Deep Dive: IMO’s Carbon Pricing Mechanism for Shipping
History, Details, and Impacts
Introduction
In April 2025, member states of the International Maritime Organization (IMO) struck a landmark agreement to implement the first-ever global carbon pricing mechanism for the shipping industry. This new policy, set to take effect in 2028, will for the first time put a price on carbon dioxide (CO₂) emissions from international ships – a sector responsible for roughly 3% of global greenhouse gas emissions ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). Shipping was not covered under the Paris Agreement on climate change, so this IMO-led deal fills an important gap ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). The agreement crowns a decades-long effort within the IMO to curb emissions from ships, starting from early energy efficiency rules in 2011 through the adoption of an initial greenhouse gas (GHG) strategy in 2018, and now culminating in a global carbon levy. This article traces the full history of the IMO’s actions on shipping emissions and explains in accessible terms how the 2025 carbon pricing mechanism works and what it means for the environment and the economy.
Shipping and Climate: Why the IMO Stepped In
International shipping – carrying over 80% of world trade by volume – contributes significantly to climate change. Ships burn fossil fuels (like heavy fuel oil), producing CO₂ and other pollutants. In fact, shipping generates about 3% of global CO₂ emissions ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). If the global shipping fleet were a country, it would rank among the top emitters. Yet these emissions fall outside national climate pledges (they aren’t counted in any single country’s inventory under Paris Agreement targets) ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). This unique status meant that without a dedicated global approach, shipping emissions could continue to grow unchecked, undermining global climate goals. The IMO – the United Nations agency responsible for international shipping – was entrusted to address this challenge as far back as the 1997 Kyoto Protocol, which called on IMO to tackle marine emissions.
Over the years, pressure mounted on the IMO to act. Scientific warnings and rising public concern about climate change put a spotlight on sectors like shipping and aviation that operate globally. The European Union even threatened to impose regional measures if the IMO failed to deliver a solution, raising fears of a patchwork of regulations. By the 2010s, it became clear that a coordinated international strategy was needed to ensure the shipping industry did its fair share in reducing greenhouse gases. This led to a series of negotiations and policy steps within the IMO, often marked by disagreement between different groups of countries but gradually building towards the breakthrough in 2025.
Early IMO Efforts to Cut Emissions (2011 Onwards)
The IMO’s first concrete action on climate was to target ship efficiency. In July 2011, IMO members adopted the first set of mandatory measures to improve ships’ energy efficiency ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). This was a historic step – the first globally-binding climate-related rules for any industry. It added a new chapter to the MARPOL Convention (the main international treaty on pollution from ships), requiring that:
New ships meet efficiency standards: A regulation called the Energy Efficiency Design Index (EEDI) was introduced, essentially setting a minimum fuel efficiency level for newly-built ships ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). In plain language, ship designers now had to make vessels that emit less CO₂ per tonne of cargo transported. The standards would tighten over time (for example, new ships built in 2020 must be about 20% more efficient than those built in 2015, with further improvements required in later years (IMO environment meeting adopts mandatory energy efficiency ...) ( Cutting GHG emissions from shipping - 10 years of mandatory rules )). Ship owners could choose how to meet the targets – through improved engines, hull designs, alternate fuels, etc. – as long as the ship’s design CO₂ emissions per cargo-mile fell below the limit. This non-prescriptive approach spurred innovation in ship design while ensuring efficiency gains.
All ships manage their energy use: The Ship Energy Efficiency Management Plan (SEEMP) was mandated for all existing ships ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). This required vessel operators to monitor and report fuel consumption and to implement plans for energy-saving operations (for example, optimizing speed, keeping hulls clean to reduce drag, etc.). Think of SEEMP as a required “fuel economy plan” for every ship, encouraging ongoing improvements in how ships are run day-to-day.
These 2011 measures fundamentally changed the baseline for shipping’s carbon footprint by making efficiency a legal requirement. Over the next few years, IMO continued to strengthen these rules – for instance, by tightening EEDI targets for certain ship types as technology improved ( Cutting GHG emissions from shipping - 10 years of mandatory rules ) ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). In 2016, the IMO also set up a fuel-consumption data collection system, forcing large ships to report their fuel use annually so that policymakers had better information on emissions ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). All of these steps were incremental moves to curb CO₂, but they did not yet put an explicit price on emissions.
It’s worth noting that as early as the mid-2000s, there were discussions in the IMO about more aggressive measures – namely, market-based measures like a carbon levy or emissions trading for shipping. However, at that time consensus was hard to reach. Many developing countries argued such measures could increase costs for their exporters and impinge on their economic growth, invoking the principle of “common but differentiated responsibilities” (a UN climate principle that richer countries should shoulder more of the burden). On the other hand, many developed countries and climate-vulnerable nations pushed for a market mechanism to further incentivize emissions cuts. These debates led to various proposals but no agreement in the early 2010s – the issue was essentially put on hold amid concerns about trade impacts and fairness. Instead, the IMO focused first on the technical efficiency measures described above.
IMO’s Initial GHG Strategy (2018) – A Vision for 2050
A major turning point came in April 2018, when the IMO adopted its Initial Strategy on the Reduction of GHG Emissions from Ships ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). This strategy was a high-level framework laying out, for the first time, explicit climate goals for international shipping. Key objectives of the 2018 initial GHG strategy included:
Capping and cutting total emissions: The IMO agreed to reduce the total annual GHG emissions from international shipping by at least 50% by 2050 compared to 2008 levels, while pursuing efforts towards phasing them out entirely (i.e. aiming for full decarbonization) within this century ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). This was a remarkable pledge for an entire global sector, especially one projected to grow with trade – it implied a dramatic shift to cleaner energy sources for ships over the coming decades.
Improving carbon intensity: The strategy set an interim target to reduce CO₂ emissions per transport work (essentially emissions per tonne-mile of cargo) by at least 40% by 2030, and aim for 70% by 2050, relative to 2008 ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). This meant ships, on average, should become much more energy-efficient and use cleaner fuels over time. Improving carbon intensity doesn’t necessarily reduce absolute emissions if trade grows, but it bends the emissions curve downward relative to business-as-usual.
Pursuing further measures: The initial strategy outlined a timeline for short-term, mid-term, and long-term measures. Short-term measures (to be implemented by 2023) were largely technical and operational – building on the 2011 efficiency rules (and indeed, by 2021 the IMO did adopt additional measures requiring existing ships to meet efficiency standards and undergo carbon intensity rating – more on that shortly). Mid-term measures (2023–2030) were expected to include market-based mechanisms or other innovative policies to actually drive deeper cuts – effectively acknowledging that efficiency alone wouldn’t achieve the 2050 goal. Long-term measures (beyond 2030) would likely involve new fuels and propulsion technologies (like hydrogen or ammonia fuels, fuel cells, wind assist, etc. as they become viable).
Addressing impacts on states: Importantly, the IMO recognized that climate measures could have different economic impacts on different countries. The initial strategy included a commitment to assess the impacts on vulnerable states, notably Least Developed Countries (LDCs) and Small Island Developing States (SIDS), when developing new measures ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). This was essentially to ensure that any future carbon pricing or regulations would consider fairness and not unduly harm the most vulnerable economies (many small island nations depend heavily on imported goods by sea and could be hurt by higher transport costs).
The 2018 initial GHG strategy was celebrated as a major milestone – it signaled to the world that the IMO and the shipping sector were ready to align with global climate objectives. However, it was just a strategy; turning those ambitions into action required more negotiations on actual policies. The IMO set 2023 as the year to revise and possibly tighten this strategy, based on progress and the latest climate science.
Following 2018, work began on short-term measures. By June 2021, the IMO adopted new regulations to enforce the 2030 intensity target: it introduced the Energy Efficiency Existing Ship Index (EEXI) (a one-time efficiency rating applied to existing ships, effectively requiring many vessels to retrofit or adjust engine power to meet a baseline efficiency) and the Carbon Intensity Indicator (CII) rating scheme ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). Under the CII, from 2023 onward, ships over 5,000 gross tonnage (the big ones) receive an annual efficiency rating from A to E (A = best, E = worst) based on their CO₂ emissions per cargo-mile ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). If a ship rates poorly (D for three years in a row or E in a single year), its operator must submit a corrective action plan to improve its rating ( Cutting GHG emissions from shipping - 10 years of mandatory rules ). This created operational pressure on ship owners to continuously improve or face penalties, and it complemented the technical design improvements from EEDI/EEXI. These steps formed a “solid foundation” and signaled that shipping was on a pathway to decarbonization, though still not enough on their own ( Cutting GHG emissions from shipping - 10 years of mandatory rules ).
All eyes then turned to the promised mid-term measures – essentially, how to incentivize the transition to new fuels and technologies needed for deeper emissions cuts. This is where the concept of carbon pricing entered the scene more forcefully.
Paving the Way for Carbon Pricing (2018–2025)
After 2018, IMO member states began submitting proposals for market-based measures to achieve the mid- and long-term goals. Several approaches emerged, typically falling into two broad categories:
A direct emissions levy (carbon tax): A coalition of countries – notably Pacific Island nations, some Caribbean and African states, and supported by European countries – championed the idea of a flat levy on shipping emissions ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ) ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). The levy would charge a set price per tonne of CO₂ emitted by ships, worldwide. This would directly incentivize operators to reduce fuel consumption or switch to cleaner fuels, and importantly, it would generate significant revenue that could fund climate action. For example, by late 2024, a group of 47 countries (including small island states, several in Europe and Africa, and the EU as a bloc) submitted a detailed levy proposal, indicating growing support for this approach ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Backers of a levy argued that a high enough carbon price would make zero-carbon fuels (which are currently more expensive) competitive, and that proceeds from the tax could help finance the transition and assist developing countries. However, there was debate over how high the levy should be: industry groups like the International Chamber of Shipping (ICS) suggested starting around $20 per tonne of CO₂, whereas the EU nations pushed for around $100/tonne, and Pacific Island countries advocated $150/tonne or more, which they said was necessary to keep global warming below 1.5°C ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). In other words, some saw $20 as too low to change behavior, while others feared $150 might shock the industry – this foreshadowed the compromise that would come later.
An emissions trading or credit-based system: A different group – including large emerging economies and oil-producing countries like China, Brazil, Saudi Arabia, South Africa, and others – favored a more flexible “cap-and-trade” style or credit trading mechanism ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). One notable proposal from China, called the International Maritime Sustainable Fuels and Fund (IMSF&F), envisioned setting a fuel carbon intensity standard (essentially a limit on how carbon-intensive the fuel a ship uses can be, similar to the CII approach) and then allowing ships that exceed the limit to buy credits from those that emit less, or from a central fund of offsets ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). In this scheme, if a ship used fuel above the allowed carbon intensity, it would need to purchase “remedial units” or credits – creating a cost for non-compliance, but not a simple per-ton tax. This was seen by its proponents as a more palatable economic measure because it directly tied into existing regulation (fuel standards) and, arguably, would be less punitive on trade. However, critics of the credit-based approach argued that it would not generate money at the scale needed to fund R&D and climate adaptation, and could end up allowing companies to “pay to pollute” without truly driving emissions down ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ) ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Some also worried it might encourage intermediate solutions like liquefied natural gas (LNG) as a fuel, which still emits carbon (and methane) – essentially a detour rather than a real clean transition ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ).
This split essentially pitted many small island developing states (SIDS) and developed countries against a bloc of larger developing countries and petrostates. The former wanted an ambitious levy that both prices carbon and raises a sizable climate fund, potentially with some of that money helping climate-vulnerable nations. The latter voiced long-standing concerns that a carbon levy would raise transport costs, harm export competitiveness (especially for bulk commodities like minerals, agricultural goods, etc.), drive up the price of food and other essentials, and disproportionately burden developing economies ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). For example, in early 2025 a group of 16 countries supporting the credit scheme (including major developing economies) issued a paper titled “Why a flat levy should not be adopted by IMO,” arguing that a universal carbon tax on ships would endanger exports from developing countries, increase global prices, and threaten food security ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). On the other side, the small island nations countered that these cost fears were overstated – studies indicated that even a hefty carbon price would have a very modest impact on consumer prices, and the cost of climate inaction for these vulnerable nations (sea level rise, storms) far outweighed a slight rise in shipping costs ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ) ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). An IMO-commissioned analysis by the UN’s trade body (UNCTAD) found that all proposed decarbonization measures would indeed raise shipping costs and cause a small drag on global GDP, but it notably did not factor in the economic benefits of avoiding climate damage ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). In short, the debate was between those prioritizing ambition and climate finance versus those prioritizing cost containment and trade impacts.
In 2023, as planned, the IMO revised its GHG strategy, responding to global calls for more ambition. In July 2023 (MEPC 80 meeting), member states agreed to enhance the 2050 goal to “net-zero GHG emissions by or around 2050” – effectively a full decarbonization target, strengthening the wording from 2018’s 50% cut ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). They also adopted new interim checkpoints: at least 20% reduction in emissions by 2030 (with an “indicative” stretch target of 30%) and at least 70% by 2040 (stretch 80%), relative to 2008 ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). This ratcheting up of ambition added pressure to implement a robust mid-term measure. Simply put, to get on track for even a 20-30% cut by 2030, something beyond the existing efficiency tweaks was needed – hence the urgency to agree on a carbon pricing mechanism.
By the time of the IMO’s environmental committee meeting in London in spring 2025, a consensus was building that some form of carbon price had to be agreed. Years of discussions had narrowed the gap, and many felt that failing to act could prompt unilateral moves by blocs like the EU (which was already moving to include international shipping in its regional carbon trading system) and lead to regulatory fragmentation. Negotiations were intense and often fractious ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). The Pacific islands and their allies continued to push hard for a substantial levy that would also feed a climate fund for vulnerable nations ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). A group of emerging economies and oil states remained staunchly opposed to a straight tax, citing the harm to trade and their economies ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). The United States, notably, took a unique stance – its delegation withdrew from the talks midway, with U.S. representatives calling the effort to impose a carbon price on shipping “blatantly unfair” ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). (The U.S. has historically been cautious about international taxation mechanisms and appeared concerned that the scheme might disadvantage its interests or set a precedent it didn’t like. By walking out, the U.S. effectively opted not to influence the design further, sticking to a principled objection.)
Amid these divisions, IMO leaders and some compromise-minded states (such as Singapore and Japan) worked behind closed doors on a “bridging proposal.” This compromise, which gained traction by the end of the week-long meeting, borrowed elements from the credit-based approach but also incorporated price tiers like a levy ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ) ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). In essence, negotiators coalesced around a hybrid system: instead of a flat tax on every tonne of CO₂, they would set fuel carbon-intensity targets for ships and then impose fees on emissions that exceeded those targets. This way, a significant portion of emissions would be priced (ensuring a deterrent and revenue stream) while some emissions would effectively be exempt (up to a certain threshold) to alleviate the burden on industry. It was a middle ground intended to get more countries on board – not as ideal as a full levy in the eyes of climate advocates, but more effective than a pure trading system in the eyes of those who wanted meaningful action.
With a draft compromise framework in hand, delegates braced for a final decision.
April 2025: A Historic Agreement on Global Shipping Carbon Price
( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ) Delegates at the IMO’s Marine Environment Protection Committee (MEPC) meeting in London, April 2025, where the global shipping carbon pricing agreement was negotiated. After fractious talks, a compromise was put to a vote.
After a week of intense negotiations at IMO headquarters in London, talks climaxed dramatically on Friday, April 11, 2025. Unusually for the IMO (which typically operates by consensus), the matter went to a vote at the insistence of Saudi Arabia, one of the leading opponents of a levy ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ) ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). The result was 65% of IMO member states present voting in favor of the compromise (with 80% support among those casting valid votes, excluding abstentions), surpassing the required two-thirds majority ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). In concrete terms: 63 countries – including major players from both the developed and developing world – voted yes, while 16 countries voted no and 25 abstained ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India).
According to reports, those supporting the agreement included the entire European Union, China, India, Brazil, Japan, South Africa, Singapore, Norway, and many others ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). India’s yes-vote was particularly noteworthy: as a large developing nation often vocal about equity, India joined the consensus that the compromise was acceptable and necessary. China and Brazil, who had been skeptical of a high flat tax, also came on board. This broad coalition indicated a recognition that the shipping sector needed to act on climate despite differences.
On the other side, 16 states – chiefly oil-producing “petrostates” like Saudi Arabia, the United Arab Emirates, Russia, Venezuela and a few others – opposed the deal ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). Their no-votes were in line with their concerns that a carbon price on shipping could reduce fuel demand or disadvantage their shipping interests. Notably, Saudi Arabia took the floor to formally express its opposition even after the vote, underlining the geopolitical rift ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ).
Additionally, 25 countries abstained from voting, a group that reportedly consisted mostly of small island developing states (SIDS) and some Latin American countries (such as Argentina) ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). The Pacific Island nations, in particular, abstained to signal their dissatisfaction – these countries had actually wanted a more ambitious outcome and greater climate-finance provisions, and thus could not fully endorse the watered-down compromise ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). They acknowledged the progress but had hoped, for example, for a higher carbon price and a mechanism to direct funds to climate adaptation for vulnerable nations. Their abstention was a way to avoid blocking the deal (since it still passed) while protesting that it didn’t go far enough.
The United States was a special case: the U.S. delegation was not present at the time of the vote ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). As noted, the U.S. had withdrawn from active negotiations, effectively neither supporting nor formally opposing – a stance that drew some criticism given the U.S.’s large influence in global shipping and climate politics. Observers pointed out that this move was consistent with the U.S.’s stated position of not agreeing to international emissions levies, but it meant the agreement moved forward largely without U.S. input.
When the votes were tallied, IMO Secretary-General Arsenio Dominguez commended the member states for achieving a compromise, emphasizing the importance of continued dialogue and cooperation as the details are finalized ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). Indeed, some technical details still needed to be fleshed out following the agreement – the policy framework was set, but implementation guidelines would be worked out by an IMO working group before formal adoption. The plan was (and is) to formally adopt the new measures at the next IMO environmental committee meeting in October 2025, after ironing out any remaining specifics ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India) (India, 62 other countries agree to adopting global shipping tax | Latest News India - Hindustan Times). But the April 2025 vote effectively locked in the political agreement.
This decision has been described as historic – it’s the first time a global carbon levy/tax has been applied to an entire industry sector (India votes in favour of first global carbon tax on shipping | The Political and Business Daily - Newspaper - Read this story on Magzter.com). Shipping, often seen as a hard-to-abate sector, now has a clear signal that it must change course. While not everyone is happy with the outcome, it represents a critical step toward aligning maritime transport with global climate objectives.
Key Features of the IMO Carbon Pricing Mechanism
The agreed carbon pricing mechanism is a hybrid system that combines elements of a fuel standard with fee-based incentives. In simpler terms, it sets a benchmark for ship emissions and charges a fee for emissions beyond that benchmark. Here are the key details of how it works:
Start Date – 2028: The carbon pricing requirements will take effect in 2028 globally (India votes in favour of first global carbon tax on shipping | The Political and Business Daily - Newspaper - Read this story on Magzter.com). This gives the industry a few years (2025–2027) to prepare – e.g. by investing in cleaner fuels, improving efficiency, or adjusting operations – before the fees kick in. The delay was likely agreed to allow time for necessary regulatory adoption and for ships and fuel suppliers to get ready.
Ships Covered: It will apply to large ocean-going ships over 5,000 gross tonnage (GT) ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). This threshold means essentially all significant commercial vessels (container ships, tankers, bulk carriers, cruise ships, etc.) are included, while small vessels are exempt. Ships above 5000 GT account for roughly 85% of CO₂ emissions from international shipping ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India), so the vast majority of emissions will be under the scheme. (By excluding small craft, the IMO also reduces administrative burden and spares smaller developing-nation fleets like some domestic ferries from immediate impact).
Carbon Intensity Targets: The mechanism is built around carbon intensity reduction targets. Carbon intensity here means emissions per unit of transport work (for example, grams of CO₂ per cargo-tonne-mile). Two tiers of targets are defined:
A “lower target” that requires ships to improve their carbon intensity by a modest amount.
An “upper target” that requires a greater emissions intensity improvement.
Specifically, for the launch year 2028, the lower target is a 4% reduction in carbon intensity relative to a baseline (approximating current average fuel emissions), and the upper target is a 17% reduction ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). These targets will then tighten over time – by 2035, the lower target rises to a 30% improvement and the upper to 43% ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). In practice, what this means is: in 2028 a ship might be expected to use a fuel or technology that is at least 4% cleaner (in terms of CO₂ per energy unit) than conventional heavy fuel oil, and by 2035 it should be 30% cleaner, etc. Ships can achieve this by using lower-carbon fuels (such as liquefied natural gas, methanol, biofuels, etc., or eventually hydrogen/ammonia when available) or other innovations like wind assist or just improving efficiency.
Two-Tier Carbon Levy: Depending on how a ship performs against those targets, it will face fees on its emissions:
If a ship exceeds the lower target (i.e., it does not achieve even the 4% improvement in 2028), then it must pay a fee of $100 per tonne of CO₂ emitted above that lower threshold ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). In effect, there’s a $100/tonne carbon price on the portion of its emissions that should have been avoided by meeting the 4% target.
If the ship’s emissions are so high that they also exceed the upper target (i.e., it falls short of the 17% improvement), then for the emissions beyond that upper limit it must pay $380 per tonne of CO₂ ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). This is a much steeper penalty for the “worst” emitters or the most carbon-intensive portion of emissions.
To put it simply: ships continuing to burn traditional high-carbon fuel without any cleaner fuels or efficiency gains will end up paying both the $100 and $380 fees on different slices of their emissions (effectively an average carbon cost somewhere in between the two rates, depending on how bad their performance is). A ship that has made moderate improvements might only pay the $100/tonne levy for its excess emissions, and a ship that meets the lower target (or better) would pay nothing (and of course a ship meeting the upper target or switching to zero-carbon fuel would pay no fees at all). This graduated fee structure was designed as a compromise – it’s not a flat tax on every tonne of CO₂, which reduced the immediate cost impact, but it still places a significant price on a large share of emissions (India, 62 other countries agree to adopting global shipping tax | Latest News India - Hindustan Times) (India, 62 other countries agree to adopting global shipping tax | Latest News India - Hindustan Times). Essentially, it rewards ships that take early action to decarbonize and heavily penalizes those that do not.
Revenue Generation: The carbon levy is expected to raise substantial funds. Estimates suggest the scheme will generate on the order of $30–40 billion by 2030 (roughly $10 billion per year in the late 2020s) (India votes in favour of first global carbon tax on shipping | The Political and Business Daily - Newspaper - Read this story on Magzter.com) (India, 62 other countries agree to adopting global shipping tax | Latest News India - Hindustan Times). These figures assume many ships will still be paying fees in the early years. If the industry quickly cleans up, revenue would be lower (which is good for emissions). But either way, tens of billions of dollars are anticipated.
Use of Funds – Decarbonization Only: All revenue from the carbon pricing will be “ring-fenced” for decarbonizing the maritime sector (India votes in favour of first global carbon tax on shipping | The Political and Business Daily - Newspaper - Read this story on Magzter.com). In other words, the money collected from ship owners will go into an IMO-managed international fund dedicated to clean shipping R&D, infrastructure, and implementation of emission-cutting projects. For example, it could fund development of zero-carbon fuels (like green ammonia or hydrogen bunkering facilities at ports), pilot projects for new technologies, retrofitting older ships with cleaner tech, or helping poorer countries’ shipping industries upgrade to greener vessels. Notably, none of this revenue is earmarked for broader climate change adaptation or loss-and-damage funds for vulnerable countries (India votes in favour of first global carbon tax on shipping | The Political and Business Daily - Newspaper - Read this story on Magzter.com). This point was contentious – many developing nations (particularly the climate-vulnerable SIDS) wanted at least a share of the money to help them cope with climate impacts (since they contribute little to shipping emissions but are on the frontline of climate change). However, the agreed deal keeps the money strictly within the shipping sector. The rationale given by others was that the fund needed to be focused on driving decarbonization of shipping itself, and issues of climate justice and adaptation finance should be dealt with in other forums (like the UNFCCC). As a result, some have criticized the deal for neglecting climate equity, but supporters argue it will accelerate green innovation in shipping by ensuring a dedicated investment stream.
Enforcement: The carbon pricing mechanism will likely be enforced through amendments to MARPOL (the pollution convention) or a newly established IMO instrument, meaning it will be legally binding for IMO member states that ratify it (expected to be most major flag states). Ships would have to report their carbon intensity performance and emissions, probably via the existing data collection systems and CII framework. If a ship falls short of targets, it will be required to purchase emissions units or pay into the climate fund at the specified rates. Ships that fail to comply (either by not reporting or not paying fees) could be denied port entry or face penalties under port state control – though those details are being developed. The two-tier payment might function similarly to how port dues or other levies are collected annually or per voyage. Essentially, the IMO is setting up what amounts to a global carbon fund for shipping where the polluters (ships over the threshold) must contribute. This fund will then disburse money to approved decarbonization projects. A board or committee will likely oversee the funds – details on governance are to be decided, but transparency will be crucial to maintain trust that the money is used effectively.
In summary, the mechanism is a kind of “carbon levy with a performance twist.” Ships have clear targets to meet (which get stricter over time); if they don’t meet them, they pay a carbon fee. The worse their performance, the higher the effective carbon cost they pay (up to $380/tonne for the dirtiest portion of emissions). This creates a strong incentive to at least get under the upper threshold. The expectation is that over time the IMO can ratchet up these requirements (as indicated by the 2035 tightening) to move toward net-zero emissions by 2050.
It’s important to note how significant the price levels chosen are. $100 or $380 per tonne of CO₂ is quite high compared to carbon prices in other sectors. For instance, in international aviation’s carbon offsetting scheme (CORSIA), airlines paid on average only a few dollars per tonne for offsets – roughly 100 times less than $380 ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Even the EU carbon market price (one of the highest carbon prices currently) hovers around $100 per tonne; $380/tonne is nearly four times that, making it a hefty fine for non-compliance. This high top-end rate is meant to strongly discourage shipping companies from simply choosing to pay to pollute – if it were cheap, they might ignore the targets, but at $380, it should grab attention. By one comparison, $380/ton CO₂ would add on the order of $1,200 to the cost of a tonne of bunker fuel (since burning one tonne of fuel oil emits about 3.15 tonnes of CO₂). That roughly triples the fuel cost, which would make most dirty fuels economically unviable. Thus, the structure tries to strike a balance: it isn’t an across-the-board tax on every emission (which helped get broad agreement), but the upper-tier penalty is severe enough to push the industry toward cleaner operations.
Reactions and Equity Concerns: Developed vs Developing Perspectives
The reception to the IMO’s carbon pricing deal has been mixed, with perspectives varying between developed and developing nations – though not in a simplistic way, as the usual alliances were somewhat scrambled.
Developed Nations: In general, most developed countries (e.g. European nations, Japan, Canada, Australia, etc.) welcomed the agreement. They had been among the strongest advocates for a market-based measure in IMO and saw this as a long-overdue step for climate action. European officials, for instance, viewed it as validation of their push to decarbonize shipping and likely were relieved to have a global solution that prevents regional fragmentation. Many developed countries would have preferred an even more ambitious levy (the EU originally backed ~$100/tonne starting price and deeper cuts), but they accepted the compromise as better than no deal. There is recognition that this sets a global minimum standard – and individual regions can still apply tougher rules if they choose (for example, the EU is still including maritime emissions in its Emissions Trading Scheme from 2024 onwards, which will work alongside the IMO measure). Developed countries are also generally pleased that the fund will go into R&D and technology for clean shipping, as several of them have industries poised to benefit (shipbuilding, marine engineering firms developing green tech, etc.). However, some experts in these countries caution that the scheme as agreed may be too weak in the short term – pointing to analysis that it will only cut emissions ~10% by 2030 versus the IMO’s own 20%+ target ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India) – and they call for ratcheting up ambition at future IMO meetings.
One significant developed nation, the United States, did not support the agreement. U.S. officials described the global carbon fee as unfair – possibly alluding to concerns that American businesses or consumers would pay into a fund that might benefit foreign entities, or fears that it could be a precedent for international taxation that the U.S. has long resisted ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Some in the U.S. also argued that the IMO plan could increase shipping costs and thus import costs, acting like a tax on consumers. Since the U.S. withdrew its delegation, it effectively abstained. This has led to speculation about what the U.S. will do when implementation time comes – it could remain outside the system (though U.S.-flagged ships in international trade would still be subject to it when visiting foreign ports), or perhaps the U.S. will develop its own measures. There’s also a possibility the U.S. will eventually accept the IMO system if certain conditions are met. For now, the absence of U.S. support stands out, given that historically the U.S. has the largest economy and significant maritime trade interests.
Emerging Developing Economies: Many large developing countries actually supported the deal. This group includes China, India, Brazil, South Africa, Indonesia, and others – nations that are key players in global shipping and were initially cautious about high carbon prices. Their support became possible largely because the compromise addressed some of their concerns: it is not a flat tax on every emission (so the cost impact is somewhat limited initially), and it directs funds to technology rather than to external climate aid (so they see it as helping the industry transition rather than transferring money abroad) (India, 62 other countries agree to adopting global shipping tax | Latest News India - Hindustan Times). India, for instance, voted in favor and was an active participant in shaping the deal ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). India’s representatives from the Shipping Ministry acknowledged the need to decarbonize shipping (India has a long coastline and significant maritime trade) and likely saw value in accessing the global fund for upgrading its own shipping infrastructure. India has often championed equity in climate talks, so its support suggests it felt this measure was a fair compromise that also aligns with India’s push for cleaner growth. China’s support was pivotal – having initially proposed an alternate scheme, China ultimately joined the consensus. This indicates that China was satisfied that the final plan would not unduly harm its trade competitiveness. Indeed, the two-tier approach and relatively low initial targets (4%) mean the near-term impact on shipping costs is limited, giving Chinese shipping companies time to adapt. Brazil, South Africa, and others similarly may have calculated that having a seat at the table managing a shipping transition fund is better than facing potentially trade barriers if they didn’t act on shipping emissions. Additionally, many emerging economies are looking to develop green industries (like green hydrogen production which could be used for future fuels), so a global shipping decarbonization push could present economic opportunities.
That said, these countries remain wary. Their support came with the understanding that impact assessments will continue and that if the mechanism causes undue hardship, there might be adjustments. They also succeeded in making the scheme more gradual than what the most ambitious countries wanted (for example, starting at 4% improvement rather than, say, 10% or more). So while they are on board, they will be closely watching implementation.
Climate-Vulnerable Nations (SIDS and LDCs): Many of the smallest and most vulnerable developing nations had a bittersweet reaction. Small Island Developing States, like those in the Pacific (Marshall Islands, Solomon Islands, Kiribati, etc.) and some in the Caribbean, along with certain Least Developed African nations, were actually the moral force pushing for a high carbon price to align with 1.5°C climate goals. These states have negligible shipping emissions themselves but are deeply impacted by climate change (sea-level rise, extreme weather) and also disproportionately pay high transport costs for imports. They initially wanted a $100/tonne levy on all emissions, with a significant share of revenues going to climate adaptation funds for vulnerable nations. The outcome in 2025 did not meet all their demands: the carbon price starts effectively lower (since not all emissions are charged, only the excess), and none of the money is earmarked for adaptation or loss & damage compensation. As a result, most of these countries abstained rather than voting yes ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). For example, the representative of the Marshall Islands – a country that had boldly proposed a high levy years earlier – said they welcomed that IMO was finally pricing carbon but were dissatisfied that “the vast majority of emissions would not be covered” initially and that the level of ambition fell short of what is needed to keep their islands safe ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). They, along with other island states, have vowed to continue pushing for the measure to be strengthened over time (they see the 2025 deal as a starting point, not the end). They also hold out hope that in future IMO negotiations, members might agree to allocate some percentage of the fund to help developing countries adapt, especially if revenues turn out to be very large.
On the positive side, those vulnerable nations did “allow” the deal to go through (by abstaining rather than full opposition) because having a global carbon price in shipping is still a significant precedent that they helped set. They can claim victory in principle – the world’s first industry-wide carbon levy – even if it’s not as high as they wanted. Additionally, some mechanisms to review and adjust the policy in light of its impact are built in, so they will be vocal in those reviews. Their reaction is essentially cautious optimism mixed with disappointment: optimism that a framework now exists and can be built upon, disappointment that climate justice aspects were sidelined.
Oil-Producing States: The countries that voted against (Saudi Arabia, UAE, Russia, Iran, Venezuela, etc.) remain opposed and critical. They argue this carbon price will increase the cost of shipping fuel (which is a major product for them) and could accelerate the decline in fossil fuel use globally – directly hitting their core economic interests. They also claim it sets a “dangerous” precedent of imposing costs on energy producers. Some have hinted they might seek to undermine or delay implementation, possibly by not ratifying the MARPOL amendments or by finding legal avenues to challenge the IMO’s authority to enforce what they see as essentially a tax. However, because the vote passed with a clear majority, procedurally the IMO can move forward even over their objections ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). It’s noteworthy that Saudi Arabia’s move to force a vote – rather than keep negotiating – might have been a tactical gamble that backfired from their perspective ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Once it went to a vote, they were outnumbered, and now the decision is on record. These states have formally registered their dissent (ensuring it’s noted in the IMO report) ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ), and they may simply not participate actively in the fund. There’s also the question of enforcement: if some major port states (say, in the Gulf region or Russia) do not implement the measures, could that create loopholes? The hope among proponents is that since the largest markets (Europe, Asia) will enforce it, even ships trading with the Middle East would still face the rules once they go elsewhere. Over time, if the world moves to cleaner fuels, oil states might pivot investments (some are exploring hydrogen or ammonia fuel exports which could eventually power ships).
Shipping Industry and Economic Observers: Within the shipping industry, the reaction has been cautiously supportive. Large ship owners and industry groups have long preferred a single global regulation over a patchwork of regional rules (it’s easier to comply with one system). The International Chamber of Shipping (ICS), representing over 80% of the global fleet, actually supported the idea of a carbon price to fund R&D, though they suggested a lower starting price ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Now that $100-$380/tonne is on the table, some in the industry are concerned about the cost, but they also see opportunity: access to funding for retrofits and new fuels, and clearer long-term targets that allow planning. The industry had been calling for an “IMO R&D fund” for years – now essentially they are getting one, funded by mandatory contributions. Many shipping companies had already begun investing in cleaner ships (for example, Maersk ordered methanol-fueled container ships, others are testing wind rotor sails, etc.), so this regulation actually validates those moves and will push laggards to follow.
Some industry voices worry about short-term competitive imbalances – e.g. if a ship is registered under a flag that doesn’t enforce the rules immediately – but the consensus is that major trading nations will make it uniform. Shippers (the customers who use ships to transport goods) will likely see some cost passed on. For example, commodity exporters might pay slightly higher freight rates. Big companies, however, increasingly have their own climate pledges and may absorb some costs or prefer greener shipping options. The sentiment in many developed economies is that consumers might willingly pay a tiny bit more for products if it means greener shipping (especially as awareness grows).
Economists and climate experts: Many climate economists applauded the fact that a carbon pricing mechanism was finally agreed for international shipping – a sector that had evaded pricing so far. They note it’s an important precedent for global cooperation on carbon pricing. However, experts also quickly pointed out that in its initial form, the plan is insufficient to meet the IMO’s own climate targets for 2030 ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Analyses by groups like UMAS (University Maritime Advisory Services) project only an 8–10% reduction in shipping emissions by 2030 from this scheme ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India) ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). This shortfall is because the required fuel improvements (4%) are very low in the early years and most emissions aren’t priced until you pass those thresholds, meaning many ships may choose to just pay the $100 tier for a while and not dramatically change. Climate campaigners have thus labeled the outcome as “underwhelming” in ambition – they wanted all emissions priced from the first tonne, not only above 4% cut, and at a higher rate to drive rapid innovation ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ). Nevertheless, they also acknowledge the political reality: getting so many countries to agree was a feat, and there is a built-in review process. Campaign groups are gearing up to push IMO to tighten the screws at the next strategy revision (scheduled by 2028) to ensure that after a few years of this scheme, the free allocation (the untaxed portion) is reduced and the rates possibly increased to align with climate goals.
In summary, developed nations and progressive developing nations view the IMO carbon levy as a crucial, if imperfect, step forward, whereas some developing countries are frustrated it didn’t go further or help them directly, and oil-rich states remain opposed. The divide wasn’t strictly North-South; it was more nuanced, involving issues of climate justice, economic interest, and level of ambition. All parties will be watching closely how this mechanism is implemented and its actual effects, which brings us to the expected impacts.
Environmental and Economic Implications
Environmental Impact and Emissions Reduction: The primary goal of the carbon pricing mechanism is to drive down GHG emissions from shipping. In the near term (by 2030), the impact is projected to be relatively limited – on the order of a 5–10% reduction in total emissions compared to a no-action scenario ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). This is because the initial requirements (4% intensity improvement) are modest; many ships can achieve that with minor changes or will choose to pay a manageable fee. Thus, the sector might still overshoot the IMO’s aspirational 2030 cut of 20% ( India, 62 countries agree to world's 1st global carbon tax in shipping industry | India News - The Times of India). However, the importance of the measure is expected to grow over time. As the intensity targets ramp up (toward 30-40% in the 2030s) the proportion of emissions that gets priced will increase, or alternatively ships will have to drastically cut emissions to avoid the fee. The IMO’s ultimate vision of net-zero emissions by 2050 will likely require strengthening this mechanism further in future revisions (perhaps increasing the carbon price or lowering the free-emission threshold). But having this system in place now creates the scaffolding for those future improvements.
One significant positive environmental impact is the signal this sends to innovate. By effectively stating that “carbon pollution won’t be free anymore,” the IMO agreement incentivizes shipowners and industry suppliers to invest in low- and zero-carbon solutions. For instance, alternative fuels like green methanol, ammonia, or advanced biofuels that produce far less CO₂ could become more economically attractive. A shipowner facing a $380/tonne CO₂ charge for using fuel oil might instead opt to retrofit the ship for methanol which, while currently costly, could avoid a chunk of those fees if methanol’s lifecycle carbon is lower. Similarly, energy-saving technologies (like wind assist rotors, hull air lubrication systems, or better voyage optimization software) now have a clearer payback: every tonne of CO₂ saved could avoid up to $100 or $380 in fees. This dynamic is expected to spur a wave of innovation in the shipping sector – something that has already begun but will accelerate. The dedicated R&D and deployment funding (the $30-40 billion pot) will further amplify this by providing grants and financing for pilot projects, especially for things that are too risky or expensive for individual companies to do alone. We might see, for example, rapid development of green shipping corridors (routes with the necessary fuel supply infrastructure for ammonia or hydrogen) supported by the fund, or demonstration of new ship designs.
Another environmental co-benefit is that reducing fossil fuel use in ships also cuts other pollutants like sulfur oxides (SOx) and nitrogen oxides (NOx), and particulate matter, which means cleaner air, especially around ports and shipping lanes. While IMO already has rules for low-sulfur fuel, fully moving away from heavy fuels will improve air quality further and have public health benefits.
Economic Impact on Shipping and Trade: Economically, the carbon pricing mechanism introduces new costs for the shipping industry, which could have ripple effects on global trade. How significant are these costs? Let’s break it down:
For ship operators, any CO₂ emitted above the targets will incur a fee. For example, consider a large container ship that emits about 200 tonnes of CO₂ per day at sea (not unusual for a big ship). If that ship makes no changes by 2028, it might have to pay $100/ton on some of those emissions and $380/ton on another portion. If it ends up paying, say, an average of $150/ton for half of its emissions, that’s $75/ton effective across all emissions – about $15,000 extra per day of operation in carbon costs. Over a year, that could be a few million dollars per ship. Shipowners will either invest to reduce those emissions or pass costs on to customers (or a bit of both). We can expect shipping freight rates to reflect some of the carbon cost. If a container from Asia to Europe currently costs $2000 to ship, a carbon charge might add a few percent to that cost. How much consumers notice this will vary by product – the cost of an iPhone might go up by mere cents, whereas very low-value bulk commodities could see a more noticeable impact per unit (e.g., the cost of shipping a ton of coal or grain might go up a bit).
Analyses done for IMO showed that even a high carbon price would likely increase end consumer prices by only a small fraction. For instance, one study indicated that a $100/ton carbon price might increase the cost of imported goods by much less than 1% on average. But certain trade flows (like long-distance shipments of cheap goods) would feel it more. Countries that are far from major markets or rely heavily on imports (like Pacific islands) might see a slight uptick in import costs. However, those same countries wanted the levy, recognizing that unchecked climate change costs them far more in the long run.
Competitiveness: Industries that are energy-intensive and rely on shipping (like mining, oil, agriculture) have raised concerns that this could make their exports less competitive. For example, an oil exporter might worry that if buyers have to pay more to ship oil, they might reduce demand. Or a country exporting iron ore might fear higher freight rates make their ore pricier on the global market compared to a closer source. These effects are real but expected to be relatively minor in the initial years because of the partial nature of the pricing. Also, since the carbon price applies globally to all ships, it maintains a level playing field – no country’s fleet is singled out; all face the same rules (this uniformity was a key demand by industry and many states). That said, if some nations implement slower or not at all, we could see some evasion tactics (like re-flagging ships to non-participating states or taking longer routes to avoid certain jurisdiction). But given the broad support (63 countries including major ports and canals), avoidance will be difficult without significant inconvenience.
Adaptation by industry: Shipping companies will try to minimize cost impacts. We will likely see many ships adopt “dual-fuel” capabilities – able to burn a mix of conventional fuel with cleaner alternatives – to meet just enough of the target to avoid the high fees. For instance, maybe a ship will run on a blend with 10% biodiesel or methanol by 2028 to hit the 4% improvement, thus dodging most fees except a small $100/tonne portion. Over time, they’ll increase the mix as targets tighten. This phased approach spreads out costs. In the long run, the shipping industry knows it must invest in new vessels and fuels – the carbon price simply nudges them to do it sooner rather than later. There may be some short-term economic pain for shipowners with old, inefficient vessels (their ships will become more expensive to run). Those assets might be scrapped earlier than planned, which actually could benefit the market by retiring older, more polluting ships and making way for efficient ones.
Trade and Developing Countries: Some developing countries worry about food and commodity prices. For example, island nations that import most food might see slightly higher freight costs passed onto food prices. International organizations may look at ways to mitigate such impacts, perhaps via the fund (though currently not designated for that, it could indirectly help by funding efficiency in those trade routes). The UNCTAD analysis mentioned earlier concluded there will be some negative impact on global GDP from any decarbonization measure ( Q&A: Nations agree carbon-pricing system to steer shipping towards net-zero - Carbon Brief ), but it’s expected to be very small (on the order of a few tenths of a percent off global GDP by 2030, for instance). Moreover, that kind of analysis doesn’t count the avoided damage from climate change. If shipping contributes to a significant reduction in warming, that prevents costly impacts down the line. In economic terms, the carbon price is internalizing a bit of the climate cost into the cost of shipping services.
Use of the Fund: The billions of dollars collected will be spent within the maritime industry, which can have positive economic effects. It’s essentially a reinvestment of money from polluters to innovators. Shipbuilding nations (South Korea, China, Japan, parts of Europe) might see increased demand for new-tech ships. Ports around the world will get investments for new fuel infrastructure – potentially creating jobs and development (for example, a project to set up green ammonia bunkering in a developing country’s port could bring knowledge transfer and economic activity). There is hope that a portion of projects funded will directly benefit developing countries – e.g., grants for Pacific island domestic shipping to use solar/electric ferries, or helping African ports become hubs for green fuel. This would help offset the costs those countries bear indirectly via higher import costs. Details are yet to be decided, but expect political discussions on how to allocate funds regionally to be a big topic in IMO meetings following the money.
Avoiding a Patchwork: An often overlooked economic benefit of a global agreement is regulatory clarity. If IMO had failed, we might have seen a patchwork of regional carbon taxes on shipping (the EU, maybe others following). That can be complicated and costly for ship operators to navigate (different rules in different waters). A single global system simplifies compliance and could actually be more cost-effective overall. It also avoids potential trade disputes that might arise if, say, the EU taxed foreign ships and others retaliated. So in a sense, this agreement provides a stable predictable framework for the next decade, which industry prefers for making investment decisions.
In broad economic terms, the cost of moving goods may rise slightly, but likely not enough to significantly alter trade patterns in the short term. Over decades, if carbon prices rise further, we might see some shifts – for instance, extremely long supply chains could become relatively more expensive, potentially encouraging more regional trade or local manufacturing for some products (a side benefit for local economies, perhaps). But such shifts would also be influenced by many factors like automation, energy prices, etc., not just shipping costs.
Innovation and Leadership: The countries and companies that move quickly on green shipping tech could gain a competitive edge. For example, a shipping line that invests in new net-zero-emission ships might incur high costs now, but it could dominate the market later as regulations tighten and others scramble. Likewise, countries that foster green maritime R&D could capture a share of the growing clean marine technology market. This carbon pricing scheme essentially creates a market for low-carbon shipping solutions – a new economic sector in the making. We can expect to see more public-private partnerships and international collaboration to develop things like zero-carbon fuel supply chains and retrofit technologies, funded by both industry and the new IMO fund.
In terms of macroeconomics, even $10 billion a year in revenue is a significant redirection of resources. It’s essentially a transfer from shipping users (and ultimately consumers) to the clean tech developers and implementers. If used wisely, this could accelerate the decarbonization of not just shipping, but potentially other sectors (for instance, it might drive down the cost of green hydrogen which has multiple uses). If mismanaged, there’s a risk of waste – which is why transparency and equitable governance of the fund will be key.
Summing Up Impacts: Environmentally, the IMO carbon pricing mechanism is a critical step forward but needs to strengthen over time to meet climate goals. Economically, it introduces new costs but also new opportunities, with a relatively modest impact on end consumers in exchange for incentivizing a cleaner global shipping system. Many describe it as the beginning of a transformation: shipping has long been one of the cheapest ways to move goods with heavy fuel oil being untaxed and dirty – now, finally, pollution has a price, and that will gradually reshape the industry into a greener form.
Conclusion
The journey to this global shipping carbon price has been a long one. It began with early recognition of shipping’s contribution to air pollution in the late 20th century, progressed through the IMO’s first efficiency rules in 2011 that started bending the emissions curve, gained momentum with the 2018 initial GHG strategy setting ambitious targets, and finally arrived at a tangible market-based measure in 2025. This is the first time a single international regulatory body imposes a carbon pricing regime on a global industry, making it a notable precedent in climate governance.
The April 2025 agreement to implement a carbon pricing mechanism from 2028 is both a breakthrough and a compromise. It demonstrates that multilateral action on climate change is possible even in sectors not covered by agreements like Paris, but it also reflects the give-and-take needed to bring on board a diversity of nations. The result is a policy that will push the needle on emissions reductions, though not as far or as fast as some hoped.
For the general public, what does this mean? In the coming years, the goods we buy that travel by sea may become ever so slightly more expensive – but they will be transported in a gradually cleaner way, with shipping companies investing the money we indirectly pay into greener technology. For the climate, it means the large and growing emissions from ships will finally be addressed in a systematic way, helping to avoid some future warming. For the shipping industry, it marks the start of a new era where efficiency and low-carbon operation become central to their business model (much like fuel efficiency did after 2011, now carbon efficiency will be paramount).
There are challenges ahead: implementation details, potential enforcement issues, and the need to ramp up ambition to align with a 1.5°C warming limit. But the establishment of a global carbon price for shipping is a foundation to build on. Observers expect that IMO will review the effectiveness of the mechanism in the early 2030s and likely strengthen it (much as they revisited the GHG strategy in 2023). If technology advances faster, we could see the prices or targets adjusted to drive deeper cuts. Conversely, if unexpected negative economic effects occur, there may be pressure to tweak the design. The continual balancing act between environmental urgency and economic pragmatism will play out in IMO meetings to come.
In conclusion, the IMO’s carbon pricing mechanism is a landmark step in the effort to decarbonize international shipping. It encapsulates the progress made over a decade of negotiations – from the first efficiency standards to a comprehensive strategy to concrete market measures. While not perfect, it moves the shipping industry closer to a sustainable future. As the world moves toward 2050, the hope is that this mechanism, alongside innovation it spurs, will make zero-emission ships the norm, helping protect the climate without stifling global trade. The seas, which connect us all, will be navigated by vessels that no longer sail at the expense of the planet. The 2025 IMO agreement signals that the tide is turning in favor of green shipping – a victory for multilateralism and the environment, with ripples that will be felt across economies worldwide.