New analysis highlights trade-offs between a levy and a fuel standard, and the need to balance short-term with long-term gains for African nations

A high carbon price in the form of a levy can have significant medium-term costs but stabilises as technology advances and redistribution of revenues offset the economic impacts, versus a fuel standard which minimises costs in the short-term but leads to increased costs in the long run

London, 19th February 2025 – Two new reports released today shed light on the potential economic consequences of the IMO’s candidate mid-term measures on Malawi and Namibia. The studies emphasise that policy scenarios that include the universal price on GHG emissions generate significant revenues that could potentially offset negative impacts of higher trade costs on key commodities for both nations.

The reports, part of the LEAP (Leading Effective Afrocentric Participation) in the IMO Project, examine the effects of various candidate mid-term measures on key merchandise trades for Malawi and Namibia, such as exports of tobacco, uranium and fish, and petroleum and fertiliser imports. Both Malawi, a landlocked country and dependent on neighbouring ports, and Namibia, a coastal nation, heavily rely on maritime transport for trade. This dependency makes them vulnerable to fluctuations in shipping costs resulting from IMO's candidate mid-term measures. The different policy scenarios analysed have varying impacts on shipping costs, trade routes, and economic stability, with petroleum imports significantly impacted while uranium and fish less so.

Dr Helvi Petrus, Senior Lecturer & Transport Economics Specialist, Namibia University of Science & Technology, lead author of Namibia case study said: “Namibia’s reliance on maritime trade for critical imports and exports makes it particularly susceptible to rising transportation costs under GHG reduction policies. A National maritime decarbonisation strategy is key for Namibia to balance economic resilience with environmental sustainability.”

African states can play a crucial role in the negotiations and in meeting the IMO objectives - including completing international shipping’s decarbonisation by around 2050 and contributing to a just and equitable transition for all states. However only a handful of African countries have publicly voiced support for the proposals on the table, in terms of their submissions and support during the negotiations (see UCL readout from ISWG-17 and UCL readout from MEPC 82). Nigeria, Kenya and Liberia, have co-sponsored a consolidated levy proposal as part of the wider co-sponsorship which includes European, Pacific, Caribbean nations and the International Chamber of Shipping. Angola and South Africa on the other hand have argued against a universal levy, co-sponsoring a paper with a number of Latin American, China and Saudi Arabia.

Dr Martin Mwale, Lecturer in Economics at University of Malawi, lead author of Malawi case study said: “This study has been instrumental in shedding light on the economic implications of global maritime decarbonization policies for Malawi. The findings highlight the critical trade-offs between environmental commitments and economic resilience, emphasizing the urgent need for Malawi to actively engage in IMO negotiations. Given the significant cost increases across all policy scenarios—particularly for essential imports like fertilizers and petroleum—it is imperative that policymakers adopt a balanced approach that mitigates short-term economic disruptions while fostering long-term sustainability. The study also underscores the necessity of capacity building and strategic advocacy to ensure Malawi’s interests are well-represented on the global stage. Moving forward, securing financial and technical assistance will be crucial in cushioning the economy against adverse impacts and supporting a smooth transition towards greener shipping practices”

The case studies follow a series of reports as part of the LEAP project. Last week the authors provided Afro-centric analysis of the UNCTAD Comprehensive Impact Assessment, which showed that most policy scenarios resulted in GDP decreases relative to the business-as-usual (BAU) scenario. However, the scenario with a high levy and revenue distribution led to increase in GDP in certain countries, underscoring the potential of revenue distribution to mitigate adverse effects. The analysis shows that prices increased in almost all of the policy scenarios considered suggesting that mid-term measures might worsen inflation and should therefore in their design carefully consider revenue distribution options.

In another report by UCL, IDDRI and CIRAD France based sustainable development and agriculture think tanks, showed the IMO mid-term measures will likely raise transport costs, disproportionately impacting Least Developed Countries (LDCs) and Small Island Developing States (SIDS) and could affect food security of vulnerable countries in the short term, although the effects in the long term remain uncertain. Revenues generated from a universal levy could be more broadly distributed to address food security and other potential negative impacts on states.

Dr Dola Oluteye, Senior Research Fellow at the UCL Energy Institute said: “Our study reveals that while the GFI Flexibility Only scenario provides immediate cost relief for sensitive industries, its diminishing effectiveness over time makes levy-based approaches more attractive for long-term stability. For instance, despite higher short-term impacts, levy scenarios offer predictable cost increases and generate revenue that can help offset economic pressures. This balance is crucial for trade-dependent economies like Namibia, where aligning environmental goals with economic resilience is key to sustaining growth.”

Another study by UCL and UMAS, showed that a high universal GHG price in combination with targeted e-fuel subsidies are the key policy components that can close the competitiveness gap between scalable zero emission fuels (e.g. e-fuels such as green ammonia) and other early compliance options such as LNG, biofuels and CCS. The study finds that a global fuel standard (GFS) in combination with a flexibility mechanism, even with a multiplier that ‘boosts’ the credit given to e-fuels, is unlikely to start an e-fuel transition before 2040, which will be too late and too costly.