As negotiators gather at the intercessional working group of the IMO’s Marine Environment Protection Committee next week in London, they should remember that a bridge is only as strong as its pillars.

A global fuel standard to reduce carbon intensity, a fixed levy on greenhouse gases, targeted rewards for e-fuels, and dedicated support for countries most affected by the transition are all necessary for the IMO to deliver on its Revised Greenhouse Gas Strategy. No single one of these can stand alone.

The global fuel standard is the central regulation intended to span the gap between today’s sector and the zero-emission future, but it cannot support the full weight of the transition on its own. Without the other three measures, the bridge will collapse – either because it fails to deliver the needed energy transition or because it fails to deliver the just and equitable solutions necessary for a sustainable global agreement.

The centrality of e-fuels
Shipping’s transition will involve a variety of fuels. But research shows that synthetic, hydrogen-based e-fuels will be essential to achieving the large-scale emissions reductions required.

Bringing e-fuels to market requires immediate investment to build the value chain—developing production infrastructure, securing supply networks, and ordering zero-emission vessels. However, as e-fuels are more expensive than many existing alternatives, these investments need stronger policy support than the fuel standard alone can provide.

Leveraging a global greenhouse gas levy

The first pillar of support is a global, fixed greenhouse gas levy that puts a price on emissions.

A high enough levy will provide a reliable financial incentive to reduce fossil fuel use while bolstering the business case for e-fuels. Unlike credit trading systems, which have been proposed as an alternative economic measure, a fixed levy is not subject to market forces. This stability is particularly important for e-fuel producers investing in assets designed to last 50 years or more.

By applying a flat rate to all emissions, a levy distributes costs and incentives globally, compared to credit trading systems that are likely to incentivise action in wealthier countries and shift the relative cost burden to regions with lower investment.

A levy also generates substantial revenues to support the transition. The deployment of these revenues constitutes the second and third pillars.

Rewarding e-fuel adoption
The second pillar the IMO should construct is a targeted reward system for the use of e-fuels. Accelerating investment in e-fuels today is essential to avoiding higher costs later, and the targeted redistribution of a share of the revenues from the levy can be a crucial enabler for this investment.

Deciding which fuels are eligible for rewards is crucial. The revised strategy introduced the concept of “zero and near-zero-emission fuels” (ZNZ fuels), but the term lacks a clear definition. Criteria are needed to ensure revenues are spent on stimulating transformative e-fuels and reducing the sector’s long-run costs and risks.

Targeted support of ZNZ fuels does not mean that biofuels will not play a role. The global fuel standard will enable a diverse mix of fuels for compliance. However, targeted rewards will ensure that long-term, scalable solutions—like e-fuels—can successfully reach the market.

Delivering a just and equitable transition
An ambitious transition that is just, equitable, and politically sustainable requires the third pillar: support for the countries most impacted by the transition. Rising shipping costs could present economic challenges for poorer countries heavily reliant on maritime trade, and many of these countries will struggle to invest in zero-emission options.

A share of the funds generated by a levy should be allocated to offset increased costs and support these countries’ own investments in shipping’s transition. Such assistance would ensure that the costs and benefits of decarbonisation are distributed equitably rather than widening the divide between wealthy and developing nations.

Four steps to meet IMO’s climate goals
The IMO’s revised strategy set a clear direction for the global shipping industry to achieve net-zero emissions by 2050. The measures under negotiation must serve as a bridge to the future: a global fuel standard braced by the three pillars of a universal levy, rewards that promote e-fuels, and support to the most impacted countries.

Source: Global Maritime Forum