Why the shipping industry’s new carbon tax is a big deal — and still not enough
Each year, all the cargo ships that crisscross the oceans carrying cars, building materials, food, and other goods emit about 3 percent of the world’s climate pollution. That’s about as much as the aviation sector Driving down those emissions is complicated. Unlike, say, electricity generation, which happens within a nation’s borders, shipping is by definition global, so it takes international cooperation to decarbonize. The International Maritime Organization, part of the United Nations, has largely taken up this mantle. Last week, the agency took a big step in the right direction with the introduction of the world’s first sector-wide carbon tax. More than 60 member states approved a complex system that requires shipping companies to meet certain greenhouse gas standards or pay for their shortfall. (The United States walked out of the discussions.) The plan has yet to be formally adopted — that’s expected to happen in October — and it doesn’t include the most ambitious proposals sought by island nations and environmental nonprofits, including a flat tax on all shipping emissions. But policy experts are calling it a “historic” development for global climate action. “It doesn’t meet the IMO’s climate targets, but it’s generally still a very welcome outcome for us,” said Nishatabbas Rehmatulla, a principal research fellow at the University College London Energy Institute. Created by a U.N. conference in 1948, the IMO has a broad remit to regulate the “safety, security, and environmental performance of international shipping.” With participation from its 176 member states, the agency writes treaties, conventions, and other legal instruments that are then incorporated into countries’ laws. Perhaps the best known of these is the 1973 International Convention for the Prevention of Pollution from Ships, called MARPOL (a portmanteau of “marine pollution”). Some of the earliest regulations implemented by MARPOL sought to prevent oil-related pollution from routine operations and spills. Subsequent amendments to the convention have aimed to limit pollution from sewage and litter, and in 2005 a new annex restricted emissions of ozone-depleting gases like sulphur and nitrogen oxides. The IMO began to address climate change in 2011, when it added a chapter to the ozone regulation requiring ships to improve their energy efficiency. A container ship near the Port of Antwerp, in Belgium. Nicolas Tucat / AFP via Getty Images In 2018, the IMO set an intention to halve net-zero greenhouse gas emissions by 2050, using 2008 levels as a baseline. It updated that goal in 2023, shooting for net-zero “by or around, i.e., close to, 2050,” while also setting an interim target of cutting emissions by 20 to 30 percent by 2030. Last week’s meeting was part of the IMO’s work to develop a “basket of measures” to achieve those benchmarks and more forcefully transition the sector away from heavy fuel oil, a particularly carbon-intensive fuel that makes up the bulk of large ships’ energy source. Many environmental groups and island countries — which are more vulnerable to climate-driven sea level rise — had hoped that the IMO would implement a straightforward tax on all shipping emissions, with revenue directed broadly toward climate mitigation and adaptation projects in their regions. That’s not quite what happened. Instead, the agreed-upon policy creates a complex mechanism to charge shipping companies for a portion of their vessels’ climate pollution, on the basis of their emissions intensity: the amount of climate pollution they emit per unit of energy used. The mechanism includes two intensity targets, which become more stringent over time. One is a “base target,” a minimum threshold that all ships are supposed to meet. The other is more ambitious and is confusingly dubbed a “direct compliance target.” Ships that meet the more stringent target are the most fuel efficient. Based on how much cleaner they are than the target, their operators are awarded a credit they can sell to companies with less efficient boats. They can also bank these credits for use within the following two years, in case their performance dips and they need to make up for it. Vessels that don’t quite meet the stricter standard but are more efficient than the base target don’t get a reward. They must pay for their deficit below the direct compliance target with “remedial units” at a price of $100 per metric ton of CO2 equivalent. Those that are below both targets have to buy remedial units to make up for the full amount of space between them. On top of that, they also have to buy a number of even more expensive units ($380 per ton of CO2 equivalent), based on how much less efficient than the base target they are. They can cover their shortfall with any credits they’ve banked, or by buying them from carriers with more efficient ships. Depending on how much they reduce their ships’ emissions intensity, companies may accrue “surplus units” or have to buy “remedial units.” In this graph, ships above the blue line are the least efficient; those below the orange line are the most efficient. Courtesy of Nishatabbas Rehmatulla Revenue raised from this system will go into a “net-zero fund,” which is intended to help pay for further decarbonization of the shipping sector, including the development of low- and zero-emissions fuels. A portion of this fund is explicitly intended to help poor countries and island states with fewer resources to make this transition. The strategy was approved by a vote — an uncommon occurrence in intergovernmental fora where decisions are usually made by consensus. Rehmatulla said the IMO has only held a vote like this once before, 15 years ago. Sixty-three countries voted in favor of the measures, and 16 opposed. Another two dozen, including many small island states like Fiji and Tuvalu, chose to abstain. Tuvalu’s transport minister, Simon Kofe, told Climate Home News that the agreement “lacks the necessary incentives for industry to make the necessary shift to cleaner technologies.” Modeling by University College London suggests that the new pricing mechanism will only lead to an 8 to 10 percent reduction in shipping’s climate pollution by 2030, a far cry from the agency’s own goal of 20 to 30 percent. Leaders from other island nations, as well as climate advocates, also objected to restrictions on the net-zero fund that suggest it will only be used to finance shipping decarbonization; they wanted the fund to be available for climate mitigation and adaptation projects in any sector. In order to transition away from fossil fuels and safeguard themselves from climate disasters, developing countries need trillions of dollars more than what’s currently coming to them from the world’s biggest historical emitters of greenhouse gases. A climate minister from Vanuatu, Ralph Regenvanu, said in a statement the U.S., Saudi Arabia, and other oil-producing countries had “blocked progress” at the IMO talks, and that they had “turned away a proposal for a reliable source of revenue for those of us in dire need of finance to help with climate impacts.” University College London research also suggests that, while the system will make it too expensive to build new boats reliant on liquefied natural gas — a fossil fuel that drives climate change — it will not raise enough revenue to finance the development of zero- and near-zero-carbon shipping technologies like green ammonia. (Lower shipping speeds and wind propulsion — also known as sails — can also reduce shipping emissions). The United States did not participate in the negotiations. Its delegation left on day two, calling the proposed regulations “blatantly unfair” and threatening to retaliate with “reciprocal measures” if the IMO approved measures to restrict greenhouse gas emissions. The International Chamber of Shipping welcomed the agreement, saying it would level the playing field and give companies more confidence to decarbonize their fleets. “We are pleased that governments have understood the need to catalyse and support investment in zero-emission fuels, and it will be fundamental to the ultimate success of this IMO agreement that it will quickly deliver at the scale required,” said a statement from Guy Platten, the group’s secretary general. Antonio Santos, federal climate policy director for the nonprofit Pacific Environment, said the agreement was “momentous,” although he shared the disappointment of many small island states over its lack of ambition. “What was agreed to today is the floor,” he told Grist. “It’s lower than we would have wanted, but at least it sets us in a positive direction.” Revisions to the strategy are expected every five years, potentially leading to higher carbon prices and other measures to quicken decarbonization. But Santos said significant additional investment from governments and the private sector will still be needed. IMO member states will reconvene in October to formally adopt the new regulations. Over the following 16 months, delegates will figure out how to implement the rules before they are finally entered into force in 2027. This story was originally published by Grist with the headline Why the shipping industry’s new carbon tax is a big deal — and still not enough on Apr 16, 2025.
Modeling suggests it will only reduce emissions up to 10 percent by 2030.
Each year, all the cargo ships that crisscross the oceans carrying cars, building materials, food, and other goods emit about 3 percent of the world’s climate pollution. That’s about as much as the aviation sector
Driving down those emissions is complicated. Unlike, say, electricity generation, which happens within a nation’s borders, shipping is by definition global, so it takes international cooperation to decarbonize. The International Maritime Organization, part of the United Nations, has largely taken up this mantle.
Last week, the agency took a big step in the right direction with the introduction of the world’s first sector-wide carbon tax. More than 60 member states approved a complex system that requires shipping companies to meet certain greenhouse gas standards or pay for their shortfall. (The United States walked out of the discussions.)
The plan has yet to be formally adopted — that’s expected to happen in October — and it doesn’t include the most ambitious proposals sought by island nations and environmental nonprofits, including a flat tax on all shipping emissions. But policy experts are calling it a “historic” development for global climate action.
“It doesn’t meet the IMO’s climate targets, but it’s generally still a very welcome outcome for us,” said Nishatabbas Rehmatulla, a principal research fellow at the University College London Energy Institute.
Created by a U.N. conference in 1948, the IMO has a broad remit to regulate the “safety, security, and environmental performance of international shipping.” With participation from its 176 member states, the agency writes treaties, conventions, and other legal instruments that are then incorporated into countries’ laws. Perhaps the best known of these is the 1973 International Convention for the Prevention of Pollution from Ships, called MARPOL (a portmanteau of “marine pollution”).
Some of the earliest regulations implemented by MARPOL sought to prevent oil-related pollution from routine operations and spills. Subsequent amendments to the convention have aimed to limit pollution from sewage and litter, and in 2005 a new annex restricted emissions of ozone-depleting gases like sulphur and nitrogen oxides. The IMO began to address climate change in 2011, when it added a chapter to the ozone regulation requiring ships to improve their energy efficiency.
In 2018, the IMO set an intention to halve net-zero greenhouse gas emissions by 2050, using 2008 levels as a baseline. It updated that goal in 2023, shooting for net-zero “by or around, i.e., close to, 2050,” while also setting an interim target of cutting emissions by 20 to 30 percent by 2030. Last week’s meeting was part of the IMO’s work to develop a “basket of measures” to achieve those benchmarks and more forcefully transition the sector away from heavy fuel oil, a particularly carbon-intensive fuel that makes up the bulk of large ships’ energy source.
Many environmental groups and island countries — which are more vulnerable to climate-driven sea level rise — had hoped that the IMO would implement a straightforward tax on all shipping emissions, with revenue directed broadly toward climate mitigation and adaptation projects in their regions.
That’s not quite what happened. Instead, the agreed-upon policy creates a complex mechanism to charge shipping companies for a portion of their vessels’ climate pollution, on the basis of their emissions intensity: the amount of climate pollution they emit per unit of energy used. The mechanism includes two intensity targets, which become more stringent over time. One is a “base target,” a minimum threshold that all ships are supposed to meet. The other is more ambitious and is confusingly dubbed a “direct compliance target.”
Ships that meet the more stringent target are the most fuel efficient. Based on how much cleaner they are than the target, their operators are awarded a credit they can sell to companies with less efficient boats. They can also bank these credits for use within the following two years, in case their performance dips and they need to make up for it.
Vessels that don’t quite meet the stricter standard but are more efficient than the base target don’t get a reward. They must pay for their deficit below the direct compliance target with “remedial units” at a price of $100 per metric ton of CO2 equivalent.
Those that are below both targets have to buy remedial units to make up for the full amount of space between them. On top of that, they also have to buy a number of even more expensive units ($380 per ton of CO2 equivalent), based on how much less efficient than the base target they are. They can cover their shortfall with any credits they’ve banked, or by buying them from carriers with more efficient ships.
Courtesy of Nishatabbas Rehmatulla
Revenue raised from this system will go into a “net-zero fund,” which is intended to help pay for further decarbonization of the shipping sector, including the development of low- and zero-emissions fuels. A portion of this fund is explicitly intended to help poor countries and island states with fewer resources to make this transition.
The strategy was approved by a vote — an uncommon occurrence in intergovernmental fora where decisions are usually made by consensus. Rehmatulla said the IMO has only held a vote like this once before, 15 years ago.
Sixty-three countries voted in favor of the measures, and 16 opposed. Another two dozen, including many small island states like Fiji and Tuvalu, chose to abstain. Tuvalu’s transport minister, Simon Kofe, told Climate Home News that the agreement “lacks the necessary incentives for industry to make the necessary shift to cleaner technologies.” Modeling by University College London suggests that the new pricing mechanism will only lead to an 8 to 10 percent reduction in shipping’s climate pollution by 2030, a far cry from the agency’s own goal of 20 to 30 percent.
Leaders from other island nations, as well as climate advocates, also objected to restrictions on the net-zero fund that suggest it will only be used to finance shipping decarbonization; they wanted the fund to be available for climate mitigation and adaptation projects in any sector. In order to transition away from fossil fuels and safeguard themselves from climate disasters, developing countries need trillions of dollars more than what’s currently coming to them from the world’s biggest historical emitters of greenhouse gases.
A climate minister from Vanuatu, Ralph Regenvanu, said in a statement the U.S., Saudi Arabia, and other oil-producing countries had “blocked progress” at the IMO talks, and that they had “turned away a proposal for a reliable source of revenue for those of us in dire need of finance to help with climate impacts.”
University College London research also suggests that, while the system will make it too expensive to build new boats reliant on liquefied natural gas — a fossil fuel that drives climate change — it will not raise enough revenue to finance the development of zero- and near-zero-carbon shipping technologies like green ammonia. (Lower shipping speeds and wind propulsion — also known as sails — can also reduce shipping emissions).
The United States did not participate in the negotiations. Its delegation left on day two, calling the proposed regulations “blatantly unfair” and threatening to retaliate with “reciprocal measures” if the IMO approved measures to restrict greenhouse gas emissions.
The International Chamber of Shipping welcomed the agreement, saying it would level the playing field and give companies more confidence to decarbonize their fleets. “We are pleased that governments have understood the need to catalyse and support investment in zero-emission fuels, and it will be fundamental to the ultimate success of this IMO agreement that it will quickly deliver at the scale required,” said a statement from Guy Platten, the group’s secretary general.
Antonio Santos, federal climate policy director for the nonprofit Pacific Environment, said the agreement was “momentous,” although he shared the disappointment of many small island states over its lack of ambition. “What was agreed to today is the floor,” he told Grist. “It’s lower than we would have wanted, but at least it sets us in a positive direction.”
Revisions to the strategy are expected every five years, potentially leading to higher carbon prices and other measures to quicken decarbonization. But Santos said significant additional investment from governments and the private sector will still be needed.
IMO member states will reconvene in October to formally adopt the new regulations. Over the following 16 months, delegates will figure out how to implement the rules before they are finally entered into force in 2027.
This story was originally published by Grist with the headline Why the shipping industry’s new carbon tax is a big deal — and still not enough on Apr 16, 2025.