The global shipping industry could pay more than USD$50bn a year for the sector’s near 1 bn tonnes of carbon emissions under the proposed Japan carbon tax plan to reduce shipping emissions.

Japan, the second-largest shipowning country in the world, has submitted a proposal to the International Maritime Organisation to impose a major tax on carbon emissions from shipping, in an effort to address the significant greenhouse gas contribution by maritime transport. 

The transport and shipping industry is a vital block in supporting global trade and supply chains, where up to 90% of the food and products that we consume is transported by sea. But the sector is also a major carbon emitter and is responsible for at least 2.5% of global carbon emissions – more than the total emissions of Germany. 

As one of the world’s leading shipping countries, Japan is calling for a global carbon tax that will see the industry pay USD$56 per tonne of carbon dioxide starting from 2025 to 2030. If imposed, the tax would raise more than USD$50bn a year on shipping’s annual emission of 940 million tonnes of CO2. 

After which, the plan proposes to increase the costs every five years; the tax will be set at $135 per tonne in 2030, $324 per tonne in 2035 and a staggering $673 per tonne in 2040. The proposal is also suggesting that the carbon tax for bunkers – ships that store fuels and petroleum products – be three times higher as each tonne of bunker fuel produces about three tonnes of CO2. 

“We want to propose a scheme that would collect money from fossil fuel [powered] vessels and return the money to zero-emission vessels” to help the operators of environment-friendly ships recoup their upfront investment costs, a Japanese maritime bureau official said to the Financial Times

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Japan’s proposal comes amid growing debates on how to decarbonise maritime trade. The International Maritime Organisation (IMO) has set down a lacklustre goal to only halve emissions by 2050, which is half of the reduction required by the Paris Agreement.

The global transport sector has particularly struggled to decarbonise due to its diversity of ships – no one solution can fit all. Clean fuels such as green hydrogen, ammonia or methanol are also yet to be scaled-up. Stricter and more ambitious carbon taxation is the sector’s best bet to drastically reduce emissions. 

Japan’s carbon tax plan for shipping is by far the most ambitious one yet. So far, the Marshall Islands and the Solomon Islands are the only territories to have proposed a levy on shipping emission at $100 per tonne. Some shipping giants have also hopped on the bandwagon, including Maersk, whose CEO Søren Skou recommends a static tax at $150 per tonne, and Trafigura, which has estimated an effective tax scheme to be at about $250-$300 per tonne

The multilateral negotiations within the IMO will seek to settle on the type of financial incentives to cut emissions in shipping, ranging from carbon trading systems and levies to rebates for “green” vessels.

As opposed to Japan’s plan to tax bunkers or subsidise green fuel, China (with the support of Argentina, Brazil, South Africa and the UAE) is suggesting penalising ships that hit below a certain benchmark of carbon efficiency and reward those above a certain threshold.

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