GHG Levy Dropped in Favour of Tiered Compliance System at IMO Talks

The MEPC 83rd session will be held at IMO HQ in London from 7-11 April. Image Credit: Ship & Bunker

A flat-rate GHG levy, long considered a key element of IMO's mid-term measures, has been removed from the latest IMO negotiation text in favour of a tiered compliance system.

During the 31 March–1 April intersessional working group meeting ahead of next week's key MEPC 83 meeting, the Chair presented a compromise text for the draft IMO mid-term measures, which excluded a flat carbon levy as its economic mechanism, according to Lloyd Register's (LR) summary of the discussions.

The proposal aimed to balance the views of IMO member states, but sparked strong reactions due to the omission of a levy-based approach.

The original concept of a levy would have required all ships to pay a fee for their emissions. In contrast, the new tiered compliance model focuses on GHG fuel intensity requirements, where ships that do not comply must purchase compliance units, effectively introducing a credit trading system.

Ship & Bunker had previously reported that China, South Africa and Brazil are among the countries opposing a carbon levy in the IMO's mid-term measures.

Divided Reactions Among Member States

The removal of a direct pricing mechanism has led to polarised reactions.

Some delegations questioned the process that led to the Chair's text, while others reserved their position moving forward. There were also informal discussions about reintroducing a levy in some form, but no official text was submitted to revive it as a standalone measure.

The shift away from a uniform levy marks a significant change in the IMO's approach. Proponents argue that a tiered system will provide shipowners with more flexibility in their energy transition. Critics, however, warn that without a direct pricing mechanism, there may be less financial pressure to move away from fossil fuels.

Next Steps: Informal Talks Before MEPC 83

With negotiations set to resume next week, informal meetings among member states are expected before MEPC 83 to develop the Chair's text further. The goal will be to refine the proposal to secure broader consensus.

The outcome of MEPC 83 will be critical in shaping the IMO's mid-term measures to meet its GHG emissions reduction strategy. While the tiered model appears to be the leading proposal, the debate over whether a levy-based system should be reconsidered could remain a key point of contention.

The proposed text remains under negotiation, with further discussions needed to bridge the differing positions of member states, LR noted.

The Marine Environment Protection Committee's 83 session (MEPC 83) will be held from 7-11 April at IMO HQ in London, where member states aim to finalise mid-term measures for GHG reductions for adoption in October and enforcement in 2027.

These measures should include a technical element to lower GHG intensity from marine fuels and an economic element, acting as a pricing mechanism for maritime GHG emissions.

Shipping Industry Confident on Deal Being Reached

Shipping-industry sources contacted by Ship & Bunker mostly remained confident that a deal could be reached at the MEPC meeting.

"The true test and concern is will we reach an agreement that is truly effective in enabling the energy transition in the fleet," Bryan Wood-Thomas, World Shipping Council Vice-President for Environment and Climate, told Ship & Bunker.

“GHG obligations should be set out in the form of clear, legally binding regulations.

“While guidelines play a role in providing guidance for implementation details, we need to have clear regulations in place that articulate the core obligations and requirements that are critical to establish a level playing field that is clear and unambiguous for both regulators and the industry.”

The International Chamber of Shipping (ICS) told Ship & Bunker that it advocates for a transparent and easy-to-administer mechanism that effectively delivers on the IMO’s GHG strategy while remaining practical for the shipping industry.

ICS sees a ‘Fund & Reward’ scheme as particularly beneficial, as it would incentivise first movers and early adopters of alternative fuels.

“We look forward to the forthcoming deliberations at MEPC83 and remain hopeful that any proposal will move forward in a manner that benefits all stakeholders, and creates a workable, transparent, and simple-to-administer scheme that delivers on the GHG strategy,” ICS said.

Furthermore, the organisation reaffirmed its commitment to supporting the IMO and the wider shipping industry in any way necessary to ensure decarbonisation goals are met, regardless of which proposals governments ultimately adopt.

“There remain several important issues to be resolved, and for an agreement to be reached next week, supported by all Member States will require current differences to be reconciled,” Edmund Hughes, IBIA representative to the IMO, told Ship & Bunker.