Decarbonization at a crossroads

Arab News

2 days ago

https://arab.news/pyzyy
The global race toward decarbonization is accelerating, as more than 140 countries — collectively responsible for nearly 90 percent of global gross domestic product and emissions — have committed to achieving net-zero carbon emissions by mid-century. But the pathways, mechanisms and economic implications of this transformation remain deeply uneven. Nowhere is this asymmetry more visible than in sectors like shipping, aviation and road transport, where the pace of regulatory ambition often surpasses the realities of technological readiness.
Shipping, in particular, has become an unlikely but prominent target of international climate policy. Despite being the most carbon-efficient mode of freight transport, the sector finds itself grappling with mounting compliance burdens, volatile market mechanisms and infrastructure gaps. This is a paradox that risks not only penalizing efficiency but also distorting the logic of global trade.
Since January 2024, the EU has incorporated maritime emissions into its Emissions Trading System — a monumental shift in regulatory design. Vessels calling at EU ports must now purchase allowances covering 40 percent of their verified carbon dioxide emissions, a share that will rise to 70 percent in 2025 and 100 percent by 2026. With carbon prices hovering around €70 ($79) per tonne, the cost implications are profound.
A typical large container ship, emitting approximately 60,000 tonnes of carbon dioxide annually on EU routes, could face annual carbon costs exceeding €5 million by 2026. This is in addition to already elevated fuel prices, retrofitting expenses and evolving port compliance mandates. The intent — to catalyze decarbonization — is valid. But the execution, absent global harmonization, risks regulatory fragmentation and competitive distortions.
Meanwhile, the International Maritime Organization has set its own benchmark: net-zero emissions by 2050, with a 40 percent reduction in carbon intensity targeted by 2030. These goals necessitate a seismic shift toward alternative fuels such as green methanol and ammonia. Yet these fuels remain commercially scarce and up to four times more expensive than conventional options. Retrofitting a single vessel can cost between $5 million and $15 million, with uncertain payback periods. Infrastructure for alternative fuels remains embryonic, particularly across the Global South.
Other transport sectors face analogous dilemmas. Aviation is constrained by the Carbon Offsetting and Reduction Scheme for International Aviation, which seeks to cap emissions at 2019 levels through offsets. Meanwhile, the electric vehicle transition — long hailed as a panacea for road transport emissions — is encountering both technological and geopolitical headwinds. Policymakers in the US, the EU and the UK are quietly scaling back EV adoption targets, deferring internal combustion engine phase-outs and acknowledging the upstream carbon footprint of battery manufacturing. Lithium, cobalt and nickel — key inputs for EV batteries — are extracted through processes that are carbon-intensive and often ethically questionable.
The gap between ambition and execution is widening. Global energy-related carbon dioxide emissions reached a record 37.4 billion tonnes in 2023. This raises an uncomfortable question: Are we genuinely decarbonizing or merely engaging in high-cost carbon arbitrage?
Data from the Organisation for Economic Co-operation and Development's International Transport Forum provides a clarifying contrast: maritime shipping emits just 3 to 7 grams of carbon dioxide per tonne-kilometer, compared to 62 grams for road freight and more than 500 grams for air cargo. Maritime shipping is nearly 10 times more carbon-efficient than trucking and 70 times more efficient than aviation. Yet, instead of being recognized for this intrinsic efficiency, the shipping industry is being subjected to regulations that fail to appreciate these comparative advantages.
According to the World Shipping Council, maritime transport accounts for just 2.9 percent of global greenhouse gas emissions — far less than road transport (18 percent) but slightly more than aviation (2.5 percent). Approximately 80 percent of global freight by volume is transported by sea, while road transport accounts for about 18 percent of global freight by volume. Given this indispensable role in global trade, burdening shipping with disproportionately stringent regulations could have cascading effects: distorting supply chains, inflating consumer prices and exacerbating inequities in the developing world.
The shipping industry is being subjected to regulations that fail to appreciate its comparative advantages
Dr. John Sfakianakis
Carbon markets, originally designed to promote innovation and cost-efficiency, have devolved into volatile and fragmented systems. Voluntary carbon credit prices range from $1 to $20 per tonne, with wide disparities in quality and credibility. Studies suggest that up to 90 percent of forestry-based credits may not represent genuine emissions reductions. This erodes trust and incentivizes financial engineering over physical decarbonization.
Moreover, oil prices — adjusted for inflation — have declined in real terms. Brent crude averaged $73 per barrel in 2024, a far cry from its 2008 peak of $140, which would translate to approximately $210 in 2025 dollars. Yet, despite this relative affordability, shipping costs have surged. McKinsey estimates that environmental compliance alone has pushed shipping costs nearly 30 percent above pre-pandemic levels. This adds pressure on thin operating margins and complicates investment in cleaner technologies.
Biofuels offer only a partial remedy. Sustainable aviation fuel can reduce lifecycle emissions by up to 80 percent, but it accounted for just 0.3 percent of global aviation fuel use in 2024. Marine biofuels suffer from similar bottlenecks: limited production, high prices and sustainability concerns over feedstocks. Poorly regulated biofuel mandates could inadvertently aggravate land-use conflicts and food insecurity.
The global decarbonization agenda must reconcile environmental ambition with economic realism and technological maturity. Policy frameworks must reward — not penalize — sectors that are already outperforming in carbon efficiency. Maritime transport, while imperfect, remains the most optimized vector for global trade on a per-tonne basis. Overregulating it will not only raise costs but may also displace emissions to less efficient modes of transport.
One-size-fits-all policies risk undermining the very goals they aim to achieve. Effective climate governance must be technologically agnostic, geographically equitable and economically rational. Transitioning to a low-carbon economy will require time, capital and compromise. While shipping may not achieve net-zero emissions overnight, it stands as a critical enabler of the broader decarbonization of global commerce.
To portray the shipping industry as a climate laggard is to misjudge both its current contributions and its untapped potential for driving long-term decarbonization. At the same time, the industry would benefit from forging a more cohesive voice — ideally through the establishment of a dedicated global institution, strategically situated in Athens, London and Riyadh — to more effectively champion its indispensable role in shaping a sustainable global trade regime.
• Dr. John Sfakianakis is Chief Economist at the Gulf Research Center and Chief Global Strategist at the Paratus Group.