The Hard-to-Abate Sectors Series: Decarbonizing Shipping

In a globalized world, most traded goods are moved across global waterways: international shipping accounts for 80% of global trade and moves 11 billion tons of goods by sea every year. Shipping emissions account for 3% of global greenhouse gas (GHG) emissions. As trade expands—maritime trade volumes are expected to triple by 2050—the climate impact of shipping increases. Business as usual would lead to further strong emissions growth.

The International Maritime Organization (IMO), a specialized agency of the United Nations responsible for regulating maritime transport, is currently considering efficiency targets as well as market mechanisms and a levy on emissions to address emissions growth. 
 

“Limiting climate change to 1.5°C will not be possible without shipping playing its part. To align with a 1.5C transition, the sector must intensify its efforts in a short timeframe. We hope that the findings in this report provide a practical, detailed roadmap for action to accelerate this transition and ensure it is just, benefiting workers and communities globally.” 

― H.E. Razan Al Mubarak, UN Climate Change High-Level Champion [COP28]

The International Maritime Organization has already taken measures  

The IMO developed regulations to enhance the energy efficiency and reduce GHG emissions of the shipping industry.

In January 2023, it became mandatory for all ships to calculate and report their attained Energy Efficiency Existing Ship Index (EEXI) and begin collecting data for reporting their annual operational Carbon Intensity Index (CII) and associated ratings.

In July 2023, the IMO Strategy on Reduction of GHG Emissions from Ships was adopted, aiming for net-zero GHG emissions from international shipping by or around 2050. This strategy includes indicative checkpoints: a 20% (striving for 30%) reduction in life-cycle emissions by 2030 and a 70% (striving for 80%) reduction by 2040, compared to 2008 levels. It aims for an average sector wide reduction in the carbon intensity of international shipping by 40% by 2030.  

There is no silver bullet among available low emissions fuels 

The IMO Strategy aims for a 5% (striving for 10%) uptake of zero emissions fuels. The shipping industry, however, seems to be offtrack to meet this objective, as it is believed that currently planned production capacity would cover less than half of the fuel needed to hit this 2030 target—potentially jeopardizing the industry net-zero by 2050 goal. UN Trade & Development (UNCTAD) estimates that an additional USD 8 billion to 28 billion will be required to decarbonize ships by 2050, and even more substantial investments, ranging from USD 28 billion to 90 billion annually, will be needed to develop infrastructure for 100% carbon-neutral fuels by 2050.

Potential future fuels and propulsion for shipping include ammonia, biofuels, electric power, hydrogen, methanol, and wind. They all face economic, technical, and infrastructural barriers.

Biofuels:

• Made by converting biomass (algae, used cooking oil, plant waste)
• Sustainability of biomass—including whether their production displaces food production—remains an issue

Green methanol:

• Made from captured CO2 and green hydrogen
• Can be deployed in existing ships but since it has a lower energy density it requires larger fuel tanks
• Environmental risks from potential spillage are low
• Infrastructure is not in place to ensure production at scale

Green ammonia:

• Made from combining green hydrogen with nitrogen
• Cheap compared to other low emissions fuels
• High safety hazards exist—particularly during refueling operations—due to high toxicity
• Deployment remains limited with only two smaller ammonia-fueled vessels currently in service

Green hydrogen:

• High energy content would make it beneficial for long voyages
• Highly flammable as it can easily be diffused as gas
• Requires costly retrofitting for hydrogen storage

Power-to-liquid e-fuels:

• Produced through electrolysis—splitting water into hydrogen and oxygen using renewable energy sources—followed by synthesis adding CO2
• Since it is made through engineered processes, it is not limited by biomass feedstock availability
• Very costly process

Electric power:

• Battery powered ships can currently only be used for short voyages

Wind power:

• Mature technology
• Difficult to deploy on increasingly large container ships

Liquid Natural Gas:

• Bridging solution, which could meet as much as 30% of the global marine fuel needs by 2030
• Emits 25% less CO2 than conventional fuel, but unintended consequences could be higher methane emissions
• High energy density allowing for long voyages
• Costs of retrofitting can be very high—with different tanks needed for storage at extremely low temperatures
• Specially trained crews required 

Towards a maritime GHG emissions pricing mechanism 

Negotiations on a maritime GHG emissions pricing mechanism resumed at IMO in February 2025—with a framework set to be approved in the spring and adopted measures to enter into force by 2027. A tax on emissions is being considered. It is meant to stimulate energy efficiency and reduce the price differential between low carbon fuels and conventional marine fuel. Major stumbling blocks, however, remain, including on IMO member support, scope, and pricing.

Major shipping nations including Panama and Liberia—representing much of the world’s shipping fleet—joined Canada, the EU, Japan, and small island developing states in supporting an emissions levy, with pricing ranging from USD 18.75 per ton of CO2 to USD 150. Brazil, China, Saudi Arabia, the US, and 12 other countries oppose the plan, arguing that any levy would reduce exports from the developing world and raise commodity prices.

A trading scheme could also be introduced allowing fossil fuel intensive shipowners to buy credits from less emissions-intensive fleets. 

Revenue allocation also remains to be decided 

Should the levy proposal be adopted, billions could be raised each year. IMO members already expressed different views on the use of proceeds:

• A group of Small Island Development States suggested that collected funds be channeled towards the Green Climate Fund (GCF) or the Global Environment Facility (GEF).
• China—which is opposed to the levy—reiterated that any revenues generated by IMO regulations ought to be reinvested in the shipping industry.
• The EU seeks to reward ships using low-emission fuels, such as green methanol or ammonia. 

What's next?

Countries representing two-thirds of global shipping flows are now thought to be in favor of a levy. While seeking consensus among the 176 members of IMO is common practice, the levy could be pushed through by the IMO despite opposition from some member states.

While the UN Climate Change Convention COP29 meeting in Baku failed to address emissions from shipping and aviation, they will feature on the agenda of the 62nd Subsidiary Bodies meetings of the UNFCCC in Bonn (June 16–26, 2025). While it is expected that agreed-upon IMO provisions will be endorsed under the UNFCCC's technical bodies, Brazil's consistent opposition to emissions levies will make it likely for the Brazilian COP30 Presidency to launch alternative initiatives, including levies on global financial transactions to contribute to the USD 1.3 trillion climate finance target outlined at COP29.

In January 2026, IMO will assess the effectiveness of measures to reduce the carbon intensity of international shipping and will determine if further amendments are necessary.

Increasing trade tensions—through the unilateral imposition of tariffs and tit-for-tat countermeasures— are thought to constitute a much more serious challenge to the shipping industry in the near term. As a result, trade flows could diminish, in turn, increasing the prospect of overcapacity. As the industry's profitability might be affected, feet-dragging on the transposition of IMO provisions might result. 

Materials presented by Edelman's public & government affairs experts. For additional information, reach out to Nikolaus.Schultze@Edelman.com