Green shipping: mooted carbon tax set to make waves

The shipping sector has been sailing close to the wind. With green alternatives at a significant premium to dirty bunker fuel, it has made precious little progress on decarbonisation. The tide may now be turning. A mooted carbon tax on shipping emissions, coupled with generous US subsidies for renewables, could close the cost gap. That would accelerate the green transformation of the industry,

Shipping needs a plan. It accounts for 2-3 per cent of global emissions. Vessels last a quarter of a century, so anything on the order book today will still be around in a net zero 2050. Alternative fuels based on green hydrogen are in their infancy.

Green ammonia is the more competitive option, but the industry is still working through the safety implications. Green methanol — which reacts hydrogen with CO₂ taken from biomass or the air — is a proven technology, so is the likely starting point. Indeed, 130 ships capable of using methanol as a fuel have already been ordered.

Meanwhile, bunker fuel is significantly cheaper than either green alternative. Take, as a point of reference, last year’s price of $825 per tonne. Even assuming cheapish green hydrogen at $2.5/kg, ammonia would cost $1239/tonne (fuel oil equivalent), according to Aparajit Pandey, shipping decarbonisation manager at clean energy think-tank RMI. Methanol would push $1400/tonne.

There are just over 3 tonnes of carbon in each tonne of fuel oil, so the levy would need to be set at $130-180/tonne of Co2 to make switching economic, before accounting for any infrastructure costs. 

That is not an outlandish level. The EU ETS, which will be levied on shipping emissions from 2024, is currently around €90/tonne, and forecast to rise in the coming years. And even a lower carbon tax would help, especially when coupled with US subsidies. These lop $1.5/kg off the cost of hydrogen. That would cut the required carbon levy into the double digits, or even below that for fuels based on the lowest cost hydrogen. 

Countries that export fossil fuels or goods over longer distances may fear a levy at any level. They should reconsider. Even a tax above $100/tonne adds pennies to the cost of the goods being transported. The shipping industry should take this opportunity to nail its colours to the mast and voice support for a carbon tax.