Proposed Carbon Tax in Green Shipping Creates Ripples

The shipping industry has long struggled with the challenge of decarbonization due to the high cost of green alternatives compared to dirty bunker fuel. However, the tide may be turning as discussions of a carbon tax on shipping emissions and generous US subsidies for renewables provide hope for closing the cost gap. This could potentially accelerate the industry’s transition to a more sustainable and environmentally-friendly future.

Given that shipping accounts for 2-3% of global emissions and ships have a lifespan of 25 years, it is vital to address decarbonization now to ensure a net zero 2050. While alternative fuels based on green hydrogen are still in their early stages, green ammonia and green methanol are emerging as more competitive options. The industry is currently evaluating the safety implications of green ammonia, but green methanol, which involves reacting hydrogen with CO₂ from biomass or the air, is a proven technology. In fact, there are already 130 ships on order that are capable of using methanol as a fuel.

However, the cost of green alternatives remains a significant challenge. Bunker fuel is significantly cheaper than both green hydrogen-based options. For example, even with cheapish green hydrogen priced at $2.5/kg, ammonia would cost $1239/tonne (fuel oil equivalent), and methanol would cost around $1400/tonne. To make switching to green alternatives economically viable, a carbon levy would need to be set at around $130-180/tonne of CO2, not accounting for any infrastructure costs.

While a carbon levy at the scale of €90/tonne imposed by the EU ETS on shipping emissions from 2024 may seem high, it is not unprecedented and is expected to increase in the future. Furthermore, even a lower carbon tax, when combined with US subsidies that reduce hydrogen costs by $1.5/kg, could significantly decrease the required carbon levy for green alternatives. This would make them more economically attractive.

Countries that heavily rely on fossil fuel exports or transportation over long distances may be concerned about the potential impact of a carbon tax. However, they should reconsider their stance as even a tax above $100/tonne would only add a minimal cost to the goods being transported. The shipping industry should seize this opportunity to demonstrate its commitment to sustainability and lend its support to a carbon tax.

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