The True Cost of Carbon: Ecological and Economic Impacts

Why carbon emissions of shipping hurt both the planet and shipowners’ profits.

Maritime shipping is the backbone of international trade, moving around 90% of global goods. It is efficient compared with other modes of freight transport, but its sheer scale means that its carbon footprint is enormous. For decades, the ecological cost of carbon emissions has been highlighted as part of the broader fight against climate change. But today, carbon is not just an environmental liability - it has become a direct cost on the balance sheet of shipowners and charterers.

From rising fuel bills to new regulations and financing requirements, carbon emissions now translate into financial risks. Understanding this dual cost is no longer optional. For shipowners, it is a matter of competitiveness and long-term survival.

The Ecological Cost

The shipping sector contributes roughly 3% of global CO2 emissions - comparable to the entire output of a major industrialised nation. These emissions accelerate global warming, contribute to sea-level rise, and put pressure on marine ecosystems through ocean acidification.

For the maritime industry, the irony is stark: the very infrastructure it relies upon - ports, coastal logistics hubs, and stable sea conditions - is threatened by the ecological consequences of its emissions. But since this connection is widely acknowledged, the more urgent discussion today lies in how carbon emissions hit the economics of shipping.

The Economical Cost

Fuel Costs and Inefficiency

At the most fundamental level, carbon is wasted energy. Burning fossil fuels produces CO2; therefore, higher emissions almost always mean higher fuel consumption. With fuel accounting for up to 60% of a vessel’s operating expenses, inefficiency has a direct and painful cost. Reducing emissions is not only an ecological imperative but also an immediate lever for cutting costs.

Regulatory Frameworks Driving Costs

The regulatory landscape is tightening at speed, and carbon is being priced into the business of shipping:

  • EU Emissions Trading System (ETS): From January 2024, shipping was formally integrated into the EU ETS. Shipowners calling at EU ports must purchase allowances for their CO2 emissions, effectively paying a carbon price that has fluctuated recently between €60-100 per tonne of CO2. For large vessels, this can translate into millions of euros annually.
  • IMO’s Carbon Intensity Indicator (CII): Adopted in 2023, the CII rates vessels based on their efficiency in grams of CO2 emitted per cargo-carrying capacity and nautical mile. Poor performers risk stricter operating limits, reduced attractiveness to charterers, and eventual market exclusion.
  • FuelEU Maritime Regulation: Effective from 2025, FuelEU sets binding limits on the greenhouse gas intensity of fuels used by ships. It is designed to stimulate uptake of alternative fuels such as biofuels, e-fuels, LNG, and wind propulsion. For shipowners, this means investing early in fuel flexibility, bunkering infrastructure and wind propulsion assistance to avoid penalties.
  • IMO’s Net Zero Framework and MEPC Extraordinary Session (October 2025): The International Maritime Organization has set a target of reaching net-zero GHG emissions “close to 2050”, with interim checkpoints in 2030 and 2040. The upcoming MEPC meeting in October 2025 will refine enforcement mechanisms, potentially accelerating obligations for shipowners.
  • Emerging Carbon Taxes and Levies Worldwide: Beyond Europe, other jurisdictions are exploring carbon pricing for maritime, creating a patchwork of compliance costs that shipowners must navigate.

Instead of being an abstract environmental cost, carbon emissions now translate into real expenses.

Market-Driven Pressures

Beyond regulation, market forces are imposing a price on carbon:

  • Charter Rates: Charterers increasingly favour vessels with stronger environmental performance. Ships with better CII ratings or alternative-fuel capabilities can secure higher rates and longer-term contracts.
  • Asset Depreciation: Ships that are inefficient or dependent solely on fossil fuels risk becoming “brown ships” - stranded assets with declining resale value and limited charter prospects. This is particularly concerning given the 20-25 year economic lifespan of vessels.

Financing and Insurance Impacts

Financial stakeholders are embedding carbon risk into their decisions:

  • Banks: Under the Poseidon Principles, leading maritime financiers align their lending portfolios with IMO decarbonisation targets. This means less favourable financing terms for ships that are not compliant.
  • Insurers: Insurance premiums increasingly reflect environmental performance, with underwriters assessing exposure to regulatory non-compliance and transition risks.

For shipowners, access to capital is now directly tied to decarbonisation performance.

The Convergence of Ecological and Economical Costs

The convergence of environmental responsibility and business logic is reshaping the industry. What once seemed like a “green premium” - higher costs for adopting cleaner technologies - is evolving into a competitive advantage.

Operational Measures

Some measures are more or less straightforward, but carry varying costs and constraints:

  • Slow steaming reduces fuel consumption and emissions significantly but decreases overall fleet capacity.
  • Retrofits such as wind propulsion, hull coatings, propeller upgrades, or air lubrication systems improve efficiency but require significant capital outlay.
  • The transition to alternative fuels (low- and zero-carbon) is complex. Biofuels, LNG, ammonia, and methanol are all part of the experimental mix. However, costs and infrastructure remain challenges.
  • Digital optimisation tools help plan routes more efficiently, cutting unnecessary miles and fuel use, with minimal investment.

Business Advantage

Shipowners who demonstrate carbon efficiency enjoy tangible benefits:

  • Preferential chartering opportunities.
  • Higher asset valuations.
  • Stronger relationships with financiers and insurers.
  • Enhanced reputation in an industry under public and political scrutiny.

In short, ecological responsibility increasingly aligns with economic logic. Decarbonisation is not a cost burden - it is an investment in resilience and competitiveness.

Conclusion

Carbon emissions from shipping have long been recognised as a driver of climate change. But in today’s regulatory and market environment, they are equally a financial liability. From higher fuel bills to carbon pricing under the EU ETS, compliance obligations under FuelEU and CII, and the looming IMO Net Zero Framework, the cost of carbon is now firmly entrenched in the maritime balance sheet.

The industry stands at a crossroads. Those who treat decarbonisation as a mere compliance exercise will face escalating costs and shrinking market access. Those who act strategically - investing in efficiency, alternative fuels, and innovation - will not only mitigate risk but also capture new opportunities.

In shipping, the ecological cost of carbon and the economical cost are two sides of the same coin. Shipowners who recognise this convergence and act decisively will chart the course for a sustainable and profitable future.