WSC calls for a ‘green balance mechanism’ with IMO's GHG pricing mechanism

The IMO must consider a “green balance mechanism” based on a feebate mechanism to incentivise the use of low- and zero-emission fuels and technologies on ships, the World Shipping Council (WCS) suggested.

PHOTO: Getty Images

• Fossil-fuel powered ships must pay a "green balance fee"
• Green balance fund allocated for ships using zero-emission potential fuels
• Ships powered by transitional fuels subject to green balance fee after 2039

The green balance mechanism will complement the IMO’s planned greenhouse gas (GHG) pricing method, according to WSC’ updated proposal to the shipping regulator.

“The Green Balance Mechanism is adaptable and fully integrated with a greenhouse gas fuel-intensity standard. It can be used as a targeted greenhouse gas pricing mechanism, or a possible addition to an integrated [mid-term] measure,” WSC noted.

The mechanism will require all ships burning fossil marine fuels to pay a "green balance fee" if their well-to-wake (WtW) GHG emission reduction is below the year's GHG fuel intensity rate, the WSC recommended.

Funds collected from green balance fees – called green balance funds – will be allocated to all ships powered by fuels and technologies with zero-emission potential. The allocation will be done based on the green energy consumed onboard a vessel and its WtW GHG emission reduction.

To give an example, the WSC estimated that the green balance fee in 2030 will be $74 per tonne of carbon dioxide-equivalent ($74/mtCO2e) for ships using fossil marine fuels with no reduction in GHG emissions. In the same year, the green balance allocation, estimated at $295/mtCO2e will be granted to ships running on zero-emission potential marine fuels.

“The emission reductions required for a fuel to receive a price-balancing allocation increase in stringency between 2027 and 2050 to meet IMO’s net-zero goal,” WSC explained.

Till 2039, ships running on "intermediate" or transitional fuels, which can reduce GHG emissions by 65%, will be eligible for green balance funds. After that, as emission reduction targets tighten, they will incur green balance fees.

For ocean-going ships, LNG and biofuel blends have been viewed as low-carbon transition fuels. These still have greenhouse gas emissions - and often not much less than VLSFO or LSMGO - but they are typically more economical and technologically feasible now than fuels with true zero-emission potential, like green ammonia or green methanol.

"The Green Balance Mechanism makes it attractive for ship owners and energy providers to invest in fuels and technologies delivering deep greenhouse gas reductions from the start," WSC said.

The mechanism could ensure that funds collected are tied to the quantity of green bunker fuel used on vessels. This would bridge the price gap between fossil and green marine fuels and lower the cost of green fuel transition, the non-profit added. 

The proposal has been endorsed by container shipping majors including CMA CGM, A.P. Moller-Maersk, Evergreen Line, Hapag Lloyd, HMM, Mediterranean Shipping Company (MSC), One Network Express, COSCO and more. It is expected to be discussed at the IMO’s 81st Marine Environment Protection Committee meeting (MEPC 81) scheduled next month.

By Konica Bhatt

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