Clean up, and pay up: Shipping industry confronts climate action demands

The global shipping industry is coming under growing pressure to clean up its act — and pay climate reparations until it does.

At a week-long meeting of the U.N. International Maritime Organization’s environment committee in London, starting Monday, countries will discuss whether to set steeper climate targets for shipping, a sector responsible for almost 3 percent of worldwide emissions.

Over the negotiations hangs an even thornier debate: Whether to impose an international carbon tax on polluting vessels, and if revenue from that levy should compensate vulnerable countries for damage caused by climate impacts.

The industry says tax revenue should be reinvested in decarbonizing the sector. But small island states argue that a portion of the money should go to them — as shipping’s large carbon footprint contributes to the climate risks they face.

“Shipping needs to transition and shipping as a sector needs financing to transition,” said Albon Ishoda, a Marshall Islands envoy attending the IMO meeting. “But also, we are in this situation in part because shipping has been given a free pass. So there are a lot of reasons why part of this revenue needs to go back to the most vulnerable countries.”

Yet some say that the debate over compensation risks overshadowing the push to make shipping less of a dirty business in the first place.

The main focus of the July meeting is on overhauling the IMO’s overarching strategy to cut shipping emissions — a massive change of pace for the traditionally conservative organization.

Talking targets

The IMO’s attempt at course correction comes just five years after it set out its first climate targets.

In 2018, the agency introduced a target to at least halve shipping emissions by 2050, compared with 2008 — a goal deemed incompatible with global efforts to hit net zero by mid-century.

With an increasing number of countries and industry groups on board, the IMO now looks certain to adopt a zero-emission target for 2050 next week, although the precise wording is still up for discussion.

“If I think back three years ago, the IMO was just about the most conservative organization I have ever encountered,” the European Commission’s Green Deal chief Frans Timmermans told a side event at last week’s Paris climate finance summit. “And now the atmosphere has completely changed.”

But campaigners say the agency also needs to adopt intermediate targets in 2030 and 2040 to put the sector on a steady path to decarbonization.

A “beautiful” 2050 target alone would be a failure, according to Faig Abbasov, shipping director at green transportation lobby Transport & Environment.

“It’s a bit like you calling a fire brigade because your house is on fire and they promise to put it out in two weeks’ time. Should you be happy about that?” he said.

Climate activists have taken up post at IMO headquarters to press for a 50 percent emissions cut by 2030. NGOs point to a new study finding that it would be feasible to cut emissions up to 47 percent without hurting trade.

The U.K., the U.S., Canada and Pacific island states support a 37 percent cut by 2030 and 96 percent by 2040. The EU — under pressure to join their push — is advocating for more modest cuts: 29 percent by 2030 and 83 percent by 2040.

The July meeting isn’t expected to decide how to achieve the targets, but rather lay the groundwork for further work, including a timeline for the next steps.

The meeting will also debate overarching principles to steer future discussions, for instance a possible “polluter pays” approach — a key demand of island nations pushing for more action on loss and damage, as compensation for climate impacts is called in U.N. talks.

Taxes for climate action

The discussion on taxing shipping isn’t exactly new. But last year’s COP27 agreement to establish a new loss and damage fund has nudged rich countries toward supporting imposing international levies.

Momentum for a shipping levy has soared in recent weeks, with delegations informally debating the issue at this month’s U.N. climate talks in Bonn and at the Paris finance summit.

“There’s a perfect storm, in a positive way,” said Alex Scott, climate diplomacy lead at think tank E3G. “Some of the developed countries are also recognizing that we’ve got this need to fund loss and damage … and it’s difficult to sell more taxation at home.”

Discussions have centered on a proposed price of $100 per ton of CO2, estimated to deliver $70 to $80 billion in annual revenues in the medium term.

The sector currently pays very little in taxes, although the EU will include shipping in its carbon pricing mechanism from next year.

Avinash Persaud, climate envoy to Barbados Prime Minister Mia Mottley, told reporters in Paris that their plan for global financial reform envisaged a “menu of taxes” on various sectors, with perhaps 30 percent of the revenues going to vulnerable countries.

“Loss and damage is a $100 billion-a-year problem. So we need serious tax revenues,” he said. “The encouragement on the shipping levy … I think that was progress.”

At the Paris summit, more than 20 countries — including Greece, New Zealand and South Korea — backed a levy.

The EU also supports a tax, combined with a fuel standard, but Brussels worries that the loss and damage debate could derail the proposal. One EU diplomat attending preparatory U.N. climate talks in Bonn earlier this month warned that sensitive issues like the use of revenues should be left for later.

“You’ve got to move the [shipping] sector there in stages,” said the diplomat, who was granted anonymity as they are not authorized to speak to the media. Otherwise, “you could undermine the entire campaign.”

Others reject that reasoning: John Maggs, shipping director for environmental group Seas At Risk, argued that reassurance that the money would end up helping vulnerable countries "is really important for building coalitions of support for greater ambition.”

Prioritizing emissions cuts

The shipping industry sees taxation chiefly as a way to support a shift to greener fuels.

Danish Shipping CEO Anne H. Steffensen argued that while a fuel standard would ensure “we get the right green fuels in the tanks of our ships," a levy “should help give investors in production of new green fuels the necessary predictability and drive the shipping industry in the right direction."

She added that her industry group would “very much like to see a levy implemented from 2028.”

Island states stress that despite their calls for loss and damage funding, decarbonization should remain the priority, as reducing emissions lessens the risk of severe climate impacts.

“How do you decarbonize shipping? It’s by creating a revenue mechanism that can be reinvested back into the sector so that they themselves find the solutions,” said Marshall Islands envoy Ishoda, adding that redistributing revenues was an “added bonus.”

After all, once the shipping sector cuts emissions to zero, it won’t need to pay anymore.

“If we do it right,” said Ishoda, “then by 2050, there shouldn’t be any revenues generated.”