We Must Stop Subsidising Fossil Fuels and Tax them Instead: A Shipping Levy is the Best Way to get Serious this Year

A universal carbon levy on international shipping is the first best opportunity for governments to begin countering the hugely detrimental environmental impacts of heavily subsidised fossil fuels, by taxing them instead. As the UN nears the April 2025 finalisation deadline of this simple yet essential climate tool, find out more on why and how governments can get it right.

Full report by Christiaan De Beukelaer, Senior Lecturer in Cultural Policy at the University of Melbourne, available here.

Subsidising fossil fuels remains a status quo for many governments worldwide. In 2022, countries spent $7 trillion dollars on direct and indirect subsidies for fossil fuels, which is 7.1% of global GDP. This averages on spending $190 on every tonne of CO2 being emitted. In a staggering contrast, a mere $1.5 trillion was generated in combined public and private climate finance the same year, meaning that governments are willingly and actively exacerbating inequities and climate destruction.

Any dollar spent on fossil fuels and its environmental or health impacts is one that cannot be invested in renewable energy. Moreover, the sunk cost of fossil fuel infrastructure and continued public support for its operations risks many countries falling behind in the global energy transition, even if they have the potential to become energy independent or exporters. This is why a global fossil fuel subsidy reform needs to go hand in hand with justice and equity.

Some countries try to counterbalance fossil fuels subsidies with carbon taxes, as a way to speed up the transition to renewable energy. However, there is no existing carbon tax that exceeds the average subsidy, and no tax that would do this globally.

This could change in 2025 - with global shipping as the starting point that marks a genuine fossil fuel subsidy reform.

The UN’s maritime regulator, the International Maritime Organization (IMO), has the opportunity to adopt a universal “levy” on the 1 billion tonnes of annual greenhouse gas emissions from the sector. It would be legally binding and global, the first breakthrough in actually making a big polluter pay.

The IMO agreed to adopt some form of carbon price as a tool to achieve its 2023 climate commitment: reaching zero-emission shipping by/around 2050 through a just and equitable transition. The design, application and the use of revenues of the future policy is especially important in terms of justice and equity between and within countries. 

The policy will be finalised at the 83rd Marine Environment Protection Committee (MEPC83) meeting on 7-11 April, with formal adoption in October, in order to enter into action in 2027.

Over sixty countries–a majority of the world’s fleet–want the future policy to be in the form of a universal levy that covers all shipping emissions. This group also includes big players in the Latin American climate and trade space, such as Panama, Mexico, and Barbados.

As we see record-high fossil fuel use, carbon emissions and global temperature, it seems sensible to tax carbon emissions by at least the amount  fossil fuels receive in subsidies - e.g. $190/tonne of CO2.

Currently the most ambitious proposal is for a $150 price–put forward by Pacific Island states–which would nevertheless be a landmark achievement for climate diplomacy and the UN. Independent research found that a $150 levy, in combination with a simplified goal-based marine fuel standard, is best suited to deliver on the IMO strategy’s objectives.

Linked proposals for the disbursement of revenues strike a balance between subsidising the transition to zero emission fuels (in-sector spending) and adapting port infrastructure to climate change as well as paying for a fair share of historic climate damage from international shipping. 

However, none of these proposals suggest that levy revenues would replace any of the commitments and obligations of developed countries that have disproportionately benefited from fossil fuels, thereby causing most of the unfolding climate crisis. 

Even so, countries that most heavily subsidise fossil fuels are blocking the adoption of a universal price on pollution from shipping. Their arguments ignore the fact that the price on this pollution pales in comparison to the public support going to support fossil fuels. 

BRICS and Petro-States are proposing at the IMO a much weaker, regressive, and deeply inequitable mechanism that would only cover emissions above a certain threshold, set to reduce over time. This mechanism–not a levy–would require slow movers to buy emission credits. The revenues of this would then be used to reward first movers. This would leave the poorest countries that do not have the capital to invest in shipping’s energy transition to pay for emissions, while rich shipping companies that can invest – and have already done so – receive those funds as subsidies for being first-movers.

The levy opponents, accounting for some 68% of fossil fuel subsidies (adding up to $4.7 trillion), sketch a universal GHG Levy as “uniquely harmful” to developing countries. They have called it a mere “cash cow” that makes the shipping industry pay for the climate  obligations of rich countries. These claims are misleading at best.

Not “uniquely harmful”: To explore the  impact of putting a price on pollution from  the shipping sector, the IMO commissioned  an “comprehensive impact assessment” which  modelled impacts on the global fleet and the effect on states. The study found  that a shipping levy is not more costly or  damaging to GDP than other options because revenues serve to counter cost  increases for developing countries. This  emphatically disproves the claim that a  price on pollution is “uniquely harmful.”

Not a “cash cow”: Putting a price on  emissions from shipping will not let big  polluters off the hook. In fact, a universal price on shipping pollution is a necessary instrument to drive the energy transition in line with the IMO’s Strategy. It is sensible to expect the industry responsible for a large part of the problem to phase  out emissions and make a fair share contribution to climate finance. These finance needs range from $2.4 trillion a year for developing countries to $5 trillion a year for the whole world. This is, respectively, equivalent to  the fossil fuel subsidies of China ($2.2  trillion) and the group of countries that block a shipping levy of $4.7 trillion.

Pricing shipping emissions gives the IMO an opportunity to set a global example: a shipping  levy could cover an entire global industry through legally binding measures. The evidence clearly suggests that a shipping levy starting at $150 per  tonne of CO2e emissions is the bare minimum IMO Member States should adopt in 2025 to begin countering the hugely  detrimental environmental impacts of heavily subsidised  fossil fuels. Indeed, a $150 shipping levy would be lower than the average subsidy from fossil fuel CO2 emissions.

With that in mind, IMO member states should join forces to stop fossil fuel incumbents from blocking the climate policy the world urgently needs.