A CARBON levy of $150-$300 per tonne on shipping would result in the lowest impact on global economic growth in 2050 if the revenues were disbursed only to states that were most vulnerable to the impacts of climate change, according to an analysis of potential policies for the International Maritime Organization.

Global GDP growth would fall by 0.08% by 2050 if the IMO implemented a carbon levy on shipping at $150-$300 per tonne of CO2 equivalent that considers full lifecycle emissions of bunker fuels (well-to-wake), and the revenue collected was disbursed only to small island developing states and least-developed countries, according to an unpublished draft report by United Nations Trade and Development prepared for the IMO.

In a similar scenario that assumes revenues from a $150-$300 a tonne carbon levy channelled to all economies, global GDP would drop by 0.09% by 2050.

The same set of policies would be among the ones that achieve the highest emission reduction by 2050, while raising shipping’s cost intensity by 78% in 2050, according to a preliminary report prepared by class society DNV for the IMO.

Global GDP impact from all scenarios by 2050 ranged from -0.16 to -0.09, as all scenarios resulted in a negative GDP impact. By 2030, with just three years of implementation, IMO mid-term measures would decrease global GDP by 0.03% to 0.07%.

The two reports by DNV and Unctad are part of the IMO's Comprehensive Impact Assessment to help member states design mid-term emission reduction measures. The DNV report analyses the potential impact of such measures on the global shipping fleet, while Unctad gauged the impact on states.

Unctad found that mid-term measures would result in the sharpest GDP reduction on economies of SIDs and LDCs in 2050 without considering the impacts of revenue disbursement, as a carbon price and a fuel standard would decrease GDP for LDCs by up to 0.4% in 2050, compared with 0.12% for developed economies and 0.22% for developing countries.

The impact on global GDP by 2050 was consistently lower for scenarios that included a levy than scenarios that did not, Unctad said, adding that scenarios with a higher levy price have the lowest global GDP impact.

The Marshall Islands had tabled a well-to-wake $150 levy at the IMO ahead of MEPC81, having revised its previous proposal at $100 per tonne.

A tonne of bunker fuel oil emits around 3.1 tonnes of CO2 equivalent when burned in a ship engine, according to the IMO’s lifecycle GHG intensity guidelines (LCA). This means that a $100 CO2 levy would translate to around $310 per tonne of bunker fuel oil. The IMO does not have exact well-to-wake emission numbers for bunker fuel oil in its LCA guidelines.

Revenue collection

The IMO could collect up to $127bn a year in 2027-2030 with a well-to-wake $150-$300 per tonne levy, while revenues would average $103bn in 2031-2040 and $36bn in 2041-2050.

A tank-to-wake levy at $30-120 a tonne would collect $30 bn a year in 2027-2030 and $34bn and $6bn in 2031-2040 and 2041-2050, respectively.

There are mid-term measure proposals that would collect significantly lower revenue, but Unctad did not model them. 

States led by China tabled a fuel standard that would initially allow use of fuels with high well-to-wake emissions uptake of alternative fuel technologies in newbuildings. The co-sponsors, including China, Norway, Brazil and the UAE, support a flexibility mechanism coupled with their fuel standard proposal, rather than a standalone economic measure that is backed by other states such as Europe and the Pacific Islands.

DNV analysis on fleet impact

Potential mid-term measures would increase shipping’s cost intensity (dollar price per tonne mile) by 71%-85% by 2050, compared with a business as usual scenario with no measures, according to DNV’s second preliminary report.

DNV’s findings marked a sharp increase against its first preliminary report, as it adjusted fuel prices higher after considering supply constraints for biofuel and blue fuel feedstocks.

DNV had estimated a cost increase of between 45% and 51% by 2050 in its previous report.

The policy scenario that would increase shipping costs the most (85%) by 2050 was a well-to-wake fuel standard without a levy or a flexibility mechanism.

Meanwhile, the scenario that would increase the costs the least (71%) by 2050 was a tank-to-wake fuel standard coupled with a $150-300 per tonne levy.

DNV found that scenarios imposing a levy or a fee would also incentivise energy efficiency and speed reduction by the global fleet, as such scenarios would result in 16% lower energy use in 2030 compared with a business as usual scenario.

To achieve the IMO’s climate targets, all policy measures would require maximum use of fuel feedstocks, onboard carbon capture technology and energy efficiency measures, DNV said.

Proposals on the table

China and some developing economies, such as Brazil, had come out firmly against a levy, arguing that it would hurt their economies more than it would developed nations.

Developing economies’ GDP would fall by 0.21% by 2050 under all four policy scenarios that create revenue streams without considering disbursement, according to Unctad.

If the revenue is channelled only to developing economies, SIDs and LDCs, then GDP growth in developing economies would drop by 0.11%-0.20% by 2050.

States including most EU countries, Japan and South Korea support a levy along with a fuel standard.

IMO member states agreed to adopt a bunker fuel standard as the technical measure as well as a GHG pricing mechanism as the economic measure in 2025. Both measures will complement the IMO’s revised GHG strategy that aims to reach net-zero in 2050.

CORRECTION: An earlier version of this article described the Unctad report as final. In fact, it was a draft that may be revised before it is eventually published as an MEPC document.