Ports shipping lines may charge more for fighting climate change

The 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) held at  Dubai is hailed as successful and historic because all the 198 countries signed up to the final declaration and for the first time,  all the  countries were asked to transition away from fossil fuels. 

No such declaration can satisfy all the constituencies and doubts can always be raised regarding whether the countries, especially the rich ones who are responsible for most of the greenhouse gases (GHG) emissions and consequent global warming, will honour their pledges. However, the heartening news is that industries in several sectors have voluntarily committed themselves to achieve net-zero emission targets by 2050. 
 

The global shipping industry that is responsible for about 3 per cent of the global GHG emissions and carries nearly 90 per cent of international cargo is one such.
 

The International Maritime Organisation (IMO), a specialised agency of the United Nations, responsible for measures to improve the safety and security of international shipping, framing regulations and facilitation of global shipping etc., adopted a GHG reduction strategy in July 2023. 
 

It envisages net-zero GHG emissions by the shipping industry by 2050, with interim targets to reduce the emissions by 20 per cent to 30 per cent by 2030 and 70 per cent to 80 per cent by 2040. 
 

The strategy aims to raise the share of zero-emission fuels in shipping between 5 and 10 per cent and reduce the carbon dioxide emissions by 40 per cent from the 2008 levels by 2030, besides helping energy and design efficiency of the ships, development of alternative fuels, development of port infrastructure, feedback mechanism, life-cycle assessments (the assessment of GHG emissions from fuel production to end use in the ships) and comprehensive impact assessment etc. Most major shipping lines and port operators are committed to meeting the targets set by the IMO.

In India, the Adani group that owns and operates a number of ports has already said that huge investments will be committed to fighting climate change. The decarbonisation of the shipping industry, however, will not be without costs. It is estimated that decarbonisation by 2050 will cost the shipping industry around $ 28 billion each year. Building/upgradation of physical infrastructure to make, handle, store and transport new types of fuel is expected to cost a staggering $ 90 billion each year.  Besides, the research and development costs in developing alternate fuels, designing ships that can run on such fuels, designing terminals that can handle such fuels and training and up-skilling manpower will all involve significant costs. 
 

Financing these activities have to come from specialised agencies that will need access to low interest sources of funds. In any case, all these costs will be passed on to the users of the shipping, port and allied services by way of an extra levy that may be called cess or surcharge mainly to make sure that the users understand that the funds collected through such levy will go towards fighting climate change and so, do not protest too much. 
 

The only consolation is that such levy will be levied on all international cargo handling and transportation services throughout the world. IMO is making an impact assessment and working out the details for the appropriate levy, collection and sharing mechanisms and how the funds will be used. 
 

The trade should get ready for such higher transportation costs. 

Email : tncrajagopalan@gmail.com