UK Shipping Levy: Necessity, Challenges, and possible path forward

Challenges

The method of implementing this levy. The way in which any shipping levy is implemented will matter – would it be per unit, per value, or simply on distance travelled. Additionally, shipping emissions vary significantly across regions, ships, companies and products, largely due to differences in fuel types and operational practices. This variance complicates the levy’s implementation, as it requires a nuanced approach to ensure that companies are incentivised to reduce their emissions.

Additionally, note too that the practical way in which maritime shipping is organised is complicated, meaning that ownership of vessels, national flag, and domicile of the shipping company can potentially be three different things, not to speak of ‘secondary registries’ and ‘flags of convenience’ as possible loopholes to any implementation of a shipping levy. This might suggest that implementation is likely to be complex and could require a lot of collective action to ensure consistent enforcement and to close any regulatory gaps. Collaboration through international organizations, such as the IMO, would be key in ensuring that the levy is applied fairly and effectively across the global shipping industry.

Potential special treatment to small countries. The implementation of a shipping levy raises significant concerns regarding its potential differential impact on Small Island Developing States (SIDS) and Least Developed Countries (LDCs). If not carefully designed, the levy could disproportionately burden these nations, which may rely heavily on shipping for trade and have limited resources to adapt to new costs. To mitigate these effects, there is a strong argument for applying the levy in a manner that accounts for the unique challenges faced by these countries. Furthermore, any special treatment must align with World Trade Organization (WTO) principles, which emphasise fair competition and non-discriminatory practices.

Coordination with the ETS and the upcoming CBAM. The introduction of the UK CBAM in 2027 may lead to some shifts in the UK's import patterns, potentially shifting imports of regulated products from certain "dirty" and proximate countries to cleaner and more distant nations. While this change could incentivise a transition to greener products, it may also lead to an increase in shipping emissions due to longer transport distances.

On the one hand, this could be seen as strengthening the case for an emissions-based shipping levy, on the other hand, it will complicate matters further for UK firms. To address these complexities, it is essential for the UK Government to coordinate the shipping levy with existing policies, including the ETS and the upcoming CBAM.

The alternative is some form of unilateral action. The EU has included shipping now in its Emissions Trading System (Reducing emissions from the shipping sectors) and the UK is also planning to do so from 2026 (The long-term pathway for the UK ETS). However, as far as we are aware this is only applied to domestic maritime transport. Hence, this is likely to have a small impact. A more substantial effect could be achieved if shipping emissions were integrated as an embedded source of carbon dioxide within the UK CBAM.

Recommendations

Accurate data is crucial for calculating the levy. However, sourcing this data can be particularly challenging due to significant variability across different origins, regions, and companies. International coordination could play a vital role in addressing this issue. Collaboration among countries and regulatory bodies can help standardise data collection methods and ensure consistency in reporting. This could involve establishing common metrics for measuring emissions and sharing best practices for data management across jurisdictions.

Consider the needs of less developed countries, particularly SIDS and LDCs to ensure the long-term efficiency of this policy. The primary objective of the proposed levy is to reduce global emissions, therefore, it is essential to implement measures that do not disproportionately burden vulnerable nations. Providing additional time for compliance, such as introducing initial exemptions for SIDS and LDCs, can help ease the transition. Furthermore, assisting these countries in moving towards greener technologies could be a critical to tackle climate change.

Coordinate effectively the levy with the UK's CBAM and ETS. By adopting a similar approach, the UK can leverage lessons from the EU's implementation of the ETS for shipping, which includes emissions from maritime transport as part of its broader climate strategy. This integration has the potential to create a unified system that holds both domestic and international shipping accountable for their emissions, thus enhancing the overall effectiveness of climate policies.

International coordination and some forms of international agreement would be very helpful. Achieving a coordinated approach within the United Nations' multilateral institutions would significantly enhance the effectiveness of a shipping emissions levy. Such international collaboration can improve data collection on emissions, and promote equitable treatment for all nations, particularly developing countries, ensuring that policies are sensitive to their circumstances.

However, the UK's influence in these discussions is uncertain, and much will depend on the diplomatic efforts it is willing to invest. The UK should actively engage in these negotiations to avoid obstructing progress and contribute positively to the development of a global emissions framework.

Ensure that the introduction of such a levy aligns with WTO principles. The UK should actively engage in discussions about the shipping emissions levy at the IMO and the WTO. This commitment is essential to address potential challenges related to the levy’s implementation and to ensure equitable treatment for all nations, especially those that may be disproportionately affected.

Support the development of low-carbon fuels. Low-carbon fuels are essential for mitigating climate change while ensuring economic development. A shipping levy based on emissions could incentivise companies to adopt these sustainable fuels, fostering innovation and development in the industry. Additionally, there is significant potential for supporting research and development (R&D) in low-carbon technologies, independent of the shipping levy. Such initiatives can enhance sustainable shipping practices and contribute to reaching broader climate objectives.

Other concerns

A potential substitution to aviation. Introducing a levy on shipping emissions may lead to increased reliance on air freight, which has a significantly higher carbon footprint. For instance, a study by the Department for Environment, Food & Rural Affairs indicates that transporting 2 tonnes of freight over 5,000 km emits about 150 kg of carbon dioxide equivalent via a small container ship, compared to approximately 6,605 kg for air transport. This substitution effect could counteract efforts to reduce emissions.

The speed of shipping

Some US ports like the ports of Los Angeles and Long Beach have adopted a Vessel Speed Reduction Programme by slowing the speed of ocean-going vessels as they approach or depart the port. This programme resulted in a reduction of 26,000 tonnes of CO2-equivalent emissions in the Port of Long Beach in 2008, which was almost 3% of the port’s total greenhouse gas emissions. Additionally, IMO has included it as “speed optimisation” in its 2022 guidelines for the development of a Ship Energy Efficiency Management Plan (SEEMP).

However, implementing slower speeds could increase the number of ships and present both logistical and economic challenges for shipping firms. Slower speeds can affect delivery times, operational efficiency, and overall profitability, creating a dilemma for companies trying to balance sustainability with business interests.