IMO agrees first globally mandated emissions targets for shipping but more work needed
Today the International Maritime Organization agreed draft regulations to reduce emissions from global shipping.
Green Hydrogen Organisation CEO Jonas Moberg said:
“The IMO’s decision today sends an important signal to green fuels producers to go forward with their projects. The compromise reached fails to place a universal levy on shipping emissions which means technologies like LNG will persist for longer than necessary, but it is now clear that near zero emissions fuels like green ammonia will play an ever larger role in shipping.”
“The work is not over with much detail on emissions calculation methods and how near-zero emissions fuels will be rewarded needed before and after formal adoption of these measures in October to ensure a level playing field for green fuels.”
Co-Founder CWP Global Alex Hewitt said: “The decision today is a significant milestone for the decarbonisation of the shipping sector and we congratulate the IMO secretariat and the member states on this achievement. There is still work to go over the next six months on important detail, detail which is crucial to effective policy that will drive an efficient transition in the way ships are powered. As a large scale green fuel producer we are confident green ammonia supply will ramp up significantly as soon as policy settings and price points based on todays agreed framework are clear.”
The new rules will apply from 2028 where vessels will need to reduce emissions by 17%. Failing this they will need to pay a penalty (through purchasing Remedial Units) of USD 380 per tonne of CO2 or trade credits. Unfortunately those penalties are reduced to USD 100 per tonne of CO2 for vessels that meet a minimal “base” target starting at just a 4% emissions reduction in 2028 meaning there are real risks in the near term that engines running on LNG and more carbon intensive fuels will pay to pollute rather than comply over the next few years.
However, the greenest fuels will be able to generate credits (Surplus Units) which they can sell, and crucially the IMO will decide on a mechanism to reward zero or near-zero emissions ships by March 2027 which taken together provides some confidence to the sector.
The details of how emissions are calculated also need to be finalised to ensure all emissions are accounted for including methane leakage and to account for direct and indirect land-use change from biofuels which remain a huge risk.
As reported earlier in our Weekly Wrap, Argus has predicted that by 2040 there will be 200 million tonnes per year of green ammonia demand for shipping. Today’s decision is an important step towards this becoming a reality even if there is still detail to work out.
The next few days will be interesting as shipowners and traders model the outcomes. We are likely to see an increase in orders for dual fuel vessels which can transition from fossils fuels to green fuels.
While a universal levy with a meaningful carbon price would have been the best outcome, we now have a framework in place that will progressively favour fuels with the lowest carbon intensity like green ammonia as long as we continue to drive down costs in the sector.
The less ambitious carbon reduction limits and credit trading elements which were included in the final compromise do mean there will be less revenue raised in the near term to reward green fuels and to assist developing countries in their own transition which is hugely regrettable.
The stricter carbon intensity limits over time and the ways in which we assume zero or near zero emissions fuels will be rewarded show that fuels made from green hydrogen are now the smart investment choice for global shipping in the long term. It is hugely significant that the shipping sector has now agreed the first global globally mandated emissions targets for shipping.