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AP Møller-Maersk has warned that plans for a shipping emissions trading scheme intended to fix the price gap between fossil fuels and green energy would only encourage the sector’s use of LNG.
The measures will be discussed at crunch talks held by the UN’s International Maritime Organization next month. Plans to place an economic cost on shipping pollution have split the industry into opposing camps, with some supporting a complex credit trading scheme over a flat levy on each tonne of emissions.
The Danish shipping group said proposals for a trading scheme, which would require ships whose emissions exceed an agreed level to buy credits from those with lower emissions, did not sufficiently penalise shipowners who use liquefied natural gas. This risks incentivising shipowners to use the fossil fuel instead of an expensive low-carbon fuel like green methanol.
Negotiations between member states at the IMO next month are expected to lead to the first agreement on an industry’s global pricing mechanism for carbon emissions, and has potentially wide-reaching implications for the direction of climate regulation.
Shipping remains almost entirely dependent on fossil fuels and accounts for about 3 per cent of global greenhouse gas emissions, according to the OECD. The sector delivers about 80 per cent of international trade, and the outcome of the discussions will impact the future cost of doing business globally.
Compared to traditional bunker fuels, LNG has lower carbon emissions, but it emits significantly more CO₂ and methane than green fuels.
Maersk warned that it was “highly likely that fossil LNG remains the cheapest option” for shipowners under proposals for a trading scheme, according to a company presentation seen by the Financial Times.
The shipping group said it had been presenting this argument to IMO member states ahead of April’s talks.
The debate has pitted powerful shipowning nations and exporters who support a credit trading scheme, including China and Brazil, against those who are particularly exposed to climate change. Pacific island nations have backed a levy as high as $100 on every tonne of shipping’s carbon emissions.
Influential nations including EU countries and Japan have in recent months supported both a trading scheme and a levy.
Based on the EU and Japan’s proposal for a trading scheme, a ship running on LNG in 2035 would be required to buy 48 per cent fewer credits annually than another running on bunker fuel, according to Maersk’s calculations. That is despite LNG only emitting 19 per cent fewer greenhouse gases than traditional fuel, it said.
The shipowner, which has already ordered ships to run on costly green fuels and set up a green methanol start-up, said that other country’s proposals for a trading scheme produced similar results.
Its warning adds to concerns that regulations could fall short of an agreement to decarbonise shipping, after IMO member states in 2023 agreed to achieve net zero ambitions “by or around” 2050.
Tristan Smith, a shipping energy researcher at University College London, agreed that existing proposals for a trading scheme risked creating a “perverse incentivisation” for shipowners to “pay-to-pollute” with LNG, rather than invest in greener fuels.
UCL researchers have instead argued that a simple levy in combination with subsidies for green energy was the most straightforward and effective way to ensure that these fuels are competitive soon.
However, Maersk has proposed combining a levy with its own trading scheme that would be less likely to incentivise LNG use, by forcing ships to buy a quantity of credits that is proportional to their total emissions.
Smith said that this proposal would give a large company like Maersk an opportunity to still profit from credit trading, but argued that it “just makes it so complicated”.
Additional reporting by Attracta Mooney in London
