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Global Shipping
The case for carbon pricing is getting stronger
In October 2024, the International Maritime Organisation will discuss proposals for emissions pricing
Higher costs can be passed through to customers but will impact competitiveness
Container shipping is the most exposed sub-sector but leads the transition to net zero
The case for carbon pricing is getting stronger
The International Maritime Organisation (IMO) aims to achieve net zero by 2050, a target that requires ships powered with alternative fuel to come into operation on a meaningful scale before the end of this decade. Yet, low emission fuels are 2-4x costlier than conventional fuels. While carbon pricing could help narrow this gap and accelerate the transition, challenges remain.
We have recently published a report where we provide an overview of the potential mechanisms for introducing a global carbon price for global shipping as well as the challenges involved. We also discuss the cost implications, the impact on sub-sectors, technological pathways to decarbonisation for new and existing fleets, and competitive dynamics.
In July 2023, the IMO’s Marine Environment Protection Committee set the base for a potential market-based measure for emissions pricing. It outlined interim targets of 5-10% zero or near zero emission fuels in the energy mix by 2030 and a timeline to adopt emissions pricing by 2025 and be implemented by 2027. The EU’s inclusion of shipping in its emissions trading system has increased the pressure to adopt a global approach.
USD152bn
Shipping industry fuel bill increase based on an estimated price of USD150/t of CO2
91%
Year-over-year fuel price increase for the industry based on USD150/t of CO2e
The current proposals imply carbon prices ranging between USD6.25 and USD300 per tonne (t) of CO2 equivalent (CO2e) vs the current EU carbon allowance price of cUSD71/t. We estimate that at a price of USD150/t of CO2e the industry fuel bill could rise by USD152bn – 91% higher than the 2023 level and equivalent to between 9% and 19% of annual revenue for the shipping companies we cover. If implemented universally, these costs are likely to be passed on to customers.
While the container shipping is the most exposed sub-sector it also the most proactive. In general, container ships have relatively higher emissions than other sub-sectors. With scheduled services enabling easy bunkering, container lines are better suited to the green transition. Indeed, alternative-fuel-capable ships comprise nearly two thirds of the container shipping orderbook by gross tonnage vs just 10% for dry bulk and 19% for tankers.
In our view, carbon pricing needs to be set sufficiently high to make alternative fuels competitive and drive a shift away from fossil fuels. But the pricing mechanisms need careful design, with a clear focus on subsidising cleaner fuels and funding research and development, backed by a basket of other policy measures, such as establishing a fuel standard and requiring ships to burn clean fuels within a defined timeline.
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