Explore how IMO’s 2028 global carbon levy will reshape shipping fuels, costs, and decarbonization. Discover impacts, challenges, and future trends.
When the International Maritime Organization (IMO) agreed in 2028 to implement a global carbon levy on shipping, it marked one of the most consequential policy shifts in the industry’s history. The measure aims to accelerate the decarbonization of maritime transport by putting a price on carbon emissions from ships, nudging owners and operators toward cleaner fuels and technologies.
The deal comes at a pivotal moment. Global shipping carries about 90% of world trade, yet it is also responsible for nearly 3% of global greenhouse gas (GHG) emissions. For decades, the industry’s environmental footprint was treated as an externality, but mounting climate urgency has forced regulators, financiers, and customers to demand accountability.
By applying an economic penalty to high-carbon fuels, the IMO carbon levy is designed to make sustainable fuels more competitive, close cost gaps, and guide investment flows. For shipowners, however, the levy introduces new complexities: rising operating costs, uncertain fuel markets, and difficult choices about whether to retrofit vessels, order new builds, or shift operational strategies.
This article provides a deep dive into the levy: why it matters, how it will work, the expected technological and financial impacts, real-world reactions, and the opportunities and risks it brings.
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Why This Topic Matters in Maritime Operations
A turning point for decarbonization
Unlike previous IMO regulations—such as the Energy Efficiency Design Index (EEDI), the Energy Efficiency Existing Ship Index (EEXI), or the Carbon Intensity Indicator (CII)—the carbon levy goes beyond technical compliance. It directly alters market economics, making emissions reduction a financial imperative.
The levy is expected to start at around $100 per ton of CO₂ emitted, though exact figures and adjustment mechanisms may vary. For a large container vessel consuming 100 tons of fuel oil per day, this could add tens of thousands of dollars to daily operating costs.
Closing the competitiveness gap
One of the greatest barriers to adopting low-carbon fuels has been cost. LNG, methanol, ammonia, and hydrogen all carry premiums over conventional marine fuels. With the levy, however, the relative economics shift. Fuels with lower carbon intensity become more attractive, encouraging investment in bunkering infrastructure, supply chains, and new ship designs.
Global equity and competitiveness
A carbon levy also raises questions of fairness. Developing countries with significant shipping interests worry about the economic burden. To address this, a portion of revenues is earmarked for climate adaptation funds and supporting least developed countries (LDCs) and small island developing states (SIDS).
The introduction of carbon pricing and regional levies, alongside tightening IMO decarbonization targets, is fundamentally reshaping how shipowners view fuel choices. Where once the question was framed around technical feasibility alone, it is now equally a matter of economic survival and regulatory compliance. The result is a fast-changing fuel landscape, where some options serve as transitional bridges while others point to long-term zero-carbon futures.
LNG as a Transitional Fuel
Liquefied Natural Gas (LNG) has been the workhorse of alternative fuels in shipping for more than a decade. Its attraction lies in its ability to significantly reduce sulfur oxides (SOx), nitrogen oxides (NOx), and particulate matter (PM)—pollutants that cause acid rain, smog, and serious health impacts in coastal communities. From an air quality perspective, LNG is a clear step forward.
In terms of carbon, LNG provides a 20–25% reduction in CO₂ emissions compared with conventional heavy fuel oil (HFO). This has made it a popular choice for compliance with initial decarbonization targets, particularly in cruise shipping, ferries, and container trades. By 2024, more than 400 LNG-fueled ships were in operation worldwide, with over a thousand more on orderbooks.
Yet LNG is not without controversy. Its main drawback lies in methane slip—the release of unburned methane during combustion or leakage during handling. Methane is a greenhouse gas roughly 25 times more potent than CO₂ over a 100-year horizon, and its regulation under the EU ETS from 2026 significantly undermines LNG’s long-term climate credentials.
Nevertheless, LNG remains competitive in the short-to-medium term. It benefits from the most mature bunkering infrastructure of all alternative fuels, with more than 200 ports worldwide offering LNG refueling. Dual-fuel LNG engines also provide flexibility, as ships can switch between LNG and marine diesel depending on market conditions. For many operators, LNG represents a hedge strategy: an imperfect but proven solution that buys time while longer-term fuels scale up.
Methanol Gaining Momentum
If LNG has been the fuel of the 2010s and early 2020s, methanol is shaping up to become the fuel of the 2030s. Its appeal lies in both practicality and scalability. Unlike LNG or hydrogen, methanol can be stored and transported at ambient temperature and pressure, using modified versions of existing oil infrastructure. This makes retrofitting and bunkering significantly less costly and less space-intensive than cryogenic fuels.
Methanol’s true potential, however, lies in its production pathways. Conventional methanol is fossil-derived, but green methanol can be synthesized from renewable hydrogen and captured CO₂. This opens the possibility of a closed carbon loop, where carbon emitted during combustion is offset by carbon captured during fuel production.
Momentum accelerated dramatically in 2023, when Maersk launched the world’s first methanol-powered container ship, the Laura Maersk. By 2025, Maersk had more than 20 additional methanol vessels on order, and competitors such as CMA CGM and COSCO were following suit. Ports including Rotterdam, Singapore, and Shanghai have begun adapting bunkering facilities to serve methanol-fueled vessels, confirming its growing market acceptance.
Under carbon pricing regimes, methanol’s lower lifecycle emissions give it a distinct cost advantage. While methanol is currently more expensive than HFO or LNG, the rising cost of CO₂ allowances is narrowing the gap quickly. By the early 2030s, many analysts expect green methanol to reach cost parity, making it the most viable mainstream fuel for deep-sea shipping.
Ammonia: The Zero-Carbon Contender
Ammonia is attracting strong attention as a true zero-carbon fuel, since it contains no carbon atoms at all. This makes it highly attractive under carbon levy systems, where shipowners must pay directly for their CO₂ output. A ship fueled by ammonia would, in principle, avoid most of these costs entirely.
However, ammonia comes with significant challenges. It is highly toxic to humans and marine life, corrosive to ship structures, and difficult to handle safely in confined spaces. Fires and explosions are possible under specific conditions, though less likely than with hydrogen or LNG. For these reasons, large-scale deployment has not yet materialized.
Still, momentum is building. Classification societies such as DNV, ABS, and Lloyd’s Register have already introduced “ammonia-ready” notations, allowing new ships to be designed with space, safety distances, and tank arrangements that will enable future ammonia conversion. Several pilot projects are underway in Japan, Norway, and Singapore, including ammonia-fueled engine tests by MAN Energy Solutions and Wärtsilä.
The carbon levy is expected to accelerate these projects, as the economic case for ammonia strengthens once CO₂ pricing fully bites in 2026 and beyond. While widespread adoption may not occur until the 2030s, ammonia remains one of the most promising candidates for long-term decarbonization of long-haul shipping.
Hydrogen and Fuel Cells
Hydrogen is often described as the ultimate clean fuel for shipping. When used in fuel cells, hydrogen generates electricity with water vapor as the only by-product. Even when combusted directly in modified engines, it produces no CO₂ emissions.
The barriers are primarily technical and economic. Hydrogen has a very low volumetric energy density, meaning ships require large tanks to store enough fuel for long voyages. Liquefying hydrogen requires cooling to –253°C, even colder than LNG, while compressed gaseous hydrogen demands high-pressure storage at up to 700 bar. Both approaches are space-hungry and costly.
As a result, hydrogen is currently seen as most viable for short-sea trades, ferries, and auxiliary power rather than transoceanic shipping. Projects such as Norway’s MF Hydra ferry and Belgium’s Hydroville passenger shuttle have demonstrated the feasibility of hydrogen-fueled operations at smaller scales. Meanwhile, advances in proton-exchange membrane (PEM) fuel cells are improving durability and efficiency, paving the way for broader adoption.
Carbon pricing is expected to drive more investment into hydrogen, particularly in regions with abundant renewable energy to produce green hydrogen. While hydrogen may not dominate deep-sea shipping soon, it is likely to become a cornerstone of regional and short-sea decarbonization strategies.
Digitalization and Efficiency Technologies
The impact of carbon pricing extends far beyond fuels. By putting a clear monetary value on emissions, the levy ensures that every percentage point of efficiency translates into measurable cost savings. This has triggered a surge in demand for digital tools and physical energy-saving devices (ESDs).
Digital twins and AI-driven voyage optimization are increasingly standard, allowing operators to simulate routes, weather conditions, and fuel consumption in real time. Platforms from Wärtsilä, DNV Veracity, and StormGeo can reduce fuel consumption by 3–7% per voyage simply by optimizing speed profiles and weather routing.
On the hardware side, technologies such as air lubrication systems, hull coatings, and propeller retrofits are proving effective. Wind-assisted propulsion—via rotor sails, kites, or rigid wing sails—is also experiencing a revival, offering fuel savings of 5–15% depending on route and conditions.
Together, these incremental improvements make a significant difference under carbon pricing. For a large container ship consuming 200 tonnes of fuel per day, even a 5% efficiency gain can save tens of thousands of euros annually in allowance costs alone. As a result, digitalization and efficiency upgrades are no longer optional add-ons but central to fleet competitiveness.
A Fuel Landscape in Transition
Taken together, these developments illustrate the layered nature of the fuel transition. LNG provides a proven but short-term bridge, methanol is emerging as the mainstream choice for the 2030s, ammonia promises long-term zero-carbon potential, and hydrogen represents the ultimate clean fuel for shorter trades. Meanwhile, digitalization and efficiency technologies act as cross-cutting enablers, reducing costs and emissions regardless of the chosen fuel.
The carbon levy ensures that decisions are no longer just about engineering or sustainability—they are financial imperatives. In this new environment, shipowners who act early on fuel flexibility, digital integration, and incremental efficiency will be better positioned to weather the turbulent transition ahead.
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Challenges and Practical Solutions
1. Cost burden on shipowners and charterers
With fuel bills already a major expense, adding a carbon levy can strain profitability, especially in markets with tight margins.
Solution: Long-term charter agreements with cost-sharing clauses are emerging, where charterers pay part of the levy in exchange for guaranteed access to greener fleets.
2. Uncertainty in fuel availability
Global infrastructure for methanol, ammonia, and hydrogen is still developing. Retrofitting vessels is risky if bunkering options are unavailable at key ports.
Solution: Strategic deployment in green corridors—specific trade routes with assured alternative fuel supply—offers a stepping stone.
3. Safety and crew training
Alternative fuels present new hazards: cryogenic handling for LNG, toxicity for methanol and ammonia, and flammability for hydrogen. Crew competence is critical.
Solution: Updates to the STCW Convention are expected, with mandatory dual-fuel and alternative fuel operation training.
4. Equity concerns for developing nations
Some economies fear being disproportionately affected, especially those reliant on maritime exports.
Solution: Levy revenues will partially fund climate adaptation programs, just transition measures, and technology transfer initiatives.
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Case Studies / Real-World Applications
Maersk and methanol-powered vessels
By 2025, Maersk plans to operate over 20 methanol-fueled ships. These early movers expect to benefit from the levy, as competitors relying on high-carbon fuels face rising costs.
LNG retrofits in Europe and Asia
Several European ferry operators have converted to LNG dual-fuel engines. While the levy narrows LNG’s cost advantage, existing retrofits still provide compliance benefits in ECAs and under CII regulations.
Ammonia pilots in Japan and South Korea
Japan’s shipping majors and South Korea’s Hyundai Heavy Industries are testing ammonia as a primary marine fuel. With the levy, pilot projects gain stronger financial justification.
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Future Outlook & Trends
Short-term (2028–2035): Cost-driven adoption
The first decade after implementation will see rapid investment in methanol, LNG, and efficiency retrofits. Levy revenues will help fund global fuel infrastructure.
Mid-term (2035–2045): Expansion of zero-carbon fuels
Ammonia and hydrogen will move from niche pilots to mainstream adoption, supported by maturing bunkering networks and safety frameworks.
Long-term (2045–2050): A zero-carbon fleet
The levy, combined with IMO’s net-zero 2050 target, will likely push most of the global fleet to adopt zero-carbon fuels. Digital solutions and AI optimization will make shipping not only greener but also smarter.
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FAQ
1. What is the IMO carbon levy?
A global fee applied to ships based on their carbon emissions, designed to accelerate adoption of low- and zero-carbon fuels.
2. When will it start?
The deal was reached in 2028, with phased implementation expected shortly thereafter.
3. How much will it cost shipowners?
Estimates suggest around $100 per ton of CO₂, translating into millions annually for large fleets.
4. Which fuels benefit most?
Methanol, ammonia, and hydrogen gain competitiveness, while heavy fuel oil and marine gas oil become less viable.
5. What happens to the money collected?
Part of the revenue funds climate programs, fuel infrastructure, and support for vulnerable economies.
6. Does this mean all ships need to retrofit immediately?
No. Operators may gradually adapt, but delaying action risks higher costs and stranded assets.
7. Will the levy alone decarbonize shipping?
It is not a silver bullet but a powerful market signal, complementing technical and operational measures.
Conclusion
The IMO’s 2028 carbon levy represents a watershed in shipping’s journey toward net zero. By internalizing the cost of emissions, it levels the playing field for greener fuels, drives technological innovation, and reshapes investment decisions across the sector.
Yes, challenges remain—ranging from cost burdens to infrastructure gaps—but the levy also creates unprecedented opportunities. Those who act early by investing in dual-fuel retrofits, new builds, and efficiency technologies will gain a competitive advantage in the carbon-constrained future.
Shipping has long been the backbone of world trade. With the carbon levy, it is also becoming a frontline actor in the fight against climate change. The course to 2050 is clear: a transition to a cleaner, more resilient maritime industry.
References
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International Maritime Organization (IMO). (2023). Revised Strategy on Reduction of GHG Emissions from Ships.
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International Chamber of Shipping (ICS). (2024). Fuel Transition Pathways for Shipping.
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Lloyd’s Register. (2024). Ammonia-Ready Design and Safety Guidelines.
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DNV. (2024). Maritime Forecast to 2050.
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Wärtsilä. (2023). Alternative Fuel Solutions for Shipping.
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MAN Energy Solutions. (2024). Methanol Retrofit Market Outlook.
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United Nations Conference on Trade and Development (UNCTAD). (2024). Review of Maritime Transport.
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Clarkson Research. (2024). Carbon Pricing and Shipping Economics.
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The Maritime Executive. (2023–2024). Various articles on fuel adoption and IMO policy.
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World Bank. (2022). Carbon Pricing in Shipping: Assessing Market-Based Measures.
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Paris MoU. (2023). Port State Control Annual Report.