The global shipping industry which is looking to reduce carbon emissions in the coming years, will most likely see an increase in the cost of import and export from Jan 2027 due to the Decarbonisation measures, revealed a report from the Global Trade Research Institute (GTRI) on Monday.
GTRI said that the 175-member International Maritime Organization (IMO) as of July 7th has notified its strategy to decarbonize the global shipping sector and achieve net-zero emissions by 2050, alongside setting an interim target for reducing emissions by 20-30% by 2030 and 70-80% by 2040, compared to 2008.
Also, it added that IMO has suggested the shipping industry switch to cleaner fuel.
“By 2030 cleaner fuel must account for a minimum of 5% of total fuel use. IMO will notify detailed measures next year. While IMO recommendations are not legally binding, countries are expected to achieve the targets set. This year, few countries pushed for a flat tax of USD 100 per tonne of carbon emission by ships, yet IMO ignored the recommendation and set broad targets due to opposition from China and many developing countries,”Ajay Srivastava, Co-founder, GTRI
Adding that India should watch out against the IMO recommending punitive levies.
As per the report, “Compliance with the two directives will result in about 3-4 % increase in the price of export and import products, amounting to $ 600-800 billion annually at the global level.”
It added that over 80% of the world’s merchandise trade valued at more than USD 20 trillion takes place through 6,400 cargo ships.
By using fossil fuels such as bunker oil, the shipping industry contributes about 3% of greenhouse gas emissions annually.
Further, the report said that the EU parliament has included shipping in the EU’s Emissions Trading System (ETS) on April 18. This will result in the start of charging tax from EUs outbound and inbound shipping companies from Jan 1, 2027.
Initially, the EU ETS will cover large ships of 5,000 gross tonnes, which will be expanded after 2026 to cover smaller ships as well. On the emission side, initially, only carbon emissions will be tracked, however beginning 2026 all greenhouse emissions, including methane and nitrous oxide gases, will also be tracked.
“The EU is working out the implementing regulations. The measures are expected to be broadly similar to the Carbon Border tax notified for steel, aluminum, and other products,” it said.
As the share of Indian ships carrying India’s merchandise trade has declined from 40% in the late 1980s to less than 8 percent at present, about 90% of India’s merchandise is carried by
foreign ships. Therefore, the new regulations will result in Indian traders paying higher charges to foreign shipping companies.
“Heavy and low-unit value goods would be more affected than light or high-cost goods. Shipping distance will also add to the cost,” it said, adding both directives force the global shipping sector to make heavy investments in reducing emissions.
As per the report, decarbonization will require ships to switch from using bunker fuel to low-carbon fuels like liquefied natural gas (LNG), methanol, and ammonia.
“The sector also needs to invest in improving ship efficiency by optimizing hull design, and using efficient engines. The International Energy Agency (IEA) estimates that it will cost USD 1.5 trillion to achieve net-zero emissions from international shipping by 2050,” the report said.
GTRI report, suggests the Indian Shipping sector to keep aside over USD 100 billion to survive in a low-carbon future.