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Getting to Zero Coalition calls for a CO2 price of $200/tonne to decarbonize shipping

22 January 2022

The Getting to Zero Coalition has released a new report titled “Closing the Gap“, which proposes policy measures that could close the competitiveness gap between fossil fuels and zero-emission alternatives in shipping. To make future ‘green’ fuels cost-competitive with conventional marine fuels, the report calls for a carbon price of about $200 per tonne of CO2, suggesting that transition to low carbon fuels would involve a significant economic cost for the shipping industry.

The report has been prepared by UMAS and UCL for the Getting to Zero Coalition—a partnership between the Global Maritime Forum, Friends of Ocean Action, and the World Economic Forum.

For international shipping to decarbonize, zero-emission fuels would have to become the dominant fuel source by the 2040s, according to the report. Therefore, there is an urgent need for the development of policies that can close the competitiveness gap with conventional HFO and VLSFO. “The report shows that the introduction of a relatively low carbon price in the 2020s that is gradually increased to around $200 will make it possible to fully decarbonize shipping and create an industry that is powered solely by net-zero energy sources by 2050,” said Kasper Søgaard, Managing Director of Global Maritime Forum. “This level of carbon price is in line what is estimated by for instance the IEA to be needed across all industries achieve the Paris Agreement goals, indicating that shipping is not a unique case.”

The report estimates the carbon price required under full decarbonization by 2050 or 50% decarbonization by 2050 and finds that there is no big difference in average price level between the two scenarios. An average carbon price of just under $200 is required for shipping’s full decarbonization, whereas under the 50% reduction scenario it is around 10% lower. The models start with a carbon price of about $11 per tonne in 2025, rising to $100 per tonne in the 2030s, and up substantially thereafter.

If 100% of the proceeds from the carbon fees were used to subsidize the price of zero-carbon fuels, it would be possible to reach full decarbonization with a carbon price peaking at $180 per tonne in 2050. As 3.1 tonnes of CO2 are emitted for every tonne of bunker fuel, this fee would translate to a peak charge of about $560 per tonne of bunkers in 2050—a tax of roughly 100% based on current HFO pricing, estimates The Maritime Executive.

According to the report, there are multiple potential policy options for closing the competitiveness gap. A policy package could consist of a global market-based measure which collects revenue which is then used fairly to support the transition, and a direct command-and-control measure to send an unequivocal signal to the market that a fuel transition will take place.

The economic instruments considered in the report include emission taxes and levies, feebates, emission trading systems, and subsidies. The report is not clear as to who could implement such fiscal and financial measures. Today’s global maritime bodies such as the UN International Maritime Organization (IMO) who sets international marine emission regulations do not have taxation powers.

While national and regional action are important and have a role in the transition, the work on a global package of policies to close the gap will be key, according to authors of the report. “This year will be critical for decisions on climate policy in the IMO. Our report shows that there is no single perfect policy and that a successful transition will likely hinge on developing and deploying a mix of policies which can address different aspects of the transition. The imposition of market-based measures on the shipping industry is relatively uncharted, so the sooner policy-makers can surmount this challenge together, the better for the transition, the industry, and the environment,” said Alison Shaw of UCL.

Source: Global Maritime Forum