IMO approves new GHG rules, punishes shipowners using oil bunkers

The International Maritime Organization has hammered through new regulations to charge for maritime greenhouse gas emissions despite US threats, winning praises from some industry groups even as environmentalists question its ambition.

Following contentious debates during the Marine Environment Protection Committee meeting on April 7-11, the UN agency's member states voted for two sets of lifecycle GHG intensity thresholds for marine energy, requiring ships of 5,000 gross tons or larger using conventional, oil-based marine fuels to pay fines from 2028.

"Shipping is already investing billions in new ships and green technologies to be ready for the new fuels when they arrive," said Guy Platten, secretary-general of the International Chamber of Shipping, representing more than 80% of the world's merchant fleet. "We hope that this agreement will now provide the certainty which energy producers urgently need to de-risk their huge investment decisions," he said in a statement.

Anthony Wang, chief technology officer of e-fuel producer ETFuels, told Platts, part of S&P Global Commodity Insights, he was "very happy" with the new regulation "at the very high level. But fuel procurement is going to be incredibly complex. I will need to spend the next year explaining the IMO to shipping companies."

Complexity

Based on the regulation, if a vessel operator cannot cut the GHG intensity of its fuels by at least 4%-30% from 2008 levels between 2028 and 2035, it would need to purchase "Tier 2 remedy units" based on its compliance level from the IMO, effectively a fine.

If the operator reduces the GHG intensity by 4%-17% in 2028, 6%-19% in 2029, 8%-21% in 2030, 12.4%-25.4% in 2031, 16.8%-29.8% in 2032, 21.2%-34.2% in 2033, 25.6%-38.6% in 2034, 30%-43% in 2035, it will have to buy "Tier 1 remedy units."

In 2028-2030, the IMO set the prices for Tier 1 units at at $100/mtCO2e and Tier 2 at $380/mtCO2e.

An operator exceeding the higher decarbonization targets can generate "surplus units" and bank them or sold them as Tier 2 units, according to the regulation.

The IMO has set a reference value for 2008's average GHG intensity at 93.3 grams of CO2e/megajoule, so ship operators would need to reduce their energy intensity to at least 89.57 gCO2/Mj in 2028 to avoid the heavier fine.

Industry estimates suggest heavy fuel oil, the current prevalent bunker fuel, has an intensity of 91.6 gCO2e/Mj.

Member states will decide on the Tier 1 and 2 penalties post-2030 and GHG intensity requirements post-2035 at later dates.

Required cuts in marine energy's GHG intensity

Reference value: 93.3 gCO2e/Mj in 2008

Fuel transition

The IMO hopes the new regulation, described by some as the first global emission rules on a sector, would help accelerate maritime decarbonization by narrowing green fuels' premiums to conventional fuels.

March's average bunker price for very low sulfur fuel oil was $508.65/mt in Singapore, compared with $657.64/mtVLSFOe for LNG, $704.86/mtVLSFOe for bioblend B24, and $1,950.36/mtVLSFOe for 100% sustainable methanol, according to Platts global bunker cost calculator(opens in a new tab).

With shipping firms expected to determine which fuel to use based on its price and surplus unit's value, the new regulation will prompt more use of alternative fuels but it remains uncertain which one will emerge as a future choice, according to industry participants.

Despite ETFuels's Wang expressing optimism over synthetic fuels for marine use, ING's transport economist, Rico Luman, said the uptake of green ammonia or methanol won't be easier if shipping firms go for biofuels as a cheaper, easier option.

Also, environmentalists said the regulatory regime might not be sufficient in promoting a low-carbon transition in line with the IMO's stated goals of reducing life-cycle emissions from international shipping by 20%-30% by 2030 and 70%-80% by 2040 compared to 2008 levels, before a net-zero close toward 2050.

"This agreement does not even meet that base target," the nonprofit Clean Shipping Coalition said. "We were not prepared for this agreement that is so unfit for purpose."

The IMO also plans to set a net-zero fund, managing income from remedy units, which is expected to reach $11 billion-$13 billion/year and to be used to finance low-carbon shipping projects, with a focus on developing countries.

"This falls short by a large margin of what is needed to incentivize clean fuels and contribute to a just and equitable transition," nonprofit Transport & Environment said, adding that how and when the fund would be distributed have yet to be decided.

Heated discussions

The regulation was approved after the US withdrew from the Marine Environment Protection Committee talks and asked the IMO not to regulate GHG, saying emissions rules would create an economic burden on US citizens and result in higher inflation globally while threatening retaliation against any carbon costs imposed on US ships.

Saudi Arabia, which led a group of countries against the GHG intensity rules, initiated a vote -- an unusual procedure as IMO officials generally prefer consensus -- but eventually lost it by 16-63. China, Brazil, Singapore, Japan and EU member states are among those who supported them.

Following the vote, the IMO regulation is due to be adopted in the next MEPC meeting in October. While adoption is usually a formality, the US opposition could lead more uncertainty for the regulatory procedure.

"Washington could have some reaction to today's vote," a delegate said.

Separately, 25 countries, including Pacific Island nations, abstained from the vote. Some of them were pushing for a universal carbon levy of $150/mtCO2e.

"Saudi Arabia, the US and fossil fuel allies pushed down the numbers to an untenable level and blocked progress at every turn," Ralph Regenvanu, Vanuatu's minister of climate change said. Other countries supported a regulation insufficient to achieve the Paris Agreement's climate goal, he added.

Aside from GHG reduction, the IMO has also approved the North-East Atlantic Emission Control Area, where the sulfur limits will be lowered to 0.1% from 0.5% from 2027. Member states also set the Carbon Intensity Indicators -- another decarbonization regulatory piece -- for 2027-2030.

Following the weeklong MEPC83, IMO Secretary-General Arsenio Dominguez said in a press briefing: "It is not a failure ... The IMO usually doesn't get the credit it deserves."