Global carbon pricing coalition turns attention to shipping

Tristan Smith, a reader in energy and transport at University College London and Johannah Christensen, a director at the Global Maritime Forum, write about how the Carbon Pricing Leadership Coalition is now focusing on our sector.

Shipping’s decarbonisation is inevitable and now widely accepted.

It will create major changes in the shipping industry as the sector moves on from using fossil fuels to greener energy sources such as batteries and synthetic fuels ranging from hydrogen biofuels. But there’s still some work needed to identify how to ensure this happens in the most cost-effective and politically agreeable way.

Many think that a fuel levy or price signal may be the solution.

This last week, the Carbon Pricing Leadership Coalition (CPLC), an initiative launched at the 2015 UN climate summit by the leaders of France, Germany, Mexico, Chile, Ethiopia and Canada, turned its attention to shipping.

CPLC discussions to establish how carbon pricing can enable the shipping industry’s decarbonisation started on the sidelines of the Innovate4Climate meeting in Barcelona.

The initiative will be co-chaired by Johannah Christensen (Director, Global Maritime Forum) and Tristan Smith (UCL/UMAS), supported by CPLC Partners including the World Bank Group and the International Monetary Fund.

High level intervention

The coaliton brings together leaders from government, the private sector, and civil society to expand the use of effective carbon pricing policies that can boost competitiveness, jobs, innovation and emissions reductions. Through the CPLC, partners join together to share their experience working with carbon pricing, and expand the evidence base for the most effective carbon pricing systems and policies.

With the IMO Roadmap on GHG reduction (a process adopted in October 2016 to structure the work of the International Maritime Organisation on this topic), already underway and due for 2 weeks of discussion early this summer, momentum is already building around a number of potential carbon pricing/fuel levy policy options that could be used to enable shipping’s decarbonisation.

As the CPLC looks into working with partners to undertake deep dives into sectorial issues, the Coalition will share ‘best practice’ from other sectors and carbon pricing schemes that have already been successfully implemented.

The public/private collaborative aspect of CPLC is important. It is intended both to ensure the shipping industry can feed into the design of any concepts for IMO policy that could include shipping carbon pricing, as well as learn and share knowledge on how to prepare their business for decarbonisation.

The adoption of internal carbon pricing (a company deploying carbon pricing of projects on its internal accountancy procedures) has become commonplace internationally (insert CDP stats) both to help companies consider their exposure to risks, identify opportunities, and anticipate regulation. But to date very few shipping companies have implemented such a scheme (CDP stats on shipping companies). This is something the group will try and remedy.

For carbon pricing or a fuel levy to be successfully implemented for the shipping industry, it will need to both be environmentally effective (e.g. result in real CO2 reduction), and fair both to companies and to countries. And we know already, this gives this new initiative some substantial challenges that will need to be overcome. One of these challenges is the so-called “split-incentive”, whereby for much of the industry the benefit of fuel-saving is taken by the charterer and not the owner of the ship. Where it exists, the split-incentive will therefore weaken the effectiveness of any price signal (whether fuel or carbon price) to incentivize investment in technology.

Until this is addressed, carbon pricing will be an expensive means of decarbonizing shipping. Another challenge is how to ensure that the introduction of any carbon pricing policy does not distort world trade and economic development, particularly in the Small Island Developing States and Least Developed Countries.

The plan is that the convening power and resources of the CPLC and partners will give this topic a boost, come up with solutions to the current challenges and provide a stream of ideas and evidence that can be useful both to shipping companies preparing for these changes, and to the ongoing discussions in the IMO’s Roadmap.

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