A $100 billion revenue due to climate windfall might result from shipping taxes.

2.9% of the global greenhouse gas emissions are produced by the shipping sector. Due to the fact that no one government has control over what occurs on the high seas, it has also generally eluded taxation.

An opportunity is presented by these two realities. The IMO (International Maritime Organization), a branch of the United Nations that oversees shipping, would push ships to become green more quickly if carbon emissions were priced. The organization could then distribute the funds raised—possibly $100 billion annually—to poorer nations to aid them in coping with climate change.

The tax-free status of the shipping sector is already in trouble. According to a decision made by the European Union, starting in 2019, all ships will need to purchase licenses for their emissions when operating within the EU and for half of their emissions when sailing between the EU and other nations.

The time is right to advocate for a worldwide tax and this will be one of the topics discussed at the conference on a “new global financial pact” that French President Emmanuel Macron is hosting in Paris later this month. The IMO will then convene in the first part of July with the authority to impose a tax. It might set a timeline for introducing a levy even though it is unlikely to accept one.

POLLUTER PAYS

Fossil fuels are used by the shipping sector to power its vessels. Although there are alternatives—mostly based on green hydrogen—many shipowners don’t see the sense in employing them because they cost two to three times as much as fuels made from hydrocarbons.

However, leading companies in the sector, like container juggernaut Maersk (MAERSKb.CO), are advancing in green shipping. The first clean fuel-capable vessel from the Danish business will arrive the following month. Many clients, especially those in the rapid consumer products industry, want to reduce emissions in the supply chain and are willing to pay more for environmentally friendly transportation, which is one of Maersk’s driving forces.

The cost of clean and filthy combustibles would be equalized by a tax on the industry’s fossil fuels, hastening the energy transition. Maersk predicts that this would only increase the cost of a set of trainers by a few cents, even though it would increase the cost of commodities that are traded globally.

According to Tristan Smith, an energy and transportation specialist at University College London, nations that ship their goods over large distances would undoubtedly have an advantage over nations that are located closer to their target markets. However, this problem might be handled with tax revenue.

POT OF $100 BILLION PER YEAR

Each year, shipping produces roughly 1 billion tonnes of greenhouse gases (GHGs). Therefore, a tax of $100 per tonne, which would make unclean fuels roughly equally expensive as clean ones, would earn $100 billion a year. However, the amount would gradually decrease if the tax were successful in convincing merchants to shift away from hydrocarbons.

People outside of the shipping business, especially those concerned with climate change, are paying attention to this potentially enormous sum. Rich nations have made a number of commitments to assist developing nations with the costs of making the transition to a carbon-neutral economy, but they have so far had difficulty raising the necessary funds.

One of the few realistically big new sources of finance is the shipping industry, which has a yearly pool of as much as 100 billion dollars. It is therefore on Macron’s summit’s agenda. Even while this meeting won’t have the authority to enact a tax, it might give support for one.

The majority of the proceeds from a shipping tax, according to a group of Pacific Island governments headed by the Marshall Islands, should go to regions that are most susceptible to climate change. They might use the funds to develop flood barriers and expand the use of green energy.

The Marshall Islands seeks to provide developing nations with more funding to support the development of green shipping sectors so that they can keep up with wealthy nations that would otherwise decarbonize their fleets more quickly. The money might aid less developed nations in making investments in new technologies like clean-fuel vessels and green hydrogen. The World Bank and the UN’s Green Climate Fund are two examples of existing organizations through which the IMO might direct tax revenue.

The International Chamber of Shipping, a trade organization, suggests that the majority of the funds earned from a charge should be returned to shippers to support their transition to a greener economy. The industry may yet manage to keep hold of a sizeable portion of the money from a charge given its skill in avoiding taxes for decades. However, it would be preferable if the money went to people who are affected by pollution rather than the polluters themselves.

NO TIME TO WASTE

A representative for the IMO said that the environment committee would likely unveil a more aggressive plan to reduce GHG emissions in July. Reducing the GHG concentration of the fuel used by ships is expected to set more stringent targets and regulations.

The IMO is being urged by the Marshall Islands & its allies to approve a charge that will go into force in 2025. This is doubtful, according to UCL’s Smith, an experienced observer of the IMO negotiations, because there isn’t currently enough consensus. He does, however, think that the environmental committee might decide to introduce a tax at a later date. Others think it might decide on the initial period of 2027 suggested by the EU.

The IMO typically acts slowly because it values consensus among the nations that make up its membership. But it does not need to. It has the ability to make decisions based on a majority vote & has the authority to levy its decision. The worldwide shipping industry would virtually be incapable to operate from a nation’s ports if it failed to implement an agreed-upon tax. When there is an emergency, the IMO has proven that it can act quickly. For instance, it required enhancements in maritime safety nearly one year following Al Qaeda crashed planes into New York’s World Trade Centre out of concern that the organization may launch similar attacks using ships.