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Japan Submits Ambitious Carbon-Tax Proposal for MEPC 78

Bunker vessel alongside

Published May 3, 2022 7:42 PM by The Maritime Executive

The government of Japan has submitted a proposal to the IMO to impose a significant tax on carbon emissions, adding to a growing list of options for the regulator's Marine Environment Protection Committee to consider at its next meeting in early June. 

At MEPC's 78th meeting, IMO member states will face new pressure to take action on shipping's CO2 emissions. IMO's current "ambition" for decarbonization calls for a 50 percent cut by 2050, half the reduction called for by the Paris Climate Agreement. The body has yet to agree to a specific plan to achieve this target, though it has implemented a new fuel-efficiency reporting mechanism.

The proposal from the government of Japan calls for worldwide tax of $56 per tonne of CO2 from shipping beginning in 2025. This would rise to $135 per tonne in 2030, $324 per tonne in 2035 and a staggering $673 per tonne in 2040. (Since each tonne of bunker fuel produces about three tonnes of CO2, the tax per tonne of bunkers would be about three times higher.)

The objective, a Japanese official told the Financial Times, is to use the money from the tax to subsidize zero-emissions ships. Using taxation to make fossil fuels more expensive and subsidies to make green fuels less expensive, the IMO could artificially level the playing field and give renewable technologies a better chance in the marketplace. 

The escalating tax schedule in the Japanese plan is by far the most ambitious released yet, though it starts at a moderate price point. Last June, Maersk CEO Søren Skou staked out a proposal for a static $150 per tonne CO2-equivalent tax. The Marshall Islands has called for a tax of $100 per tonne, and Trafigura has estimated the size of an effective tax scheme at about $250-300 per tonne. 

MEPC will also have the option of considering an efficiency-focused plan proposed by China, called the International Maritime Sustainability Funding and Reward (IMSF&R). Rather than taxing bunkers or subsidizing green fuel, the IMSF&R would rely on data from the IMO reporting system for Carbon Intensity Indicator (CII) compliance. Ships performing above the CII "C" level would be rewarded, and ships performing below it would be penalized.