Carbon Tax on Shipping: How it Will Impact Commodity Prices

The shipping industry, responsible for approximately 3% of global greenhouse gas emissions, is on the cusp of a major transformation. With the International Maritime Organization (IMO) set to implement a global carbon tax on shipping emissions, the ripple effects on commodity prices are poised to be significant. As of 2028, ships will face charges for their greenhouse gas emissions, incentivizing the adoption of cleaner technologies and fuels. But what does this mean for the cost of goods and the flow of global trade?

Understanding the Carbon Tax Landscape

A carbon tax is a fee levied on activities that release carbon dioxide and other greenhouse gases into the atmosphere. Its primary goal is to make carbon-intensive activities more expensive, encouraging businesses and individuals to reduce their carbon footprint. In the context of shipping, the IMO’s proposal includes a fuel standard and a two-tiered carbon tax, with rates potentially reaching $100 and $380 per metric ton of carbon dioxide equivalent emissions (CO2e), depending on a ship’s greenhouse gas fuel intensity (GFI).

This tax will be levied on greenhouse gas (GHG) emissions from large ships that are over 5,000 gross tonnage, which emit 85 percent of the total CO2 emissions from global shipping.

The implementation of this carbon tax is not without its complexities. The IMO’s proposal layers a fuel standard on top of a carbon tax. It works by setting two levels of fuel standards, a “Base Target” and “Direct Compliance Target,” the latter of which is stricter. Vessels that fail to meet the Base Target and use fuels that are most carbon intensive would be required to pay a carbon tax at a higher rate of $380 per metric ton of CO2e for the portion of emissions that exceed the Base Target.

The IMO estimates that the proposal would raise between $11 billion and $13 billion in revenue annually. It plans to use the carbon tax revenue it would collect to reward best-performing ships through distributing the “surplus unit,” support innovation and research in developing countries, fund decarbonization technology initiatives, and provide financial assistance to small island developing states and least-developed countries.

The Impact on Commodity Prices: A Chain Reaction

The most immediate impact of a carbon tax on shipping is an increase in freight rates. Studies suggest that shipping freight rates could increase by 10–30%, which is equivalent to 1–4% of trading prices, depending on the trading regions and the carbon charges. This increase in transportation costs will inevitably be passed on to consumers, leading to higher prices for a wide range of commodities.

Increased Production Costs: Industries that rely heavily on fossil fuels may face higher production costs compared to their counterparts in countries without such a tax.
Shift in Comparative Advantage: Industries with lower carbon footprints may gain a competitive edge.

The extent of the impact will vary depending on several factors:

Carbon Tax Rate: The higher the tax rate, the greater the impact on shipping costs and commodity prices.
Fuel Efficiency: Ships with lower fuel efficiency will be more heavily impacted, leading to higher costs for transporting goods on these vessels.
Commodity Type: Commodities with high transportation costs relative to their value, such as dry bulk goods, will be more significantly affected.

Winners and Losers in the New Landscape

While a carbon tax on shipping will likely lead to higher prices for many commodities, it could also create opportunities for certain countries and industries.

Countries with Shorter Shipping Distances: Nations that are geographically closer to major markets may see a boost in trade as shorter shipping distances translate to lower carbon emissions and taxes. For example, China’s increasing reliance on nearby countries, e.g., India and Australia, for the import of key commodities.
Producers of Low-Carbon Goods: Industries that have already invested in low-carbon technologies and practices will be better positioned to compete in a carbon-constrained world.
Alternative Fuel Providers: The demand for alternative fuels like ammonia, hydrogen, and methanol is expected to increase, benefiting companies that produce and supply these fuels.

However, Small Island Developing States (SIDS) and Least Developed Countries (LDCs) are more likely to be adversely affected by such measure in terms of maritime transport costs

Navigating the Challenges and Opportunities

The implementation of a carbon tax on shipping presents both challenges and opportunities for businesses and investors. To navigate this evolving landscape, it’s crucial to:

Monitor Regulatory Developments: Stay informed about the latest developments in carbon tax policies and regulations at the international, national, and regional levels.
Assess Carbon Footprint: Evaluate the carbon footprint of your shipping operations and identify areas for improvement.
Invest in Fuel-Efficient Technologies: Consider investing in fuel-efficient ships and technologies to reduce carbon emissions and minimize the impact of the carbon tax.
Explore Alternative Fuels: Research and explore the potential of alternative fuels like ammonia, hydrogen, and methanol.
Optimize Supply Chains: Optimize supply chains to reduce shipping distances and minimize transportation costs.
Advocate for Fair Policies: Engage with policymakers to advocate for fair and effective carbon tax policies that support a level playing field for all stakeholders.

Potential Downsides and Mitigation Strategies

While the carbon tax aims to reduce emissions, some concerns exist. One is “carbon leakage,” where businesses relocate to countries with less stringent environmental regulations, negating the intended environmental benefits. To combat this, some countries might implement border carbon adjustments (BCAs), taxing imports from countries without a carbon tax and providing rebates to domestic industries.

The Road Ahead

The IMO’s carbon tax on shipping marks a significant step towards decarbonizing the maritime industry and addressing climate change. While the impact on commodity prices is a concern, it also presents opportunities for innovation, efficiency gains, and a more sustainable future for global trade. By understanding the challenges and embracing the opportunities, businesses and investors can navigate this evolving landscape and contribute to a greener, more prosperous world.

The global shipping carbon tax is expected to be adopted by IMO’s Marine Environment Protection Committee formally in October 2025. Once adopted, IMO is planning to approve detailed implementation guidelines in Spring 2026. The measure is expected to go into effect in 2027.

Are you prepared for the changes ahead? Contact us today for a consultation on how the carbon tax on shipping could impact your investments and how to strategically position yourself for success in this new era.