The maritime shipping industry emits around 3% of global greenhouse gas emissions. It is governed by the International Maritime Organization (IMO), a specialized agency of the United Nations. The IMO has committed to reducing emissions from shipping by up to 30% by 2030 and up to 80% by 2040, achieving net zero by around 2050. While they have already made significant progress in laying a path to fully decarbonize shipping vessels, there are still hurdles to overcome.

1. Consistent Demand Signal

Some estimate the price of green fuels to be at least 3-4 times more expensive than traditional bunker fuel. Retrofitting ships for new fuels or building new ones is also expensive. Therefore, for a worldwide shift to clean fuels to occur, fuel producers and shipping companies must make heavy investments in plants to produce new fuels and the ships that use them. This will not happen unless companies are confident that these long-term bets will pay off. 

Incentives to produce clean energy sources and embrace green shipping will be required. Japan is an example of subsidies for new fuels. They passed the Hydrogen Promotion Act in May 2024 and allocated $20 billion in USD for investing in this technology. The European Union moving in 2022 to charge vessel owners for their emissions is an example of incentives for green shipping. The growing push-back against the costs of climate action with farmers rioting and voter resistance climbing could undermine the confidence needed to invest.

2. IMO Carbon Pricing

The IMO is considering two current options for carbon pricing. The first is a simple levy on all ships based on the carbon they emit. The second is a fee-bate differential system, where ships that use high-carbon fuels are charged a higher fee, and that revenue is then used to provide rebates for ships using low-carbon fuels. The difference between the fee for high-carbon fuel and the rebate for low-carbon fuel creates a financial incentive for ships to reduce their carbon footprint by using a cleaner approach. 

The fee-bate system seems like it would create a better demand signal because it will push for more efficient ships.  Carbon pricing would be an important incentive for action. Yet, “while European countries see a carbon levy as necessary and a number of Pacific and Caribbean island states see it as essential, a number of developing countries see it as a totally unacceptable tax on trade,” making passage of a higher rate in the near future uncertain. 

3. IMO Verification Compliance

The current rating that ships are required to calculate from the IMO is the Energy Efficiency Existing Ship Index (EEXI) to determine their energy efficiency, and their annual operational Carbon Intensity Indicator (CII) and associated carbon rating. The requirements for these came into effect on January 1^st, 2023. Since there has only been one round of reporting, the system is new, and not many people know about it. There are worries that this system is not robust enough to be the best option for verifying how energy-efficient ships are, especially if using a fee-bate differential system.

4. Cost assumption

Some estimate that “the process of making alternative fuels commercially viable, safe and reliable to use on vessels, scaling them up and deploying them across the global shipping industry will…cost around $1-$1.4 trillion to achieve the industry’s decarbonization goals.” As the industry sorts through which green fuels will prevail, maintaining a market driven, technology neutral stance will be important.

As these costs rise, they will need to be passed up the supply chain, meaning someone will have to absorb them. The global economy relies on standard-sized shipping containers and bulk transportation of different materials. Container shippers often operate in consuming markets, where any additional costs are more typically absorbed by cargo owners, except during periods of excess shipping capacity. For instance, shipping routes that require detours around Africa due to the inability to pass through the Suez Canal are examples of huge cost differentials. There is growing concern about whether highly price-sensitive commodities will be able to absorb higher shipping costs. This is a crucial issue, as without a mechanism to absorb the costs, the shipping industry may struggle to implement the necessary changes for decarbonization.

5. Coordination

Achieving net zero emissions in shipping requires massive collaboration on a global scale. Achieving the maritime industry’s decarbonization goals requires coordinated action on energy production requirements and the decarbonization of all ships and their ports. 

There must be sufficient price-competitive alternative fuel options to bunker fuel that every ship can use. New ship designs should be developed with a focus on minimizing greenhouse gas emissions. Nations must ensure they have alternative fuels and onshore power supplies available in their ports.

Cargo owners must commit to use sustainable zero-emission shipping options to give ship owners the confidence to convert. Ship owners ordering zero-emission fuel capable vessels must engage in partnerships with fuel producers to ensure availability of the green fuel needed for these new builds. Regulators must implement policies to remove barriers to scale the production of fossil free fuels and to incentivize the transition for cargo owners. All stakeholders in the maritime enterprise ensure would need to ensure incentives exist that level the financial playing field for decarbonizing shipping.