Accelerating Zero-Emission Shipping

The International Maritime Organization's target of achieving net zero by, or around, 2050 for the maritime sector is not as far away as it might seem. To meet this target, global shipping must transition to zero, or near-zero, greenhouse gas (GHG) fuels at an unprecedented rate with 5% (striving for 10%) of all maritime fuel meeting this criterion by 2030.

Building supply and demand for these fuels well in advance of 2050 is critical to ensuring the target is achievable whilst also reducing the cost penalty for delayed response.

However, the transition will require significant investment across the value chain, from fuel production and distribution to the retrofitting and construction of new vessels. The associated costs underscore the increasing need for green finance solutions tailored to the maritime sector – something Ricardo has explored recently in a study for the European Commission.

As such, we should look towards policy mechanisms with an economic element, such as the EU ETS and IMO measures, for assistance in overcoming the high-cost barriers associated with zero and near-zero-GHG fuels. 

Generating revenue from maritime policies

Maritime inclusion in the EU Emission Trading Scheme (ETS) came into force in January 2024. By requiring ship operators to purchase emissions allowances, the EU ETS aims to incentivise emission reduction in the sector. The scheme covers 50% of emissions from voyages between EU and non-EU ports and 100% of emissions from voyages within the EU. It includes carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) emissions from ships above 5000 gross tonnage.

The EU ETS operates on a polluter-pays principle, where operators monitor and report their emissions annually, paying for allowances that correspond to their emissions. In 2024, ship operators had to surrender allowances for 40% of their emissions, increasing to 70% in 2025 and reaching 100% by 2026. If ship operators exceed their allowances, they must purchase additional permits or face penalties, generating significant revenue for the EU.

The revenues generated are used to support individual Member State climate-related activities and, to a lesser extent, the EU Innovation Fund (~6% in 2023). However, could some of these revenues be diverted towards the implementation of zero or near-zero-GHG fuels?

In parallel, the FuelEU Maritime regulation came into force in January 2025. One part of this regulation aims to limit the annual GHG intensity of energy used by ships that dock in European ports. Applicable to vessels over 5,000 GT, in 2025 a 2% reduction in GHG emissions must be achieved, this target increases over time to an 80% reduction in GHG emissions in 2050. Penalties for non-compliance will provide an additional source of revenue. 

At the international level, the IMO is working toward implementing mid-term measures to achieve its net zero GHG strategy. The measures include a technical element in the form of a global fuel standard which will limit the GHG intensity of marine fuels and an economic element which is yet to be agreed on. The economic element may take the form of a global carbon levy or a feebate scheme, both revenue-generating mechanisms.

A global carbon levy would impose a fixed price per tonne of GHG emissions, providing a predictable revenue stream while incentivising operators to reduce emissions. A feebate scheme, on the other hand, would impose fees on high-emission ships while rewarding those with lower emissions, effectively encouraging cleaner practices. Both measures, if enacted, could generate substantial revenues on a global scale, offering a new source of funding to drive decarbonisation efforts in the maritime industry.