As IMO member states prepare for negotiations on a GHG emissions pricing mechanism at MEPC 81 in March 2024, the World Shipping Council (WSC) is bringing to the table a proposal on greenhouse gas pricing that it believes can help solve the conundrum of bridging the price gap between clean fuels and fossil fuels, and drive investments in green fuels.
WSC sees the catastrophic effects of climate change every day, and says that as a significant emitter of greenhouse gases, the shipping industry must do its part and decarbonise by 2050. Container and vehicle carriers are building and already operating vessels that can run on the greenest fuels, but those fuels cost three to four times more, and the supply of green fuels is only a fraction of what is needed. Global climate regulations are necessary to make it possible for carriers to operate on green fuels, and to incentivise fuel and energy providers to invest in new production capacity.
The WSC Green Balance Mechanism outlines a new approach to greenhouse gas pricing which makes it possible to close the price gap between fossil fuels and green fuels, at the lowest possible overall cost:
- Through the Green Balance Mechanism, fees are taken from fossil fuels and allocated to green fuels used, so that the average cost of fuel is equal.
- The greater the GHG emission reductions a fuel delivers – on a well-to-wake lifecycle basis – the greater the financial allocation received.
- The monies collected in any given year is determined by the amount of green fuels used, allowing for a relatively low fee at the start of the transition.
- The minimum fee necessary to offset the price differential in a given year is collected and allocated to ships using green fuels that meet a specific greenhouse gas threshold. This ensures that green fuels can be produced and used and does so with the least possible cost to transportation.
- The emission reductions required for a fuel to receive a price-balancing allocation are linked to IMO decarbonisation requirements, increasing in stringency toward the 2050 net-zero goal.
- The Green Balance Mechanism is adaptable and fully integrated with a greenhouse gas fuel-intensity standard. It can be used as a targeted greenhouse gas pricing mechanism, or a possible addition to an integrated measure.
- Other fees can be added to raise funds for climate mitigation initiatives and Research, Development & Demonstration projects, to provide a just and equitable transition.
According to WSC, the Green Balance Mechanism makes it economically rational and attractive for both ship owners and energy providers to invest in fuels and technologies that deliver deep GHG reductions from the day the regulation takes effect. Existing and soon-to-be delivered dual-fuel ships will be able to operate on the cleanest fuels, rather than having to wait years before economically viable fuels are available. This allows production of the cleanest fuels to grow more quickly, accelerating economies of scale that will push down the cost of green fuels, getting to zero in the most economically efficient way possible.
CEOs of most of the major liner operators have voiced their support for the proposals.
John Butler, WSC President and CEO said: “Liner carriers are committed to decarbonising shipping and eager to support the development of effective and timely global climate regulations through the IMO. Switching from fossil fuels to green energy sources for the engine of global trade will take time and require massive private and public investments. It is our shared responsibility to make sure we meet the needs of our climate in a way that minimises the cost for the global economy.”.
Rodolphe Saadé,CMA-CGM Chairman and CEO said: “Decarbonising shipping will not be achieved by a single company, it will take the efforts and involvement of all the stakeholders. The CMA CGM Group has already invested more than US$ 15bn in decarbonising its fleet, which will enable us to have 120 vessels capable of running on alternative fuels by 2028. As a next step we need to act collectively and to promote a level playing field at the global level for our industry. This is the aim of the ambitious positions we are advocating for with other shipping lines within the Word Shipping Council.”
K H Wu, CEO Evergreen added: “Collective action is vital for the liner shipping industry in striving toward decarbonisation. With 24 dual-fuel methanol vessels on order, we will further join forces with like-minded partners toward greening the future of shipping. It is essential to have a new approach to greenhouse gas pricing that would drive demand for cleaner fuels from the start of the transition. We need the support of authorities, vendors, and customers. Together, we can decarbonise.”
Jeremy Sutton, CEO Swire Shipping said: “The urgency of decarbonisation is undeniable and shipping, as a global industry, has the collective responsibility to protect our planet. At Swire Shipping, we are committed to playing our part. Collaboration is key to ensure continued success in this journey, and we will continue to support collaborative platforms for sharing best practices and research, while actively implementing energy-efficiency technologies, promoting, and adopting new greener fuels. United with our fellow liner carriers, we urge for pragmatic global regulations that incentivise investment in both clean fuel production and the development of next-generation ships. I firmly believe that through our coordinated efforts, we can ensure a sustainable future not just for our industry but for generations to come.”
Image: WSC logo
