Shipping’s Slow Turn Toward Cleaner Fuel Is Reshaping Global Trade Costs

What happened?

The global shipping industry, responsible for moving roughly 80% of world trade by volume according to UNCTAD, is in the early, uneven stages of a fuel transition prompted by International Maritime Organization emissions rules. The IMO’s revised greenhouse gas strategy, adopted in 2023, set targets to reduce shipping’s emissions intensity substantially by mid-century, and member states have continued negotiating the specific pricing and fuel-standard mechanisms needed to enforce those targets, including a proposed global carbon pricing mechanism for the sector that would be among the first of its kind for an entire global industry.

In response, shipowners have begun ordering vessels capable of running on methanol, ammonia or liquefied natural gas, while ports from Singapore to Rotterdam have started building limited alternative-fuel bunkering infrastructure. But the transition remains constrained by high fuel costs, patchy availability and unresolved questions about which alternative fuel will ultimately dominate the industry.

Key points

• The IMO’s 2023 revised GHG strategy targets net-zero emissions from international shipping by or around 2050, with interim checkpoints for 2030 and 2040.
• Shipping accounts for roughly 3% of global greenhouse gas emissions, according to IMO estimates, a share expected to rise without decarbonisation.
• Clarksons Research and other maritime data providers report a rising share of newbuild vessel orders capable of running on alternative fuels, though most still default to conventional fuel oil in practice due to availability.
• Green shipping corridors — agreements between ports and countries to build zero-emission fuel supply chains along specific trade routes — have been announced between multiple major port pairs, including transatlantic and transpacific routes.
• Green methanol and green ammonia remain significantly more expensive than conventional bunker fuel, and production capacity remains a small fraction of projected demand.

What we know

The IMO, a UN specialised agency, sets binding environmental regulations for international shipping through its Marine Environment Protection Committee. Its 2023 strategy revision represented a significant increase in ambition compared with the organisation’s 2018 targets, reflecting pressure from the EU, Pacific Island states and environmental groups who argued the earlier targets were inconsistent with the Paris Agreement’s 1.5C goal. Negotiations over the specific enforcement mechanism — widely referred to as the ‘net-zero framework’ — have continued at subsequent IMO sessions, with debate centred on the level of a proposed carbon levy and how revenue would be distributed, particularly to support developing countries reliant on shipping for trade.

Classification societies and maritime data firms including Clarksons Research and DNV track vessel orders by fuel capability, and their data shows growing orders for dual-fuel vessels able to run on LNG or methanol alongside conventional fuel, reflecting shipowner hedging against regulatory and fuel-price uncertainty rather than full commitment to any single alternative fuel pathway.

Background

Shipping has historically been excluded from national climate commitments under the Paris Agreement because emissions occur largely in international waters and are difficult to attribute to any single country, leaving the IMO as the primary international body responsible for regulating the sector’s environmental footprint. This arrangement drew criticism from climate advocates who argued it allowed the industry’s emissions — comparable in scale to a major industrialised country — to escape the kind of binding national targets applied elsewhere.

The EU moved unilaterally ahead of the IMO in some respects, incorporating shipping into its Emissions Trading System from 2024, requiring vessels calling at EU ports to purchase allowances for a share of their emissions. This has added pressure on the IMO to finalise a global mechanism, since shipowners and several governments have expressed preference for a single global framework over a patchwork of regional rules that could complicate compliance and create competitive distortions.

Detailed analysis

The core challenge facing shipping decarbonisation is a classic chicken-and-egg infrastructure problem: shipowners are reluctant to commit fully to alternative-fuel vessels without confidence that fuel will be reliably available at ports worldwide, while fuel producers and port operators are reluctant to build costly bunkering infrastructure without confidence that sufficient vessel demand will materialise. Green shipping corridors, in which specific port pairs commit jointly to building supply infrastructure for particular routes, are an attempt to solve this coordination problem at a manageable scale before attempting global rollout, an approach modelled partly on early electric-vehicle charging corridor initiatives.

Fuel choice remains genuinely unresolved. Methanol offers easier handling and lower toxicity than ammonia but has a lower energy density and, in its ‘green’ form produced from renewable hydrogen and captured carbon, remains costly and limited in supply. Ammonia offers a potentially larger production scale-up pathway but poses greater toxicity and safety handling challenges that regulators and shipowners are still working through. LNG, while cleaner-burning than conventional fuel oil, is itself a fossil fuel and only offers partial emissions reductions, leading some environmental groups to argue that continued LNG vessel investment risks locking in emissions rather than genuinely decarbonising the sector.

The proposed IMO carbon levy, if finalised at a meaningful price level, would substantially raise costs for vessels continuing to use conventional fuel, creating a financial incentive to switch that current voluntary corridor agreements alone have not provided. However, the mechanism's design — including how revenue is redistributed to support developing countries and fund the transition — remains contested among member states, reflecting broader North-South tensions familiar from other international climate negotiations.

Why it matters

Shipping decarbonisation costs will ultimately be passed through, at least partially, to the price of internationally traded goods, meaning the pace and design of IMO regulation has implications well beyond the maritime industry itself. Economists and trade bodies have modelled a range of potential cost impacts depending on carbon price levels and fuel-cost trajectories, with developing countries and island economies particularly exposed given their reliance on maritime trade for both imports and exports.

The outcome also matters as a test case for how hard-to-abate, internationally coordinated sectors can be regulated for climate purposes when no single national government has full jurisdiction — a template that could inform approaches to aviation, another sector facing similar structural decarbonisation challenges.

What happens next?

IMO member states are expected to continue refining the net-zero framework’s carbon pricing and revenue-distribution mechanisms at forthcoming Marine Environment Protection Committee sessions, with implementation timelines extending over the following several years. Green shipping corridor pilots are likely to expand, and fuel producers are expected to continue scaling green methanol and ammonia production, though most analysts expect supply to remain a binding constraint through at least the early 2030s.

Expect continued friction between the EU’s regional carbon pricing approach and the IMO’s global framework as both develop in parallel, with shipowners lobbying for eventual alignment to avoid double regulation.

Insight Media Opinion

Insight Media Opinion: Shipping decarbonisation is a genuinely hard problem — global, capital-intensive and dependent on fuel infrastructure that does not yet exist at scale — and the IMO deserves some credit for reaching a binding net-zero commitment for a sector long treated as a climate policy blind spot. But credit for ambition should not obscure how much remains unresolved: a target without a firm, adequately priced carbon mechanism is largely aspirational, and years of further negotiation risk squandering the current momentum.

Governments and shipowners should resist the temptation to over-invest in LNG as a convenient interim fuel that ultimately entrenches fossil dependency for another vessel generation lasting 20-25 years. The smarter path is targeted public investment in green methanol and ammonia production capacity now, paired with a carbon price firm enough to make the economics work — otherwise the sector risks repeating a familiar pattern of setting ambitious long-term targets while under-investing in the near-term infrastructure needed to hit them.