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IMO talks dodge question on future distribution of shipping emission revenues

Tackling maritime emissions: while more countries currently favour a shipping levy over a flexible pricing approach related to the fuel standard, the majority remain undecided (Photo: David Paul Morris/Bloomberg)
Tackling maritime emissions: while more countries currently favour a shipping levy over a flexible pricing approach related to the fuel standard, the majority remain undecided (Photo: David Paul Morris/Bloomberg)

While negotiations continued behind closed doors on how to price maritime carbon emissions, the UN has yet to determine a suitable governance framework to disperse any revenues raised

Last week, discussions at the UN’s International Maritime Organization progressed on the design of a technical and economic measure to curb emissions from the shipping sector, in line with a revised greenhouse gas strategy.

Agreed last summer, the revised strategy aims to cut annual greenhouse gas emissions from shipping to at least 20 per cent – striving for 30 per cent – by 2030; followed by a reduction of at least 70 per cent – striving for 80 per cent – by 2040, both in comparison to 2008 levels.

The strategy relies on the development of a green fuel standard to reduce marine fuels’ greenhouse gas intensity over time (also known as the technical measure), and a greenhouse gas emissions pricing mechanism (known as the economic measure).

In March, the IMO’s 176 member states continued discussions on how these two measures should be constructed and what impact they would have on trade, based on a set of different proposals that were filed ahead of the meetings.

The maritime sector is facing increased pressure to implement policies to cut emissions, despite operating in an economic and geopolitical context that has made shipping routes longer, more expensive and more carbon intensive.

During the IMO discussions, it was announced that non-profit Opportunity Green had asked the International Court of Justice to confirm that states have a legal obligation under international law to tackle climate impacts from international shipping, in line with the Paris Agreement’s 1.5C goal.

Opposition to a levy

Tension was also visible at the IMO, with member states holding vastly different views on how to price emissions.

In one camp, were the countries – led by Belize and the Pacific Island states – that support a so-called universal shipping levy applied to emissions from all ships. In the other, were those – led by Brazil, China, Norway and the United Arab Emirates – that support a pricing mechanism applied only on emissions that occur above the value limit of the green fuel standard.

While more countries favour a shipping levy over a flexible pricing approach related to the fuel standard, the majority of states remain undecided, especially African countries, who have kept their cards close to their chest.

One delegate from an EU country said African nations represent “a big unknown” in the negotiations, though some of them could benefit from any revenues raised from a levy to expand their hydrogen hubs. The delegate also warned against playing a “numbers game” to determine support, highlighting that, despite the growing momentum, opposition against a levy is still strong.

Meanwhile, non-profits said they were happily surprised to see the Caribbean Island nations of Barbados, Grenada, St Vincent and the Grenadines, Trinidad and Tobago, St Kitts and Nevis, and Jamaica backing the Pacific Islands in their quest for a universal shipping levy.

Given that the IMO needs to reach a consensus, the next round of negotiations in autumn look set to be bumpy.

What happens to revenues?

A major question still to be answered is how the IMO intends to distribute any revenues raised, regardless of the pricing mechanism eventually chosen.

In a Q&A with journalists on March 18, IMO secretary-general Arsenio Dominguez declared confidently he had “no doubt there will be a pricing mechanism in 12 months’ time”. Dominguez, who prefers the term “pricing mechanism” to “levy”, stressed that shipping as an industry should not be penalised for having to make longer distances due to geopolitical conflicts.

While the amount of revenues raised under the economic element could vary significantly depending on which pricing mechanism is eventually agreed, it would, nonetheless, represent a crucial and unprecedented funding opportunity to begin decarbonising the sector.

Responding to a question from Sustainable Views, Dominguez refused to express his own opinion on how the revenues should be managed – as, according to him, this would be detrimental to the discussions – but he said that precedents exist in establishing governance frameworks through the launch of previous funds.

However, he emphasised that any revenues should first focus on decarbonising the shipping sector and only at a later stage potentially be broadened up to fund initiatives outside the sector, such as loss and damage.

Vague outline for workshop

The latest round of discussions concluded with the agreement to hold a “two-day expert workshop” this summer to discuss the findings of the impact assessments underpinning the different pricing proposals.

These impact assessments are crucial to deciding for or against a specific proposal as they provide an overview on the geographic remoteness of, and connectivity, to main markets; cargo value and type; transport dependency and costs; food security; disaster response; cost-effectiveness; and socioeconomic progress and development.

According to the official meeting summary, the summer workshop is set to cover “all aspects”, including the modelling of revenue disbursement. Still, doubts were raised about its scope and weight.

One source inside the negotiations told Sustainable Views the workshop is likely going to be limited to a discussion about revenues at a high level and not on practicalities, such as fund management. Another source said the workshop will address “what countries will want it to address”, depending on what kind of experts the countries decide to send to attend the workshop.

No further details have been released on the workshop’s contents, nor has a date been decided but an IMO spokesperson said it would take place before the next round of negotiations at the end of September.

Experts consider the shipping levy proposal filed by Belize and the Pacific Island nations – which puts a price of $150 a tonne of greenhouse gas emitted – as the one including most references to a just and equitable transition by allocating part of the raised revenues to mitigation, adaptation, technological inclusivity, considerations for seafarers and funding for negative (trade) impacts on states.

While active discussions on revenue distribution are still to take place, the issue could be even more controversial than finding an agreement on the pricing mechanism itself, according to one source inside the negotiations.

The source said the added complexity of the revenue distribution is that maritime-centred countries are likely to benefit from a pricing mechanism – but there are many climate-vulnerable countries without an established maritime economy.

Another source favoured distributing the percentage of funds targeted for the Pacific Island nations through the loss and damage fund (established at COP28), though that does not seem to be the preference of the IMO leadership.

World Bank proposal

Meanwhile, the World Bank has come up with its own framework on how to distribute revenues. In its assessment, it looks at three different funding “windows” to actively manage revenues.

Window A would be accessible to the least developed countries and small island developing states, and would receive the highest amount of funding, including adaptation and mitigation. At the other end of the scale, Window C would be reserved for developed countries, which would only access funding to invest in low carbon fuels and fleet upgrades.

While some are sceptical about the involvement of the World Bank – as was the case with the governance of the loss and damage fund – observers are generally in favour of getting more multilateral institutions, such as the Green Climate Fund, on board.

Another avenue would be to manage revenues from the pricing mechanism passively through “feebate” schemes, instead of actively through dedicated funds. A feebate scheme would put a fee on the purchase of goods with higher carbon emissions and use the revenue to finance products with lower carbon emissions.

While feebate schemes would be novel, both active and passive options would require careful deliberation by the IMO to ensure integrity and acceptance of the governance structure, one of the experts said.

Discussions may have progressed at the latest meeting, but time is ticking as member states face a deadline of spring 2025 for approving the technical and economic measures and revenue distribution.

A service from the Financial Times