INSIGHT: How Carbon Pricing Will Reshape Global Bunkering

Matthis Pasche is a carbon advisor in Glander International Bunkering's Geneva office. Image Credit: Matthis Pasche / LinkedIn

In April of this year, the International Maritime Organization took a major step towards global pricing of the shipping industry's carbon emissions.

The MEPC 83 meeting provisionally agreed a system applying two tiers of progressively tougher carbon intensity targets for ships over 5,000 GT from 2028 to 2035, with the system due to enter force in March 2027 if adopted at an extraordinary session of the MEPC this week.

2028 will be the first year where the shipping industry has to pay for its GHG emissions at a global level.

Penalties have initially been set at $380/mtCO2e for failing to meet the higher base target thresholds and $100/mtCO2e for emissions above the lower direct compliance target.

Overcompliance beyond the direct compliance target will generate surplus units that can be banked for up to two years or traded, and consuming energy with carbon intensity below an initial threshold of 19 gCO2e/MJ will earn rewards from penalties paid by other companies.

The base target threshold has been set at 89.506 gCO2e/MJ in 2028, moving steadily down to 65.310 gCO2e/MJ by 2035, while the direct compliance target threshold moves from 77.439 gCO2e/MJ in 2028 to 53.181 gCO2e/MJ by 2035.

The cost of the regulation for shipowners will be limited at first but will quickly scale up as the years pass. One tonne of VLSFO consumption at a GHG intensity of about 91 gCO2e/MJ will cost about $72/mt in total IMO framework costs in 2028, but this will move up to about $450/mt by 2035.

For the bunker industry, the framework should deliver a profound shift in how it operates.

Every tonne of carbon will count. Suppliers that can deliver products with a lower GHG intensity than their competitors - and have that figure independently verified to the standards set by the regulation - will be able to provide their customers with significantly lower regulatory costs.

Sourcing strategy will need to be retooled to reflect this. In the biofuel market in particular, differences in feedstocks could deliver notable differences in GHG intensity and IMO costs.

Contracts will also need to be updated to reflect the new requirements. New contractual terms will be needed specifying exactly what mix of products the supplier is committing to deliver over the term of the agreement, and exactly what their GHG intensities and energy densities will be.

Finally, an active market is likely to emerge in the trading of surplus units between overcompliant and undercompliant ships.

As with EUA procurement for EU-ETS compliance and the pooling mechanism under FuelEU Maritime, the bunker industry will play a key role in facilitating the emergence of this market.

Transparency of delivery will be the watchword for marine fuel companies in the years from 2027 onwards.

If the EU-ETS, FuelEU Maritime and IMO framework regulations remain all in place at the same time, compliance costs with these regulations are likely to outweigh the underlying fuel price for conventional bunkers before long.

Our customers will be seeking trusted partners to help them guarantee a stable supply of all the fuel types they need, provide full visibility into the green credentials of their fuels and minimize regulatory costs.