Policy & Compliance
8% in 2030 rather than the minimum target of 20% (striving for 30%) detailed in the IMO’s 2023 GHG strategy target. When considering this matter, it has to be recalled that Heavy Fuel Oil (HFO) is a by-product of the oil refining process, and all alternative fuels are between three and four times as expensive. However, the IMO proposals, if adopted in October 2025, will penalise HFO more heavily than any other fuel type. One power source that has become increasingly popular is liquified natural gas (LNG), a fossil fuel that emits less CO 2 than HFO. Under the IMO proposals, LNG would only be penalised from 2028 with the penalties increasing sharply from 2032. Based on current estimates, a ship burning 5,000 tonnes of HFO a year would incur penalties of $360,000 in 2028, whilst the same amount of LNG would incur just $62,232 in the same year. Blended LNG In 2035, the same vessel would incur costs of $2.3 million and $1.6 million respectively. However, as refining technology develops, LNG can be blended with bio LNG and the move can be made to e-LNG made from green hydrogen combined with captured CO 2 . The unknown factors are the availability of such fuels and their cost. There is no doubt that the transition to low or zero-carbon fuels will be a complex and potentially expensive process requiring a structural re- organisation of global bunkering arrangements, for example. Compliance with the new requirements will be complex, and shipping lines will have to make difficult decisions regarding which fuel to use in their vessels. This is further complicated by the relatively short timeframe that LNG provides cost advantages. Many believe that this will encourage a push to other advanced low carbon fuels such as methanol and/or ammonia. So, what does this mean for BIFA Members? The full picture is unclear and higher costs of moving to low carbon fuels are currently only estimates. The other factor to be considered is how much
additional cost the consumer will be willing to bear for this transformation? And what will be the impacts on demand and the place of manufacture? Container shipping lines will, in all probability, seek to recover their cost increases from their customers. Many believe that, due to the complexities of the proposed charging structure, it will be extremely difficult to establish whether or not the carriers will be recovering only their additional costs on a cost-recovery basis. The University College of London Energy Institute’s Shipping and Oceans Research Group estimates that the scheme will generate revenues of $30-40 billion by the end of 2030. It is estimated that eventually the figure will grow to about $10 billion per annum. The monies raised will be spent between subsidising low carbon fuels and climate projects in developing countries. BIFA has already expressed concerns, including to the Department of Net Zero, about how a global regime would sit alongside proposals to extend the UK Emissions Trading Scheme (ETS) to domestic shipping services. No response has been forthcoming to date. Some thought has to be given to the interaction between the proposed IMO agreement and, for instance, the EU ETS and the various Emission Control Areas (ECA) that are in operation. Rati fi cation date At time of writing, it should be noted that what was voted on and agreed in April at the IMO is only a proposal and that it still has to be ratified in October this year. It is noteworthy that criticism of the IMO framework is growing. The proposed framework is a hybrid of an emissions trading scheme, fuel standard and carbon levy and has failed to please many. It is seen on one hand as too complex for ships operators to implement, while in contrast environmentalists are aggrieved that, in the short term at least, it rows back on previous emissions reduction targets. However, most seem to agree that the framework is a starting point for decarbonising international shipping despite its flaws.
“ The proposed framework is a hybrid of an emissions trading scheme, fuel standard and carbon levy and has failed to please many
banked for up to two years or sold through an IMO GHG fuel intensity registry. Ships in carbon deficit due to the use of dirty fuel will be allowed to trade credits with ships in surplus. Vessels using zero or near-zero carbon (ZNZ) fuels – those with less than 19 grams of CO 2 equivalent per megajoule – will qualify for a subsidy using a mechanism still to be developed. Depending on your viewpoint, this is either a pragmatic and achievable first step on the road to decarbonisation, or disappointing. Critics have pointed out it is likely that GHG emissions will reduce by
Glossary of abbreviations used in this article CO 2 Carbon dioxide DCT Direct compliance target ECA Emission control area ETS Emissions trading scheme GHG Greenhouse gases HFO Heavy fuel oil IMO International Maritime Organisation LNG Liquified natural gas SU Surplus units ZNZ Zero or near-zero fuels For further information on sustainable logistics visit https://bifa.org/information-guidance/technical- information/sustainable-logistics/
June 2025 | 17
www.bifa.org
Made with FlippingBook Annual report maker