IMO 2028 Deal Sparks Disappointment as Flat Levy Ditched

The policy framework was approved in a plenary vote on Friday, and will be up for adoption at an extraordinary meeting of the MEPC in October. Image Credit: IMO

Reaction to the historic IMO 2028 deal agreed in London last week has been relatively downbeat so far, with celebration of shipping being the first industry to take on a global emissions framework tinged with disappointment that a flat levy on emissions could not be agreed.

The UN body's Marine Environment Protection Committee approved a new policy framework on Friday setting out how shipping's GHG emissions will be treated in the coming years. The measure was approved by a vote, in a rare departure from the IMO's usual system of agreement by consensus.

The agreement is up for adoption at an extraordinary meeting of the MEPC in October, and will not be finalised until then.

The New Deal

The IMO 2028 deal - 2028 being the first year for which the deal will take effect - takes a tiered approach to counting and charging for shipping's emissions.

The framework sets a 'base target' and 'direct compliance target' for well-to-wake carbon intensity reductions, with varying penalties for not meeting these targets, and the targets are made progressively tougher every year from 2028.

In 2028, for every megajoule (MJ) of fuel consumption, the first 77.44 grams of CO2 equivalent emissions will not be charged for. The next 12.13 g (up to 89.57 gCO2/MJ) will face a levy of $100/mtCO2e, and any emissions beyond 89.57 gCO2/MJ will be levied at $380/mtCO2e. 

The $100/mtCO2e and $380/mtCO2e charges will apply from 2028 to 2030, after which they will be revised.

This amounts to a 4% reduction in carbon intensity from the reference level for the base target in 2028, and 17% for the direct compliance target, with these numbers increasing steadily as the years go by.

Overcompliance - consuming fuel with carbon intensity below 77.4 gCO2/MJ in 2028 - will generate 'surplus units' that can be banked or traded.

No Flat Levy

Going into this month's run of IMO meetings, the hope for some was that a flat levy on GHG emissions could be agreed. 

At a press event on March 9 Andrew Forrest, executive chairman of mining firm Fortescue - a strong advocate of ammonia as a marine fuel - suggested a minimum levy of $100/mtCO2e on all of shipping's carbon emissions would be needed to level the playing-field sufficiently to set up the ammonia bunker market.

But during the intersessional working group session before last week's MEPC meeting, news emerged that a flat carbon levy could not be agreed to as an economic measure for the draft text prepared for the MEPC by that working group.

The IMO 2028 deal agreed last week will end up charging shipping much less for its emissions, and is unlikely to provide enough incentive to meet the decarbonisation targets earlier agreed to in the IMO's revised GHG strategy.

The Trump Effect

A degree of uncertainty was introduced to last week's proceedings by the US Trump Administration's withdrawal from negotiations.

On Tuesday US diplomats informed other delegations in London that it would not be engaging with the MEPC meeting, and warned them against agreeing any deal that would charge US ships for their emissions.

"President Trump has made it clear that the US will not accept any international environmental agreement that unduly or unfairly burdens the US or the interest of the American people," the US said in its note to other member states.

"The US rejects any and all efforts to impose economic measures against its ships based on GHG emissions or fuel choice."

While dramatic, this event had little firm impact on MEPC negotiations. The US-flagged fleet remains much smaller than those registered in other countries, and with no US delegation present for the MEPC meeting, its ability to lobby against any deal was limited.

Whether the Trump Administration seeks to retaliate against member states that voted for the deal remains to be seen, but appears unlikely in the short term. Its negotiations with other countries over tariff levels are likely to be more of a priority, and in any case the cost of the IMO 2028 deal for US-flagged ships will only take effect for the last year of the current presidential term, and be relatively small that year.

Reactions

As has become traditional with IMO agreements in recent years, immediate reaction has been a mix of celebration that any deal was possible with disappointment that firmer measures were not possible.

"We recognise that this may not be the agreement which all sections of the industry would have preferred, and we are concerned that this may not yet go far enough in providing the necessary certainty," Guy Platten, secretary general of the International Chamber of Shipping, said in an emailed statement.

"But it is a framework which we can build upon."

Container line Maersk, the world's second-largest consumer of bunker fuel, struck a positive tone in its reaction.

"The agreement is not perfect, as compromises rarely are, but it is a huge step forward and is a clear signal to the shipping and green fuels industries that the energy transition of this sector will happen at pace," Morten Bo Christiansen, head of energy transition at Maersk, said in a LinkedIn post.

"The reduction targets and pathway are very ambitious and clear and will favour green fuels.

"While we had argued for an even higher GHG price, the one in the text is material and it features an important review clause starting few years after entry into force."

Ministers from Pacific island nations put in some of the strongest criticism of the deal, on which they had abstained on the grounds of it not being tough enough.

“We came as climate vulnerable countries—with the greatest need and the clearest solution," Simon Kofe, Tuvalu's minister for transport, energy, communication and innovation, said in an emailed statement.

"And what did we face? Weak alternatives from the world’s biggest economies—alternatives that won’t get us on a pathway to the 1.5°C temperature limit.

"They asked us to settle for less, while we are the ones losing the most.

"We will not negotiate away our future.”

Dr Tristan Smith, professor of energy and transport at the UCL Energy Institute and a firm advocate of robust decarbonisation regulations, suggested there would be time for regulation to evolve and accelerate shipping's GHG reduction efforts.

"This transition is ultimately going to move fast even if it starts slowly," he said in an emailed statement.

"This means that the classic shipping business model of buying/selling on the cycle, which depends upon a technology risk-free residual value, will not work.

"The fact this policy sends at least that signal clearly, can be expected to avoid some of the greatest risks of technology lock-in e.g. to further expand LNG use.

"And it can be expected to now focus minds on how best to make the move to hydrogen-derived fuels.

"Whilst the clarity and equitability and inclusivity are not as high as they should be, this is undoubtedly a pivot moment for the sector and its GHG emissions."

And from the IMO's point of view, Secretary General Arsenio Dominguez views the deal as a significant achievement.

"We have something on the table and we can close the deal in October," Dominguez said at a press conference at the end of the week's negotiations on Friday.

Although voting on the agreement saw a small number of member states abstain, Dominguez said that there was time left in the process to address concerns.

In a what is a challenging environment for multilateralism, Dominguez added that overall the agreement reached this week should be seen as a positive outcome.