The demand for green hydrogen and its derivatives would increase massively in the coming years if the UN’s International Maritime Organization (IMO) adopts a proposal for a global carbon fuel tax on the shipping industry.
While the IMO has a target of cutting greenhouse gas emissions from the maritime sector by 50% by 2050 (compared to 2008 levels) — a goal that could be increased in a forthcoming July meeting — it has been hard to see how it would get there, given that today’s carbon-rich heavy fuels are much cheaper than cleaner alternatives, such as renewable hydrogen, ammonia and methanol.
However, last week, a revised proposal of a “Fund and Reward” carbon tax was submitted by the International Chamber of Shipping — a trade body representing about 80% of the world’s merchant fleet — that seeks to charge shipowners $50 per tonne of fossil-derived marine fuel oil.
That would raise about $10bn by 2030, which would be used to compensate first movers using green hydrogen or its derivatives, or biofuels or new technologies such as carbon capture.
“The shipping industry and the IMO have been very slow. But this is the best decarbonisation proposal I have seen”, Erik Røsæg, a professor of maritime law at the University of Oslo, tells Hydrogen Insight. Røsæg worked on liability issues at the IMO from 1990 until 2002 in its legal committee, but it is no longer engaged with the UN agency.
The revised proposal is one of several being considered by the IMO, which is set to make a decision — or at least narrow down the decarbonisation options — this year.
“The tax must be high enough to be an incentive to decarbonise, but should not be a tax for fiscal purposes,” says Røsæg. “The idea is that the tax revenue should be paid out to compensate shipowners that decarbonise.
“The shipping industry has been spending years discussing all sorts of proposals, delaying decisions, when they could have decided early on to introduce a simple, market-based measure where CO2 emissions are taxed, and where the shipowners can decide themselves how to adjust — to pay or to decarbonise, and how to decarbonise. This proposal is just that: simple enough to actually work, although it is still competing with other proposals.”
Among the decarbonising proposals that were discussed for years is the Carbon Intensity Indicator that took effect from 1 January 2023, a sophisticated system calculating the emissions of each ship, with ratings that force shipowners to improve — which “sounds great, but in practice it is very cumbersome”, according to Røsæg.
While this current system aims to cut carbon intensity by 1.5% yearly, it does not have any enforcement mechanisms pushing the shipowners.
“It appears that many shipowners in most parts of the world are taking a reasonable approach now, arguing that there should be a global system applying to everyone, levelling the playing field, rather than no taxes at all,” says Røsæg.
Increasing pressure from the shipping industry to see ground rules clarified and avoid further delays of investment decisions for new ships and new technology is also mounting. An IMO meeting in July could make the proposal part of the organisation’s official strategy.
The road to enforcement means the IMO’s 175 member states have to agree on the tax, and each nation would either collect the taxes themselves or let the UN agency do so.
“The IMO is a highly political body, and there will be many discussions on special considerations for some states,” says Røsæg. “My guess would be that this is not implemented until the second half of this decade and that suggestions to introduce this in 2024 are too optimistic.”
In practice, the “Fund and Reward” tax system would force shipowners to pay taxes when arriving in a new country — no matter where the ship has been registered, making it impossible to avoid the fee by changing flags.
“The challenge with this proposal is to find a waterproof system for measuring the emissions of the ships,” Røsæg concludes.