The upcoming IMO Marine Environment Protection Committee (MEPC) 83, from 7 to 11 April, is expected to be a pivotal meeting for the future of global shipping.

In July 2023, the International Maritime Organization (IMO) adopted a revised greenhouse gas strategy including text on emission reduction checkpoints in 2030 and 2040 towards the long-term goal of net-zero or close to zero emissions in 2050. Global shipping emissions constitute around 3% of global emissions, and the mid-term goals are 20-30% reduction in emissions in 2030, and 70-80% reduction in 2040.

The main objective of the upcoming MEPC 83 meeting is to agree on measures for these goals to be reached. In principle, two options have been under consideration: 1) a levy and 2) a fuel intensity standard with a flexibility mechanism. A combination of the two options has also been discussed.

A levy would mean that ships would pay a tax for all greenhouse gas emissions. It would be challenging to agree on the level of the tax, and what would be a reasonable level. A wide range from 18-150 $/t has been floated. A levy would imply that emitters in the scope covered would pay for all their emissions.

The latter, a greenhouse gas fuel intensity (GFI) or greenhouse gas fuel standard (GFS) regulation coupled with a flexibility mechanism, mirrors the Fuel EU Maritime regulation in the EU. The greenhouse gas fuel standard would set a benchmark of greenhouse gas emissions per energy unit of fuel that gradually tightens over time. If a vessel emit less than the benchmark the surplus can be transferred or traded to other vessels or companies. Details on the flexibility mechanism remains to be decided, whether it is more like the pooling mechanism in Fuel EU Maritime or closer to a fully-fledged crediting system.

While an agreement on emission reduction measures at this MEPC meeting has been heavily touted, details of how the measure(s) are designed will need further negotiations. This could include how the intensity goals are gradually tightened, and how emissions are calculated. The EU ETS has always been focused on direct emissions, while the shipping sector has been more inclined to include emissions over the entire life-cycle, or well-to-wake emissions.

An economic element to introduce flexibility for those ships seems inevitable and would help to incentivize the cheapest abatement options. However, some are concerned that it will become a method for transfer of money from dirtier fleets registered in developing countries to a richer and greener fleet in the west. Investing in greener ships and alternative fuels require financial capabilities that favors the larger shipping companies.

A fuel levy would be simpler, in principle, and would ensure a cost for all shipping emissions and give an incentive for all to reduce emissions, but the strength of the incentive depends on the value of the levy. While supported by many, the resistance has also been significant. Some kind of levy is still on the table but a fuel intensity-based system with a market based flexibility mechanism seems more likely at this point.

While the MEPC83 meeting is expected to agree on some kind of measure, final adoption is set for the fall of 2025 at an extraordinary session of the Marine Environment Protection Committee (MEPC). Implementation of the measure is expected to begin in 2027, which would make the shipping industry the first global greenhouse gas regulation.

The shipping sector has favored a global international measure under the IMO that would include all vessels independent of the port calls of a voyage. The EU has deemed the IMO progress on emission reduction measures as insufficient in the past but said that they will review the provisions to shipping in the EU ETS directive – if the IMO adopts an ambitious and comparable measure. A greenhouse gas fuel standard with a flexibility mechanism, does not seem likely to fulfill the requirement as sufficiently ambitious.