Shipping Carbon taxes explained - How to get ready

The first ever global carbon tax was agreed upon April 11… and it’s for the shipping sector. What does it mean for your shipments? Let’s find out.

Voted in at the latest international conference of the International Maritime Organization (IMO, below), it is based on a global agreement achieved by 63 countries (80% of voting members), despite the US’ leaving the negotiations. 

The objective is to reduce sector emissions that currently represent 3% of the global total.

The tax will target dirtier fuels, that include the most widely used bunkers today, such as VLSFO or LNG, and allocate a budget towards the development of cleaner ones, as of 2027. 

According to the AP, the IMO estimates that this budget should reach $11-13 billion in its first year, thanks to the fees, which will ramp up over time, in order to reach the UN agency’s goal of net zero by around 2050.

As CarbonBrief explains, this gradual approach is formalized in a framework that includes a lower carbon-intensity target rising from 4% in 2028 to 30% in 2035, as well as an upper target increasing from 17% in 2028 to 43% in 2035. 

Should ships be unable to introduce cleaner fuels that will reduce their emissions intensity in line with this framework, they will have to pay $100 per ton of CO2 for exceeding the lower base target and $380 per ton for breaching the upper target.

If this gradual approach goes according to plan, the $11-13 billion initial revenue raised could reach $30-40bn by 2030, according to consultancy UMAS, cited by CarbonBrief.

On top of these charges, shippers “will also be able to trade carbon credits with one another”, said The Guardian: “this is intended to encourage them to adapt their ships to use low-CO2 fuels and to operate more efficiently, for instance by slowing down and thereby using less fuel, instead of the current wasteful practice of rushing to ports then idling nearby.”

What it means for shippers and carriers

This first ever global framework means that sustainability in shipping is now more unavoidable than ever. Or as Paul Canessa, VP Customer Success at Searoutes put it in our shared webinar last month, “if you’re part of the 50% who don’t care, the new regulations are going to make you care anyway.” 

PwC research cited during the same webinar underlined that ESG compliance is now supply chain leaders’ top priority (above); it will be even more so, now that it comes with a concrete financial cost. This is why Canessa added “ESG topics are no longer stuck within CSR department walls: they’re now very much a CFO and CEO topic.”

Indeed, the new IMO tax complements a series of recent pro-environment European regulations, namely:

• CSRD, the ultra-detailed ESG reporting standard, which now applies to companies with over 1000 employees or €50 million in turnover; includes scope 3 emissions; and features sanctions for non-compliance
• CBAM, which puts fines on products imported from non-EU countries which don’t have the same level of sustainability regulations as Europe
• Fit for 55, the EU’s suite of initiatives aimed at lowering emissions by 55% by 2030 (vs. 1990).

As Canessa explained during the webinar, Fit for 55 contains two key supply chain-specific measures:

• EU ETS, a carbon allowance market whereby:
  
  • Airlines and shipping pay for 70% of 2024 emissions, from 2024
    
    • This represented 1.6% of a standard Shanghai to Rotterdam trip in January 2024, rising to 2.9%, or $99, early 2025, re. Searoutes (above)
  • Road freight joins in 2027
• Fuel EU Maritime, which demands that, by 2024, fossil fuels can only represent 20% of boats’ total fuels. Some major European carriers are already starting to offer incentives on biofuel, in order to reduce Fuel EU Maritime charges, according to Canessa.

It's important to note that the latest regulations announced by the IMO - which will apply worldwide - are likely to be more demanding for shipowners than FuelEU Maritime - which only apply to vessels calling in the EU - whilst retaining some of its basic underlying logic, namely enforcing a lower carbon intensity for vessels.

How carbon visibility can help

Tracking the emissions of your supply chains doesn’t just allow you to keep up with regulations. 

As the shipping sector in particular is set to be increasingly heavily taxed, accurately measuring emissions will inevitably lead to bigger savings. When you consider just one of Shippeo’s retail customers emits 3000 tons of CO2 equivalent per month, and that the price of carbon in France is set to double between now and 2030, measuring those emissions will imminently make a big difference to bottom lines, as Shippeo Solutions Consulting Director Maxime Lambert puts it.

Then consider that Singapore, Rotterdam, Long Beach or Milwaukee are just a few major destinations cutting port fees for greener vessels; or that major hubs such as Shanghai now have green Shipping Corridors, and it’s clear that greener shipping makes major business sense.

Shippeo’s Searoutes-powered Carbon Visibility module (above) provides emissions intensity, accuracy and distribution for your shipments, so that shippers can detect, for example:

• what type of fuel is being used
• which legs are the least and most polluting
• which territories are emitting the most and least
• which carriers are the least impactful for which routes. 

As well as providing carriers with auditable reports, Carbon Visibility as such allows shippers to pinpoint accurately where they can deploy corrective action plans, be it via a specific lane, carrier or customer.

Looking ahead

Such insights can in turn encourage shippers to make more informed decisions moving forwards, says Canessa. For example:

• Change to lower-emission modes, for example from air freight to maritime, since ocean shipping on average emits 100s of times less CO2eq per ton kilometre than air freight
• Change fuel types: you can ask your carrier to use less impactful fuels, like HVO (Hydrotreated Vegetable Oil), or biodiesel blends
• Try to book and claim insetting: i.e. buying biofuel that will not necessarily be used on your own shipments, but that will be deployed by by carriers elsewhere in the same amount, under the guarantee of a third-party auditing cabinet, resulting in certificates that allow you to reduce your reported emissions. Said cabinets also ensure that emissions from low-carbon tools will not be counted twice. MSC, Maersk and more all have insetting services, so just ask!
• Dabble in offsetting: but only as a last resort, to neutralize those last % of emissions that can’t be dealt with otherwise. Caution must be applied when buying offsets, to ensure they are legitimate (many are not).

In short, affirms Canessa, a combination of operational excellence - driven by a trustworthy emissions-tracking solution - and making the right quick win decisions (cf. above) can make all the difference in making your shipping more sustainable. And in lowering your carbon taxes!