On Friday, the International Maritime Organisation (IMO) has finalised a $100 per tonne carbon tax on ship emissions, set to take effect in 2028. This levy, applied to nations failing to meet contributions to the IMO’s net-zero fund or compliance targets, marks the first global tax on greenhouse gas (GHG) emissions.
Coupled with a new marine fuel standard to phase in cleaner alternatives, the decision aims to curb the maritime sector’s 3% share of global emissions, as reported by the United Nations. Yet, with the United States absent from the talks and environmentalists divided, questions linger: Is this a transformative leap toward the IMO’s net-zero 2050 goal, or a compromise that falls short of the climate crisis’s demands?
Maritime shipping, the backbone of global trade, moves roughly 12 billion tons of cargo annually, as per United Nations Trade and Development (UNCTAD) 2023 report. Despite a 0.4% dip in seaborne trade in 2022, the sector is projected to grow 2.1–2.2% yearly through 2028, driven by rebounding containerized trade (up over 3% annually from 2024) and surging oil and gas shipments (6% and 4.6% growth in 2022). This growth fuels a troubling trend: shipping emissions have climbed over the past decade, reaching about 1 billion metric tonnes of CO2 equivalent annually—3% of global GHG output. Larger vessels, carrying more cargo per trip, burn immense amounts of heavy fuel oil, with Panama, Liberia, and the Marshall Islands—holding over a third of global tonnage—leading the emissions tally.
The IMO’s 2023 Revised GHG Strategy sets ambitious targets: a 20–30% emissions cut by 2030 and net-zero by 2050, relative to 2008 levels. Yet, without intervention, emissions could rise further. UNCTAD notes that geopolitical shifts, like the Ukraine war, have rerouted oil and grain shipments, boosting ton-miles (cargo distance traveled) beyond tonnage growth, with oil cargo distances hitting long-term highs in 2023.
The $100 per tonne tax, finalised by the IMO’s Marine Environment Protection Committee (MEPC) after a week of heated debate, targets ships from nations not meeting net-zero fund contributions or emissions compliance. It’s paired with a fuel standard to promote zero- or near-zero-emission fuels like hydrogen, methanol, and ammonia. The tax aims to incentivise cleaner operations and fund decarbonization, particularly for vulnerable economies. UNCTAD estimates that decarbonizing shipping requires $8–28 billion annually for vessels and $28–90 billion for fuel infrastructure, potentially raising fuel costs 70–100%. A levy could generate billions to offset these costs, supporting port upgrades, climate adaptation, and alternative fuel bunkering.
However, the tax’s design sparked fierce debate. Over 60 countries, led by Pacific island nations like the Marshall Islands, pushed for a flat levy per metric ton of CO2. These nations, facing existential threats from rising seas, argued that a simple tax ensures fairness and drives rapid fuel shifts. The International Chamber of Shipping, representing 80% of the global fleet, backed this approach, with Secretary-General Guy Platten calling it “pragmatic.” Conversely, maritime powers—China, Brazil, Saudi Arabia, and South Africa—favored a credit trading model, where ships earn credits for low emissions and buy them to offset excess. Critics, including Marshall Islands Ambassador Albon Ishoda, warned that credits let wealthier operators “buy compliance,” undermining climate goals. The final agreement blends both models, risking diluted impact but securing broader buy-in.
The economic stakes are high, especially for small island developing states (SIDS) and least developed countries (LDCs). UNCTAD’s 2021 assessment projected a 2.7% rise in maritime logistics costs by 2030 under existing IMO measures like the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII), with SIDS and LDCs facing GDP declines up to 0.08%—equivalent to $80 billion globally based on 2022’s $104 trillion GDP. The new tax could exacerbate these costs unless revenues are equitably redistributed. In 2022, two-thirds of the global fleet met CII A–C ratings for low carbon intensity, but stricter standards could see this drop to 49% by 2026, per UNCTAD, hitting smaller operators hardest.
For SIDS, the stakes are existential. The Marshall Islands, a top ship registry, exemplifies the tension: its fleet drives global emissions, yet its people face climate-driven submersion. The tax could fund adaptation—think seawalls or renewable bunkering ports—but environmentalists like Emma Fenton of Opportunity Green argue it won’t raise enough to support vulnerable nations’ transitions. UNCTAD emphasizes that a universal framework is critical to avoid a “two-speed decarbonization,” where wealthier fleets adopt green tech while others lag.
The tax is one piece of a complex puzzle. The global fleet—105,493 vessels as of January 2023—averages 22.2 years old, up two years from a decade ago, per UNCTAD. Aging ships resist retrofitting for alternative fuels, which face high costs and scant bunkering infrastructure. In 2022, one-third of ordered tonnage could use alternative fuels, but scaling requires overhauling fuel chains. Initiatives like the COP26 Clydebank Declaration’s 21 green shipping corridors aim to bridge this, but SIDS and LDCs risk exclusion without targeted investment.
Freight market volatility adds pressure. Rates crashed 80% from January 2022’s 5,067-point Shanghai Containerised Freight Index peak to 967 points by June 2023, squeezing carriers’ green tech budgets. Overcapacity, with container fleet growth at 3.9% in 2022, prompts cost-cutting like slower steaming, which cuts emissions but delays trade. Digital tools, like the IMO’s 2024 Maritime Electronic Single Window, could streamline ports, but new rules like the EU’s Carbon Border Adjustment Mechanism may add red tape.
The $100 per tonne tax is a milestone—the first global GHG levy—but its hybrid design and U.S. opt-out raise doubts. UNCTAD projects trade growth will outpace decarbonisation without bolder action. By 2028, the tax could generate billions, but only robust enforcement and reinvestment in SIDS and LDCs will ensure equity. Alternative fuels need cheaper production and wider bunkering; aging fleets need incentives to retrofit or retire. The IMO’s net-zero 2050 target demands not just taxes but a reimagined maritime ecosystem.
The carbon tax will generate $30–40 billion in revenues by 2030 and roughly $10 billion annually. The agreement is projected to deliver at best 10% absolute emissions reduction in the shipping sector by 2030 - far short of the IMO’s own targets set in their 2023 revised strategy, which calls for at least a 20% cut by 2030, with a stretch goal of 30%. The funds will be ringfenced for decarbonising the maritime sector alone and not go towards climate financing for developing countries. Starting in 2028, ships will be required either to transition to lower-carbon fuel mixes or pay for the excess emissions they generate. Vessels that continue to burn conventional fossil fuels will face a $380 per tonne fee on the most intensive portion of their emissions, and $100 per tonne on remaining emissions above a certain threshold.