel standard and pricing mechanism, are slated for formal adoption in late 2025 and expected entry into force around mid-2027, with data collection beginning in 2028. Crucial details regarding implementation, life-cycle emission calculations for fuels, and precise fund disbursement rules still need finalisation. The IMO strategy includes checkpoints and a full review scheduled for 2028, offering opportunities to strengthen targets and measures if progress proves insufficient. The coming years will be critical for establishing the trajectory towards the 2050 net-zero goal.