Is contributing to a just and equitable transition that leaves no state behind an empty slogan? 

Dr Peter Nuttall, the scientific and technical advisor to the Micronesian Center for Sustainable Transport, discusses disbursement of revenues generated by IMO’s emission reduction measures.  

The International Maritime Organization’s 2023 Revised Strategy for reduction of emissions from ships includes provisions which direct a just and equitable transition.  Under the agreed timelines, IMO member states must secure agreement on both technical and economic elements in the basket of measures to reduce GHG emissions by April 2025.  

The various combinations of measures proposed all entail a degree of revenue generation. The scale of revenues expected is unclear. The most ambitious proposal sponsored by most Pacific Small Island States and Belize sets an initial price on GHG of $150/tonne CO2-equivalent, potentially generating an average of $60-90billion a year. A number of other proposals request various so-called ‘flexibility’ mechanisms, including public and private emissions credit and compliance trading, feebates or penalty/reward schemes and performance subsidies. 

There is less specificity on the scope of use of those revenues – from primarily favouring investment in reward subsidisation for highest performing ships through to proposing the majority of revenues be committed to investment in the priority needs of the global south, particularly the climate most vulnerable states. Decisions on how much revenue will be generated, how it is to be disbursed and who will manage it has yet to occur.  

The poorest and climate most vulnerable States are now in a conundrum. On the one hand they cannot survive current global warming scenarios and are already paying the highest and earliest costs.  Ultimately the most vulnerable, particularly the atoll nations, will simply cease to exist as viable entities.  On the other hand, these States cannot afford to match-step a global or large economies’ decarbonisation transition with sufficient direct investment in their own maritime and other critical sectors. Without appropriate external assistance, these states face increasing inequity as other nations transition.  

Paragraph 4.5 of the IMO Strategy sets out the agreed three objectives. IMO must promote the energy transition to new technologies and fuels, it must incentivise the fleet and it must contribute to a level playing field and a just and equitable transition for all.  If a durable and sustainable solution is to be achieved, a number of underlying revenue narratives need to be considered.  The IMO Strategy is silent on how the three Paragraph 4.5 objectives are to be balanced and which has priority, if any. 

The issue of revenue disbursement is where negotiations ultimately failed more than a decade ago.  The underlying assumption then was that shipping would use some form of offset trading scheme to essentially buy its way out of its emissions. IMO reported to UNFCCC in 2009 that it supported revenue use for a broad range of priorities, including mitigation of shipping emissions and wider development and climate change goals. 

The negotiations then ultimately failed at the developed/developing nations firewall of that time.  The emissions pricing can was effectively kicked down the road for more than a decade. If a 1.5^oC agenda is to be upheld in any shape or form, it can be kicked no further.  Climate change warnings have hardened dramatically since and the global carbon budget available has shrunk equally drastically.  The cost of inaction for shipping is recognised as much greater than the cost of immediate action.

Shipping remains essential to world trade.  But as shipping does not have a suite of cost-viable and at-market energy alternatives available today, shipping has and will continue to be a major emitter of GHG pollutants.  There has been a major shift away from offsetting, with agreement that the industry can and should take responsibility in-sector.  There has also been a maturing and growing consensus of the responsibility for up-stream emissions. And there is increasing realisation that actual technology and fuel change is demanded in real time.

A regional alternative to IMO establishing an effective GHG pricing mechanism for international shipping is now established in the EU ETS.  Regional measures can only benefit those with a trading advantage. Whether Europe holds firm on its commitment to review its own measure in favour of an IMO alternative remains to be seen.  However, the longer IMO delays its pricing mechanism decision (and especially if a weak measure is agreed), the more attractive regional measures must appear to other large trading nations or blocs. The most recent evidence strongly suggests that not only are the major shipping interests simply passing on the costs of EU measures, but they also generate considerable windfall profits for themselves in doing so.                                    

There is an increasingly fast rising tide in the participation of the most climate vulnerable states. Historically smaller and poorer states have had marginal direct political participation in IMO’s negotiations. Since 2015 a small cohort of Pacific States pressing for a 1.5^oC agenda has now evolved into a broad and growing geographic alliance of SIDS and least developed countries. 

This change in representation dynamic has far reaching consequences, with a shift from what was essentially a developed/developing world bi-partisan negotiating landscape – large western and Asian shipping and trading countries on one side and the large emerging economies from the BRICS and petro-states on the other.  

Balancing equitable transition with industry incentivisation

Two of three front-running measures combinations assume that incentivising the fleet to mitigate emissions is a higher priority than compensation for disproportionate impacts, reparation for environmental liability or enabling a just and equitable transition for all. The task of incentivising the fleet is prioritised over everything else that must be achieved.

The third combination proposed by the growing climate vulnerable bloc offers an alternative that upholds the agreement reached in 2009. They argue revenues need to be invested in both mitigation of the fleets pollution and more broadly in climate change mitigation and adaptation – with the majority of funds directed to the needs of developing countries, particularly the climate most vulnerable. In this combination, all three requirements set out in paragraph 4.5 are prioritised.

The significant revenues required in compensating disproportionate negative impact on the economies of the climate most vulnerable, deployment of appropriate technology and energy solutions to the global south and enabling broader priority climate response, needs to commence in earnest and at scale in 2027. 

What the IMO’s loosely worded commitment to a just and equitable transition looks like in practice is yet to be seen.  Climate vulnerable proponents have been clear that the contribution to a just and equitable transition agreed to by all states in paragraph 4.5 is one at least commensurate with shipping’s contribution to the emergency we all are now assailed by. No one to date has quantified the real costs involved in an equitable transition, but it can be assumed these are going to be significant, at least as significant as the cost of mitigation. 

A solution where the great majority of revenues are recycled internally within the industry through various trading mechanisms cannot deliver a durable or equitable solution for all states. Any trading scheme requires both buyers and sellers and will be of greatest benefit to those with access to cheap capital and capacity to absorb market risk. This can only increase, not decrease, existing inequity. 

The IMO has one narrow window in which to achieve a global consensus on delivering the most ambitious and equitable transition pathway for any sector.  Time is short and the jury is still out.