MEPC 81: A world carbon tax on transport is getting nearer

As IMO’s MEPC 81 was happening in London final week, ABS Chairman and CEO Christopher J. Wiernicki was telling a session of the CERAWeek vitality convention in Houston {that a} common, international carbon tax on transport is coming, as different blue fuels made with carbon seize emerge as a important step within the vitality transition at sea.

“We have to acknowledge that there’s an intermediate step within the vitality transition,” he stated. “Final 12 months the conversations have been centered on going from oil to a inexperienced gas economic system. In the present day, we’re seeing the emergence of the blue economic system that addresses carbon administration, carbon seize, carbon pricing and carbon credit and offsets, as an important stepping-stone. The EU has acknowledged the significance of this intermediate economic system with Gas EU Maritime, and I imagine you will notice a common carbon tax rising because the IMO and the EU will synch collectively.”

Meantime, everybody appears to agree that the MEPC 81 session produced progress in that path, regardless that no one appeared to be mouthing the phrases ”international carbon tax,” preferring terns resembling ”financial mechanisms.”

The official IMO handout stated the Marine Environmental Coverage Committee session had “agreed an illustration of a potential draft define of an ‘IMO net-zero framework’ for slicing greenhouse gasoline emissions (GHG) from worldwide transport.” Outdoors of IMO, an “illustration” of a “potential draft” of a “framework” would appear to be a reasonably tenuous factor. Nonetheless, IMO Secretary-Normal Arsenio Dominguez advised the committee that “this week you made essential progress.”

And, as we’ll see beneath, an evaluation by the UMAS advisory service (which is related to College School of London) sees MEPC 81 as progressing issues to the purpose the place a coverage of “wait and see” on decarbonization measures is changing into dangerous for shipowners and different stakeholders.

In keeping with IMO, the draft define illustration lists laws underneath the Worldwide Conference for the Prevention of Air pollution from Ships (MARPOL), which can be adopted or amended to permit for a brand new international gas normal and a brand new international pricing mechanism for maritime GHG emissions.

These might embrace a proposed new Chapter 5 of MARPOL Annex VI containing laws on the IMO net-zero framework, to incorporate:

• a goal-based marine gas normal regulating the phased discount of the marine gas’s GHG depth; and
• an financial mechanism(s) to incentivize the transition to net-zero.

The goal-based marine gas normal and pricing mechanism are mid-term GHG discount measures specified within the revised IMO Technique on the Discount of GHG Emissions from Ships, adopted in July 2023. A number of completely different proposals of what these measures ought to entail are at the moment being thought-about.

The potential draft define “can be used as a place to begin to consolidate the completely different proposals right into a potential widespread construction, to assist additional discussions with the understanding that this define wouldn’t prejudge any potential future modifications to it as deliberations progress.”

• You’ll be able to learn the complete IMO abstract of the assembly HERE

RISKY TO “WAIT AND SEE”

UMAS says that MEPC 81 was not, itself, some extent of adoption for measures, however was an opportunity to check whether or not the member states of the IMO have been as dedicated to advance and implement coverage measures able to delivering the Revised GHG Technique adopted in July 2023.

“Many reactions to the adoption of the IMO’s Revised GHG Technique in 2023 might be summarized as ‘good to have this, however I’m ready for the measures in 2025’, and plenty of appear satisfied that IMO was unlikely to reach implementing measures able to delivering the technique’s degree of GHG reductions – and velocity of change,” says Dr Tristan Smith, director of UMAS and affiliate professor at UCL Power Institute. “This assembly’s improvement of a brand new MARPOL chapter, and good progress and momentum in the direction of a well timed and sturdy implementation of sturdy IMO coverage, together with an efficient GHG levy, significantly questions the knowledge of business technique of ‘wait and see’, or that’s depending on IMO not delivering what it dedicated to in 2023.”

UMAS says that whereas the brand new draft for a chapter within the Annex VI of MARPOL on “laws on the IMO net-zero framework” is only a framework of subheadings for now, it consists of all the weather wanted to undertake any of the GHG coverage choices at the moment into account,There was constructive momentum constructed on the assembly, with an elevated quantity and variety of nations supporting a GHG levy, which helps each the vitality and equitable transition agendas. The assembly has clarified each an knowledgeable workshop (on the modeling and evaluation base of the measures) and the agenda for the following IMO Working Group assembly (late September), which has been se tup to advance the substance and element within the new MARPOL Chapter 5 drafting.

“Given the outcomes achieved there’s a common decreasing of dangers to well timed and sturdy coverage, however dangers nonetheless stay given the complexity and novelty of policy-design work the IMO is endeavor,” says UMAS.

Annika Frosch, a researcher at UCL Power Institute and a advisor at UMAS stated: “Although unanimous in agreeing to a standard framework for the modification of MARPOL Annex VI Chapter 5 modification, the variety of member states’ preferences on key measures indicators a fancy journey forward. But, this shared dedication lays a hopeful basis for the negotiations required to attain settlement on the measures as outlined within the Revised GHG Technique.”

COMMERCIAL RISK

“The assembly will increase the business threat for individuals who undertake a ‘wait and see’ method. Though the path of transport’s transition was primarily set at MEPC 80 with the Revised GHG Technique, any transition creates uncertainty and threat referring to timing. Traders within the belongings (the fleet, infrastructure resembling ports, vitality provide chains) that allow each the incumbent fossil gas paradigm, and that can be wanted sooner or later zero GHG emission paradigm, face each expertise threat (uncertainty about which zero emission expertise can be best and when), and political threat (uncertainty about precisely how coverage will disincentivize fossil fuels and incentivize zero emission fuels). One threat administration technique is to ‘wait and see’ in order that choices are solely made when certainty has arrived. Nonetheless, this isn’t risk-free as on the identical level when the destiny of fossil gas expertise turns into completely clear, and/or the chance for zero emissions expertise turns into completely clear, alternatives to handle dangers associated to asset disposal values and to take future market share alternatives could have already been handed over. The assembly’s usually progressive end result, and politically collaborative spirit, evidences that the dangers of ‘wait and see’ have additional elevated.”

• Learn the UMAS MEPC 81 readout HERE