Effects of Climate-Related Legislation on Global Maritime Transportation
Global Shipping Faces Climate Turning Point as Regulations Take Centre Stage
The shipping industry is navigating a significant transformation as it grapples with a surge of climate-focused regulations. The operational and financial landscape for global shipping companies is being reshaped, pushing them towards sustainability and decarbonization.
The United States' Clean Shipping Act of 2025 sets the tone with a mandate to eliminate greenhouse gas (GHG) emissions from ocean-going vessels operating in US waters. The Environmental Protection Agency (EPA) will implement progressively tighter carbon intensity standards, aiming for a 30% reduction by 2030 and reaching net-zero by 2050. By 2035, ships at berth or anchor in US ports must operate on zero emissions, pushing shipping companies to adopt green fuel and technologies or face operational restrictions.
On an international level, the International Maritime Organization (IMO) has introduced the Net-Zero Framework, targeting a 70-80% reduction in maritime GHG emissions by 2040 and net-zero by 2050. This framework introduces carbon limits, requiring ships exceeding emission thresholds to buy offset credits at high prices (up to $380 per tonne of CO2e), while more efficient ships can sell credits. The IMO's Global Fuel Standard, part of the Net-Zero Framework, imposes mandatory reductions in fuel greenhouse gas intensity, aiming for a 20-30% reduction by 2030.
These regulations present operational and financial challenges for shipping companies. They must transition their fleets to compliant fuels such as low-carbon biofuels, synthetic fuels, hydrogen, and ammonia, and integrate emerging technologies like onboard carbon capture systems. Ships will need retrofitting or new builds aligned with these regulations, and operations in major markets like the US will require zero emissions at ports by 2035, impacting fleet utilization and route planning.
Compliance will increase costs through investments in new vessels or retrofits, fuel switching, and purchasing carbon offset credits if emissions exceed set thresholds. The carbon credit price of $380/tonne CO2e under the IMO framework represents a significant cost for high emitters, creating financial incentives to innovate but also raising operational expenditures. Some companies may generate revenue by selling surplus credits if they outperform emission thresholds.
However, concerns remain regarding the ambition level and market design of these policies. For example, around 90% of emissions could initially be exempt from penalties, potentially limiting the policy's immediate impact and revenue generation for decarbonization.
The industry's smaller carriers may be disproportionately affected by these compliance costs, potentially endangering market equilibrium. Furthermore, long-term fuel investment in the shipping industry is questioned due to the lack of scalable infrastructure to support alternative fuels globally.
In the face of these challenges, stakeholders in the global shipping industry must embrace change for a cleaner, more resilient future. The future of shipping hinges on sustainability, with a focus on cleaner fuels and smarter ships. The United Nations Conference on Trade and Development predicts a rebound in global shipping in 2024 amid geopolitical uncertainties, but the industry's success will depend on its ability to adapt and innovate in the face of these transformative climate policies.
[1] Clean Shipping Act of 2025 [2] IMO Net-Zero Framework [3] Global Fuel Standard [4] Critiques on the IMO Net-Zero Framework
- The Clean Shipping Act of 2025, in the United States, mandates the elimination of greenhouse gas emissions from ocean-going vessels operating in US waters, setting stringent carbon intensity standards for global shipping companies.
- The International Maritime Organization (IMO) has introduced the Net-Zero Framework, aiming for a 70-80% reduction in maritime greenhouse gas emissions by 2040 and net-zero by 2050, through carbon limits and a Global Fuel Standard.
- The IMO's Global Fuel Standard, part of the Net-Zero Framework, imposes mandatory reductions in fuel greenhouse gas intensity, with a target of a 20-30% reduction by 2030.
- Concerns have been raised about the IMO Net-Zero Framework, with questions about its ambition level and market design, such as the potential initial exemption of 90% of emissions from penalties, limiting the policy's immediate impact and revenue generation.
- The smaller carriers in the global shipping industry may be disproportionately affected by the compliance costs of these climate-focused regulations, creating potential disruptions in the market equilibrium.
