After commodities, the carbon tax is now coming to world shipping with the International Maritime Organisation (IMO), a UN agency, setting targets for net zero carbon emissions by 2050 and the European Union already deciding to charge tax from inbound and inbound shipping from 2027.
“Both these measures will lead to an increase of 3% to 4% in costs of export and import products globally amounting to $600 to $800 billion annually,” founder of Global Trade Research Initiative Ajay Srivastava said in a note.
Around 80% of the world merchandise trade valued at $20 trillion takes place through 6,400 cargo ships. The shipping industry contributes 3% of the greenhouse gas emissions annually using fossil fuels like bunker oil, the note said.
The 175-member IMO, the UN body responsible for shipping standards, notified its strategy for zero emissions by 2050 on Friday last week and its interim targets call for reducing emissions by 20-30% by 2030 and 70%-80% by 2040 from the 2008 levels.
It has also recommended shifting to 5% clean fuel by 2030 and will notify detailed measures next year. While IMO’s recommendations are not legally binding the countries are expected to achieve the targets. At the meeting of IMO some countries even suggested the quantum of tax that should be imposed on emissions beyond targets but the measure was postponed due to opposition from China and other developed countries.
The EU parliament has included Shipping in the EU’s Emission Trading System when it approved the Carbon Border Adjustment Mechanism, or carbon tax, in April this year. Tax on shipping from EU’s outbound and inbound shipping companies will be charged from Jan 1, 2027. This tax on shipping will be applicable to EU shipping firms too.
“Since over 90% of India’s merchandise trade is carried by foreign ships, the new regulations will result in Indian traders paying higher charges to foreign shipping companies,” Srivastava said.
He said Indian shipping companies will have to set aside $100 billion to comply with the standards that are in the works.
The International Energy Agency (IEA) estimates that it will cost the global shipping industry $1.5 trillion to net-zero emissions by 2050, a GTRI note said.
Decarbonisation will require ships switching from using the bunker fuel to low-carbon fuels like liquefied natural gas, methanol and ammonia. The sector also needs to invest in improving ship efficiency by optimising hull design, using efficient engines.
