A new report called “Closing the Gap” outlines policy measures that could close the competitiveness gap between fossil fuels and zero-emission alternatives in shipping as well as enable an equitable transition. Researchers expect a mix of policies will be needed to achieve full decarbonisation, but also state a USD 200 carbon price might do the trick.
For international shipping to decarbonise, zero-emission fuels need to become the dominant fuel source by the 2040s. However, there is an urgent need for the development of policies that can close the competitiveness gap and accelerate the maritime zero-emission trajectory.
‘The cost of zero-emission fuels must be significantly reduced to close the competitiveness gap with fossil fuels,’ says Christian M. Ingerslev, CEO of Maersk Tankers. ‘To bridge this gap, we need to realise the potential of public-private collaboration. As companies, we must develop and deploy solutions at scale while policy makers must put in place the necessary regulation to make zero-emission shipping commercially viable and the default choice by 2030.’
According to the report, there are multiple potential policy options for closing the competitiveness gap. A preferred way forward to support the shipping sector through an equitable zero-emission transition is to adopt a policy package, state the researchers, which combines the strengths of the different policy options whilst mitigating their weaknesses.
A policy package could consist of a global market-based measure which collects revenue which is then used fairly to support the transition, and a direct command-and-control measure to send an unequivocal signal to the market that a fuel transition will take place. This could be usefully complimented by voluntary initiatives, information programmes and national and regional policy measures to stimulate investments, encourage knowledge sharing and support capacity development.
The report emphasises the need to consider equitability of the transition when designing measures and combining policy options.
‘Decarbonisation policy for shipping needs to be as much about equity and fairness as it is about climate change mitigation,’ stresses Isabelle Rojon, Principal Consultant at UMAS and lead-author of the report. ‘Vast inequalities exist globally, many of which are worsening in the face of climate change. With careful policy design and use of carbon pricing revenues, we can ensure that maritime climate policies do not exacerbate these inequalities. Furthermore, embedding equity into policy measures will help secure the multilateral agreement that is urgently needed.’
USD 200 carbon price
The report estimates the carbon price required under full decarbonisation by 2050 or fifty per cent decarbonisation by 2050 and finds that there is no big difference in average price level between the two scenarios. An average carbon price of just under USD 200 is required for shipping’s full decarbonisation, whereas under the fifty per cent reduction scenario it is around ten per cent lower.
Kasper Søgaard, Managing Director of Global Maritime Forum: ‘The report shows that the introduction of a relatively low carbon price in the 2020s that is gradually increased to around USD 200 will make it possible to fully decarbonise shipping and create an industry that is powered solely by net-zero energy sources by 2050. This level of carbon price is in line with what is estimated by for instance the IEA [International Energy Agency Ed.] to be needed across all industries to achieve the Paris Agreement goals, indicating that shipping is not a unique case.’
Global package of policies
While national and regional action are important and have a role in the transition, the work on a global package of policies to close the gap will be key.
‘This year will be critical for decisions on climate policy in the IMO,’ says Dr. Alison Shaw, Research Associate at UCL and co-author of the report. ‘Our report shows that there is no single perfect policy and that a successful transition will likely hinge on developing and deploying a mix of policies, which can address different aspects of the transition. The imposition of market-based measures on the shipping industry is relatively uncharted, so the sooner policy-makers can surmount this challenge together, the better for the transition, the industry, and the environment.’