How could the billions saved by decarbonising shipping be spent?
There is a high chance that whatever you are wearing, holding in your hand or had for breakfast this morning travelled across the sea at some point. More than 80% of internationally traded goods by volume are transported by ship, making international shipping the lifeblood of the global economy. Irish ports alone handle more than 50 million tonnes of goods every year, about two-thirds of these are imports, and almost half are handled by Dublin Port.
International shipping contributes significantly to climate change and accounts for about 2 to 3% of global greenhouse gas emissions, more than 10 times the annual emissions of Ireland. Addressing emissions from shipping is therefore key to addressing climate change.
This month, the International Maritime Organisation (IMO), the UN agency that regulates international shipping, adopted a revised strategy that updated and significantly improved the sector’s mitigation targets. International shipping is now expected to reach net-zero emissions “by or around 2050”, with interim checkpoints for 2030 and 2040 that are likely to put the sector in line with Paris Agreement goals. While far from perfect, this agreement represents a significant step forward for climate action.
The new shipping emissions strategy also recognises a key equity concern and ensures that countries that contribute less to climate change, or have less capacity to address it, bear a lesser burden in the energy transition. Reducing emissions means the shipping sector will have to change how it fuels its ships and explore new technologies like zero-carbon bunker fuels. For some countries, including some of the poorest developing countries, this could result in an increase in import prices, a loss in competitiveness for domestic producers or a reduction in transport services.
Over the past few years, my team and I have contributed to the International Maritime Organisation’s work on decarbonizing international shipping through research conducted at DCU in collaboration with the World Bank. In particular, we have looked at the potential role of carbon pricing in achieving decarbonization in an effective and equitable way.
Putting a price on emissions from shipping would help to make zero-carbon bunker fuels more competitive compared to fossil-based ones, and therefore support the uptake of such technology. In addition, carbon pricing could generate significant revenue. Estimates show that putting a price on shipping’s emissions could raise between $40 billion and $60 billion per year between 2025 and 2050.
In our recently published World Bank report, we propose a framework for the distribution of these carbon revenues:
– Reducing emissions from the sector will require trillions of dollars of investment, especially in the production and distribution of zero-carbon fuels. Carbon revenues from shipping could help cover some of these costs and catalyse additional private sector investments.
– Part of the money could be used to improve port infrastructure in developing countries. Increasing port efficiency can help reduce the cost of transporting products and, therefore, offset at least some of the potential negative impact of decarbonization.
– A share of the revenue should be kept for climate change action more broadly to help climate-vulnerable developing countries reduce their emissions and adapt to climate change. Our study makes the case that spending a share of carbon revenues beyond maritime transport is a key component of an equitable transition. Some developing countries, including many that are most vulnerable to climate change, have a small fleet, few and small ports, little or no shipbuilding capacity, and small opportunities to produce zero-carbon bunker fuels. As such, if the money was spent exclusively on financing maritime transport-related activities, these countries would have little chance to access it.
Our study also makes the case that a key share of carbon revenues should be reserved for smaller and developing countries. Besides being among the most vulnerable to climate change, these countries often struggle to access climate finance due to limited capacity. Reserving a share of the revenues for them would shield them from competition with other more developed countries, and could spark new opportunities for climate-friendly development — money well spent indeed.