IEA: Marine fuel demand slows due to carbon tax and economic weakness

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The Red Sea incident refers to a wave of attacks on commercial shipping in the area, especially by Houthi forces in Yemen since late 2023. Many shipping lines have been forced to avoid the Suez Canal and choose to go around the Cape of Good Hope, increasing shipping times, costs and marine fuel needs. Photo: Illustration

Last year, marine fuel sales surged as incidents in the Red Sea forced many shipping companies to shift to longer routes.

However, the IEA said demand for these fuels (also known as bunker fuels) is likely to remain at around 5 million barrels per day between 2024 and 2030, due to slow growth in shipping and rising costs due to increasingly stringent maritime environmental standards.

Last April, member states of the International Maritime Organization (IMO) agreed on a carbon pricing mechanism to bring the shipping industry to net zero emissions by 2050.

Accordingly, from 2028, ships will be fined US$380/tonne of CO₂ above the baseline emissions cap, and an additional US$100/tonne if they exceed the limit that ships are allowed to emit.

The deal is expected to generate up to $40 billion in fees a year from 2030, some of which would be used to subsidize zero-emission fuels, which are very expensive.

Under the new rules, ships will have to cut their fuel emissions intensity by 8% by 2030 compared to 2008 levels, while the stricter standard requires a 21% reduction. The cuts will increase to 30% and 43% respectively by 2035.

Vessels that exceed the emission reduction standards will be awarded emission credits, which can be resold to non-compliant vessels.

The mechanism, expected to be officially adopted in October this year, will require ships to pay fines if their greenhouse gas emissions exceed prescribed levels from 2028.

According to United Nations data, the shipping industry currently transports more than 80% of global goods and contributes nearly 3% of global greenhouse gas emissions.

The IEA said the new tariffs would be detrimental to global trade and transport, potentially hitting bunker fuel hard, and accelerating the decoupling trend between economic growth and shipping that has been brewing for some time.

In addition, attacks on shipping in the Red Sea, which forced some ships to avoid the Suez Canal, temporarily boosted demand for marine fuels, adding about 140,000 barrels per day to total international demand last year, but the increase was only slightly above the overall trend.