 "Global trade costs could rise by $800 bn, carbon tax on shipping lined up")
After the commodity segment, shipping will be the next sector to see the effects of the carbon price as the International Maritime Organisation (IMO), a UN organisation, plans to set goals for net zero carbon emissions by 2050, according to a report by the Financial Express (FE). The European Union (EU) has already decided to charge tax on inbound and inbound shipping from 2027.
Ajay Srivastava, founder of Global Trade Research Initiative, said in a note that the costs of import and export products will rise by three to four per cent, amounting to $600 to $800 billion annually.
"80 per cent of the world's merchandise trade, valued at over $20 trillion, is transported by 6,400 cargo ships. The shipping industry is responsible for three per cent of global greenhouse gas emissions", the note said.
Last week on Friday, the IMO notified its strategy for zero emissions by 2050. The body calls for decreasing emissions by 20-30 per cent by 2030 and 70-80 per cent by 2040 from the 2008 levels. The IMO has proposed that five per cent of all fuel used by ships be clean fuel by 2030 and will release detailed measures next year.
The countries are expected to meet the targets even though the IMO's recommendations are not legally binding. Some countries at the IMO meeting proposed that a tax be imposed on emissions beyond the targets, but this step was postponed due to opposition from China and other developed countries.
Srivastava stated that due to the new regulations, Indian traders will end up paying a larger amount of money to foreign shipping firms as 90 per cent of the country’s merchandise trade is carried by foreign ships. He added that In order to comply with the norms that are in the works, Indian shipping firms will have to set aside $100 billion.
In order to decarbonise, ships must transition to low-carbon fuels such as liquefied natural gas (LNG), ammonia, and methanol. The industry must also invest in optimising ship hull design and adopting efficient engines to increase ship efficiency.