A new World Bank report looks at various options for implementing carbon pricing in the shipping industry and explores how carbon revenues could be used to enable an effective and equitable energy transition in and beyond the sector.
ccording to the report, not all market-based measures are equal, as through a price signal, they create financial incentives for stakeholders across the industry to change their practices and accelerate the move toward low- and zero-carbon shipping.
However, some of them can raise significant amounts of revenues, thus enabling an additional set of climate and development actions. In shipping alone, carbon revenues could reach an estimated $1 trillion to $3.7 trillion by 2050 (or $40-$60 billion annually), says World Bank.
Carbon pricing could be one of the most impactful ways to achieve this, as it would incentivize the switch to clean fuels while also providing a fresh revenue stream to finance, for instance, enhanced climate action in developing countries
There are many options for using revenues from carbon pricing, with the report concluding that the bulk of carbon revenues from shipping should be allocated to the governments of those countries with lower ability to address climate change or shipping emissions.
The reasoning is simple as developing economies are more likely to suffer from disproportionately negative impacts by carbon pricing and may not have the necessary resources to invest in low-carbon solutions. On the other hand, making them the primary recipients of carbon revenues would help correct this imbalance and ensure a more equitable transition toward a climate-smart future.
The money raised through carbon pricing could be allocated toward many purposes. At the top of the priority list is the decarbonization of the shipping industry itself. This would include supporting the development of zero-carbon vessels and zero-carbon fuels, building production facilities and distribution networks for clean bunker fuels, upgrading port infrastructure to accommodate these new technologies, and more.
Part of the funds could also help upgrade maritime infrastructure more broadly, for instance, by improving the overall resilience of maritime ports suffering not only from climate-induced extreme weather events but also from congestion, poor digitalization, or a lack of skilled workers.
Given the considerable revenues that carbon pricing could generate, while reducing GHG emissions from ships effectively, there are also opportunities to direct at least some of these resources beyond the maritime sector
says World Bank, adding that using a portion of the carbon revenues to finance the production of greener electricity would be an effective way to support the broader energy transition, create jobs, and improve air quality.
- Revenue-raising market-based measures are attractive because they can enable an additional set of actions thanks to the revenues raised.
- The strategic use of revenues appears more favorable than exemptions to address equity concerns at the IMO.
- Certain revenue uses appear more aligned with the guiding principles of the Initial IMO GHG Strategy and the desirable key features of a market-based measure than others.
- Splitting carbon revenues between in-sector and out-of-sector use could be a viable way forward.
- In most cases, sovereign governments appear better suited as recipients for the carbon revenues than the private sector.
- A lot of expertise and experience from the previous management of existing climate finance funds could be leveraged to inform the management of carbon revenues from international shipping.