Three tests for global shipping as the sector reaches point of no return

As the exams season draws to a close, the global shipping industry faces its biggest climate test so far.

The high seas are a lawless place. From modern slavery to tax evasion on steroids, global governance of the industry has fallen short time and again. This is certainly the case when it comes to tackling the environmental and climate impacts of shipping, where the shipping sector already emits as much as France and Germany combined. 

The shipping industry is extremely profitable. Maersk alone made €31 billion in 2022. Others made similarly fat profits. If they would put part of their profits towards investing in greener ships and fuels, the sector could easily achieve the Paris goals.

In fact, it is a common mistake to portray shipping as a “hard to abate” sector. There are ample opportunities to cut shipping emissions, from slow steaming and wind, to better ship design, to cleaner fuels. A new study by CE Delft shows that global shipping emissions can be halved without impacting global trade.  Even the most stringent emissions reduction would only raise costs by 6-11% which is trivial compared to the variations in shipping rates we’ve seen since Covid, and would anyways have virtually no impact on the price of goods. 

Europe has recognised this and has made huge progress in recent years by including shipping in its €95/tonne carbon pricing scheme, as well as requiring the switch to cleaner fuels. There was a hope that this would trigger credible action at international level. But when it comes to reaching a global consensus on shipping, things at the IMO are never plain sailing.

If the IMO is to succeed it must pass three key tests:

First, the IMO must announce a zero by 2050 target this week in London. A recognition that there is no future for polluting ships would be a major step forward. But alone it’s not enough.

Second, ships remain in operations for decades, so the IMO’s biggest test is to ensure ambitious targets on the way to 2050. There’s no point waiting for the house to burn down before you throw water over it.

The good news is that the US, UK, Canada and Pacific island states proposed ‘science-based targets’ which would keep shipping in line with the Paris Agreement. This means a 37% cut in greenhouse gas emissions by 2030, and a 96% cut by 2040, compared to 2008 levels. The EU came in a bit more conservatively calling for a 29% cut by 2030 and an 83% reduction in 2040. Other big global shippers like Brazil, Saudi Arabia and China are aggressively pushing back.

Third, there is renewed talk of a global shipping levy. In Paris earlier this month, French president Emmanuel Macron threw his weight behind a global tax to finance the climate adaptation and loss-and-damage in most climate vulnerable countries, known in IMO-speak as “just and equitable transition”

But as negotiations continued, hopes of progress have started to wane. As it stands the IMO demoted the proposed 2030 targets into “indicative checkpoints” that are not required to be achieved. It has also opened the door to “out of sector offsetting” to reach full decarbonisation by 2050 and rejected the plea by the most vulnerable countries to make “just and equitable transition” the governing principle of IMO decarbonisation strategy and future regulatory measures to implement it. If you need to gut out any ambitious decarbonisation strategy, this would be the playbook to follow.

But negotiations aren’t over yet, even though hopes are low. When the IMO makes the final ruling on July 7th, the decision to “net zero” or not by 2050 will likely grab the headlines. But as is often the case when it comes to climate mitigation, the key is what happens in between. We are running out of time and 2050 is too late. Having spent years doing nothing, next week in London is an exam that the shipping world cannot afford to fail.