The global shipping industry is at a crossroads. After decades of contributing to greenhouse gas emissions, the industry faces a push toward sustainability. The International Maritime Organization (IMO) and the European Union’s Emissions Trading System (EU ETS) are already impacting shipping corporations by enforcing stricter fuel standards and discussing a potential carbon tax. With looming regulations, the shipping industry must accelerate alternative fuels and innovative, sustainable technologies. Otherwise, corporations risk falling behind in an era of rapid decarbonization.
Why It Matters
Incoming Regulations in 2025: As a result of increasing emissions, IMO is negotiating global carbon pricing and fuel intensity standards. This can increase fuel costs, posing higher prices on shipping.
Global Impacts on Supply Chain: If fuel costs rise, businesses across industries will feel ripple effects. Industries especially reliant on international trade like retail, manufacturing, and agriculture will have higher prices of goods. Companies that adapt early by investing in sustainable fuel may avoid future struggling with rising compliance costs.
Rapidly Rising Emissions: Ship CO2 emissions have risen by 11% between 2014 and 2022, but 50% of the global order book can be fulfilled by vessels capable of running on alternative fuels, meaning that change is easily possible. (Kepler Cheuvreux).
The IMO is currently debating a greenhouse gas levy. Carbon taxes would range from $70 to $560 per ton of fuel oil; the EU ETS has already increased freight costs, which could double in 2025 (Kepler Cheuvreux). While nations and environmental groups advocate for a higher tax, countries with major shipping economies, like China, push for a lower one. Shipping companies that fail to quickly adapt to these coming regulations could face rising compliance costs. In the same vein, retail businesses that stick with unsustainable shipping companies may face supply chain disruptions. The final tax rate will be within a reasonable range between full climate sustainability and economic feasibility. Companies that invest in cleaner technologies now will be better positioned for long-term profitability.
These numbers illustrate the potential impact of different greenhouse gas pricing for the three major shipping hubs: Rotterdam, Singapore, and Houston. Very Low Sulfur Fuel Oil (VLSFO) is represented by the black bars, comparing December 2024 prices under three different tax scenarios ($150, $100, and $18.75 per ton of CO2). The higher the tax, the more expensive VLSFO becomes, with the highest impact when VLSFO is taxed by $150 per ton of CO2.
As a result of the taxes above, this chart highlights the anticipated cost increases for VLSFO under EU ETS regulations. Additionally, it highlights that fuel costs alone are no longer the biggest expense. EU ETS compliance costs are rising, with EUA payment increasing steadily from 2024 to 2026. Intra-EU trading will be hit harder than international voyages because they must comply with EU ETS and the FuelE mandate.
The FuelE mandates regulation on limiting greenhouse gas emissions for marine fuels between 2020 and 2050. The aim is for GHG intensity to decrease drastically by 2050, with an over 80% reduction. By 2050, traditional fossil fuels will be slowly phased out. Investment in alternative fuels should start now to meet future demand.
Action Items: Shipping Companies
Invest in Alternative Fuels: Companies should transition to LNG or biofuel vessels to comply with regulations more easily.
Retrofit Existing Fleets: Shipping companies should also upgrade older vessels with sustainable technologies to reduce fuel consumption. This includes new air lubrication systems that create space between the hull and the water, reducing friction (Kepler Cheuvreux).
Action Items: Businesses and Supply Chain
Choose Sustainable Shipping: Businesses should partner with sustainable shipping companies that are committed to low-carbon solutions.
Account for Rising Costs: Businesses should also expect and prepare for higher shipping expenses, adjusting their strategies.
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