The cost of using VLSFO could skyrocket to over $3,800 per tonne when the IMO carbon tax is at $150 per tonne.

The eight proposals from MEPC 81 were consolidated into five proposals at MEPC 82, reframed as the IMO Net-Zero framework. These proposals generally include both economic and technical measures, with varying degrees of compliance flexibility. On the technical measure side, most proposals advocate an annual reduction in greenhouse gas fuel intensity (GFI) on a well-to-wake (WtW) basis. The trajectories for these reductions are either predetermined or left to be determined.

The economic components of the proposed measures are equally crucial, encompassing carbon tax levies, revenue distribution mechanisms, and reward systems for compliant vessels or those adopting clean fuels. The proposed carbon tax levels vary significantly across different submissions. For instance, the proposal put forward by the European Union (EU) and Japan suggests a flat price of $100 per tonne of carbon dioxide equivalent (CO2e) from 2028 in addition to non-compliance costs.

In contrast, the proposal from small island developing states advocates a higher levy of $150 per tonne of CO2e starting from 2027, with provisions for potential increases over time. Recognizing the challenges of rapid industry-wide transformation, nearly all proposals incorporate flexibility mechanisms for GFI compliance. These include options such as banking compliance surplus, pooling, non-compliance credit buying or surcharges, and providing ship operators with a range of tools to meet increasingly stringent regulatory requirements.

To understand the potential impact of regulatory overlap between EU and IMO, a scenario analysis was conducted focusing on very low-sulfur fuel oil (VLSFO) bunkered in Rotterdam and used on intra-EU voyages. The analysis considered a comprehensive cost structure including the base bunker fuel price, estimated EU Emissions Trading System (ETS) tax, a FuelEU Maritime penalty for non-compliance and the potential IMO tax on both a $100 and $150-per-tonne level.

The results paint a picture of significant change in the economics of maritime fuel use. By 2050, if all proposed regulations are applied, the cost of using VLSFO could skyrocket to over $3,800 per tonne when the IMO carbon tax is at $150 per tonne. Importantly, the analysis suggests that the introduction of IMO tax levies could accelerate the price competitiveness of alternative fuels.

For example, some EU-produced e-ammonia with an optimally levelized electricity cost could become price-competitive with VLSFO in Europe by 2035, five years earlier than under current EU regulations alone.

Rystad Energy's analysis underscores the growing financial imperative for shipowners to actively seek alternatives to reduce their emission levels. As the cost of inaction continues to rise, the transition to cleaner fuels and more efficient technologies becomes not just an environmental necessity but an economic imperative. IMO has intensified its efforts through numerous intersessional meetings to refine the Net-Zero framework. While substantial work remains to reach a consensus, the timeline is constrained, with final approval targeted for MEPC 83 in April 2025 and adoption slated for the fall of the same year.

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