International shipping is entering into a decisive phase of its decarbonization. The 2023 International Maritime Organization (IMO) greenhouse gas (GHG) strategy (2023 IMO GHG Revised Strategy) calls for international shipping to reach net-zero GHG emissions by or around 2050 and sets an ambition for zero or near-zero GHG fuels and energy sources to account for at least 5%, striving for 10% of energy used by international shipping by 2030. Meeting that trajectory will require a rapid shift away from conventional marine fuels towards alternatives such as renewable methanol, ammonia, hydrogen, and other scalable zero or near-zero emission fuels.

The commercial obstacle is familiar: cleaner fuels remain substantially more expensive than their fossil alternatives, while future fuel prices, carbon prices, and regulatory requirements are uncertain. This combination makes long-lived investment decisions difficult for fuel producers, shipowners, operators, and their financers. 

Carbon contracts for difference (CCfDs) offer one way to reduce that uncertainty. In a stylized CCfD, a public authority and a private counterparty agree a benchmark or “strike” value linked to the cost of emissions abatement, clean-fuel production, or use. When the relevant market or carbon value falls below that level, the public authority pays the difference; in a two-way design, the beneficiary pays back the difference when the market value rises above it. The instrument is therefore a long-term allocation of price risk intended to make low-carbon investment bankable.

Applied to shipping, CCfDs could support the supply side (for example producers of renewable marine fuel) or the demand side (shipowners and operators facing the operating cost premium of cleaner fuels). Nevertheless, the maritime context adds a trade law complication. Shipping is intrinsically cross-border, fuels are traded goods, and shipping operations are services. A single support scheme can therefore sit at the intersection of World Trade Organization (WTO) disciplines on subsidies, goods, and services. 

The core point is that maritime CCfDs are not inherently incompatible with WTO rules. The principal risks arise from design choices, especially conditions tied to domestic content, origin, nationality, or export performance. Governments can reduce those risks by designing support around verifiable emissions outcomes rather than economic nationality.

The Agreement on Subsidies and Countervailing Measures (SCM Agreement) is the starting point where a maritime CCfD supports the production or use of goods. Under Article 1, a subsidy exists where there is a financial contribution by a government or public body, or income or price support, and a benefit is thereby conferred. A public promise to cover the gap between a strike price and a lower market value is likely to satisfy those elements: it transfers funds or creates a potential liability and gives the recipient price certainty that a private counterparty would not normally provide without remuneration. The precise benchmark remains scheme-specific. Canada – Renewable Energy/Feed-in Tariff Program illustrates that identifying the relevant market can be contested, but the ordinary market-benchmark analysis points strongly towards a benefit.

Specificity is the next step. A programme expressly reserved for maritime fuel producers or shipping operators is likely to be specific under Article 2.1(a). Objective criteria avoid specificity under Article 2.1(b) only where eligibility is automatic, the criteria are neutral, clearly stated, and strictly followed, and the programme is not otherwise limited to “certain enterprises.” For example, a generally available scheme linked to firm size or number of employees may qualify; simply using an emissions threshold within a programme limited to the maritime sector does not remove that sectoral limitation. Finally, even an apparently broad, rules-based programme may be de facto specific under Article 2.1(c), including where a limited group uses it, certain enterprises predominate, awards are disproportionate, or the authority exercises discretion selectively.

Article 3 prohibits subsidies contingent, in law or in fact, on export performance and subsidies contingent on the use of domestic over imported goods. Article 2.3 deems both categories specific; no separate showing of specificity is required. Export contingency must be framed with care because the SCM Agreement disciplines subsidies affecting trade in goods, not support for the export of a transport service as such. A fuel producer CCfD would be prohibited if eligibility or payment depended on exporting the subsidized fuel or on actual or anticipated export sales. An operator-side CCfD could also engage Article 3.1(a) where support is tied to exports of a subsidized good; but merely serving international routes concerns a service and should not, without a sufficient nexus to goods exports, be treated as export contingency under the SCM Agreement. Actual exports alone are insufficient; the subsidy must be conditional, in law or in fact, on export performance.

Domestic content contingency is more immediately relevant. A CCfD should not require a shipowner to purchase domestically produced methanol or ammonia, or require a supported fuel producer to use domestic equipment or inputs, as a condition of payment. Canada – Renewable Energy/Feed-in Tariff Program and India – Solar Cells show the vulnerability of such conditions. The EU’s 2022 request for consultations in UK – CfD Local Content likewise challenged UK-content criteria in allocating low-carbon electricity contracts under GATT Article III:4. 

A specific subsidy that is not prohibited under Article 3 may still be challenged under Articles 5–7 if it causes adverse effects. For a fuel producer CCfD, the relevant product could be the subsidized renewable methanol, ammonia, or other traded fuel; a complainant would need evidence of effects such as displacement of a like product or significant price suppression in a defined market. Where support is paid to a ship operator, attributing adverse effects to the many goods carried aboard its vessels would be far more difficult: the claimant would still have to establish the required product-specific competitive relationship and causal effects. Article 27 provides special and differential treatment for developing country members, including specific rules relevant to serious prejudice claims.

Thus, the policy objective should not be to prevent a CCfD from being classified as a subsidy since under the ordinary benefit analysis that classification is likely. It should be to avoid the contingencies prohibited by Article 3 and limit the risk that the scheme causes actionable adverse effects in markets for traded goods.

Maritime CCfDs implicate distinct but potentially overlapping WTO disciplines. The SCM Agreement and General Agreement on Tariffs and Trade (GATT) address effects and conditions concerning goods, including marine fuel and domestic inputs; the General Agreement on Trade in Services (GATS) addresses treatment of maritime transport services and service suppliers. An operator-side contract may engage both sets of rules (for example GATS rules if eligibility favours domestic operators and GATT rules if payment is conditional on purchasing domestic fuel). The inquiry must therefore identify separately what the measure supports, what conditions it imposes, and whose competitive opportunities it changes. 

GATS Article XV (Subsidies) recognizes that subsidies may distort trade in services and calls for negotiations to develop multilateral disciplines, but those negotiations have not produced a comprehensive subsidy code comparable to the SCM Agreement. That does not place services-related CCfDs outside WTO law. Other GATS obligations may still matter (see Annex on Negotiations on Maritime Transport Services).

GATS Article XVII (National Treatment) applies only in sectors and modes where a member has scheduled a commitment, subject to its stated limitations. A subsidy reserved to domestic service suppliers can therefore breach national treatment where it modifies competitive conditions to their advantage and falls within an applicable commitment; many schedules, however, expressly exclude or limit subsidies. For maritime CCfDs, the most relevant mode is commonly mode 1 (cross-border supply of transport services), while mode 3 (commercial presence) matters where a foreign operator supplies through a local establishment. The answer depends on the supported activity and the member’s schedule. Maritime commitments remain uneven, so nationality, flag, ownership, and establishment conditions require schedule-specific analysis (see Services: Maritime Transport).

GATS Article II (Most-Favoured-Nation Treatment) is a general GATS obligation, subject to listed exemptions and the maritime sector’s negotiating history. Differentiating among foreign operators by nationality or flag may therefore create most-favoured-nation risk. A prima facie inconsistency is not necessarily the end of the analysis: GATS Article XIV (General Exceptions) may justify a measure that falls within one of its listed objectives and satisfies the chapeau. Yet a nationality proxy is difficult to defend when emissions performance can be measured directly and less discriminatory alternatives are reasonably available.

GATT Article III:4 is relevant whenever a CCfD condition alters competitive opportunities between imported and domestic goods. This includes an operator-side incentive to use domestic marine fuel and a fuel producer contract tied to domestic equipment or other inputs. Imported like products must receive treatment no less favourable with respect to requirements affecting their internal sale, purchase, transport, distribution, or use.

For a policy supporting renewable methanol, for example, the key comparison should ordinarily be between imported and domestic products that compete in the relevant market, not between renewable methanol and every conventional marine fuel. If an operator receives a CCfD payment only when it buys qualifying fuel from a domestic refinery, the origin condition alters the competitive opportunity of imported qualifying fuel which faces less favourable competitive conditions. 

GATT Article III:8(b) preserves room to pay certain subsidies exclusively to domestic producers. It does not, however, exempt a condition requiring recipients or purchasers to use domestic goods. Thus, a government may in principle subsidize domestic green fuel producers without violating Article III solely because foreign producers do not receive the payment, while a domestic-content condition attached to that support remains exposed under Article III:4. Other disciplines, especially the SCM Agreement, continue to apply.

The practical distinction is between the identity of the subsidized producer and a condition favouring domestic goods. Environmental performance criteria, such as transparent lifecycle GHG thresholds applied equally to imported and domestic fuel, usually reduce discrimination risk. By contrast, a CCfD containing a domestic-content condition is likely to raise parallel concerns under GATT Article III:4, the Agreement on Trade-Related Investment Measures (TRIMs) where it is an investment measure, and SCM Article 3.1(b) (see US – Renewable Energy and India – Solar Cells).

WTO law recognizes policy space for environmental measures. For a CCfD condition inconsistent with GATT Article III, Article XX(b)(g) may provide a justification if the measure falls within the relevant paragraph and satisfies the chapeau. Case law accepts environmental objectives within those provisions, but domestic-content measures have proved difficult to justify where origin discrimination is poorly connected to the environmental objective or less trade-restrictive alternatives are available (see US – Shrimp and Brazil – Retreated Tyres). For services measures, the corresponding analysis arises under GATS Article XIV, whose listed exceptions differ from GATT Article XX.

A separate and unsettled question is whether GATT Article XX can justify an inconsistency with the SCM Agreement. The SCM Agreement has no express general environmental exception, and its former Article 8 category of non-actionable subsidies, including narrowly defined assistance to adapt existing facilities to new environmental requirements, expired at the end of 1999. Competing views remain on whether Article XX can be invoked across agreements; the panel in US – IRA exercised judicial economy and did not resolve the question. Policymakers should therefore not rely on Article XX as a secure defence to an SCM violation.

The sounder course is to build non-discrimination into the CCfD from the outset. A climate objective does not itself validate a domestic-content requirement, and an uncertain exceptions argument is a poor foundation for a long-term public contract (see India – Solar Cells).

A WTO-conscious maritime CCfD can still be ambitious. Five design principles would materially reduce trade law risks while preserving the instrument´s decarbonization function:

• Make emissions performance, not domestic content, the eligibility test. Define support through transparent lifecycle or well-to-wake GHG thresholds and objective sustainability criteria applied equally to qualifying fuels. A government may subsidize domestic producers as such within the limits of GATT Article III:8(b), but it should not condition payment on domestic fuel, equipment, shipyards, or other inputs; SCM and other disciplines remain applicable.
• Avoid goods export contingency. Do not link a fuel producer CCfD to export sales or anticipated exports of the subsidized fuel. For operator support, distinguish international transport services from exports of goods and test any condition for the necessary nexus to goods export performance. Use environmental and operational metrics that do not reward exports as such.
• Use transparent and competitive allocation. Where feasible, allocate contracts through open, rules-based procedures with published eligibility and award criteria. Competitive allocation can help governments discover the level of support needed while reducing opportunities for nationality-based preferences.  
• Check the relevant GATS schedule before restricting operator eligibility. Maritime services commitments vary across WTO members. Governments should map the supported service, mode of supply, national treatment limitations, market access commitments, and any relevant most-favoured-nation exemptions before imposing nationality, flag, establishment, or ownership conditions.
• Anchor climate metrics in internationally recognized methodologies. Alignment with IMO lifecycle emissions approaches and other internationally developed standards can improve comparability and reduce fragmentation. International alignment does not automatically establish WTO consistency, but it can make the environment rationale and administration of the scheme more transparent and less discriminatory.

Shipowners, fuel suppliers, and capital providers should treat trade law design as part of regulatory due diligence, not as a remote intergovernmental concern. WTO rulings operate between members and do not invalidate private contracts or automatically require beneficiaries to repay support. Nevertheless, a successful WTO challenge can require the granting government to withdraw a prohibited subsidy or remove adverse effects, while importing members may in appropriate circumstances impose countervailing duties following domestic investigations that meet SCM Agreement requirements. Either pathway can alter the economics on which a long-term contract was based. 

Long-term CCfD documentation should therefore address regulatory change, withdrawal or modification of public support, and the allocation of resulting costs. Commercial strategies should also avoid unnecessary dependence on a single protected domestic fuel source where equivalent qualifying fuels can be sourced competitively from international markets. 

The green premium in maritime fuels is a barrier to the shipping transition and CCfDs can be a powerful way to allocate price risk and mobilize investment. WTO rules need not prevent governments from using them. The harder question is how the support is designed. 

The most legally exposed schemes are those that turn climate support into industrial preference by conditioning benefits on domestic content, nationality, or export performance. The more robust approach is to reward the outcome policymakers actually need: verifiable reductions in lifecycle GHG emissions, delivered through transparent and competitive mechanisms open to qualifying fuels and suppliers irrespective of origin, subject to a member´s applicable WTO commitments. 

The approach also serves the economics of maritime decarbonization. Shipping will need large volumes of zero and near-zero emissions fuels supplied through global value chains. A CCfD architecture that supports demand while preserving international competition can help scale those markets faster and reduce the risk that climate policy itself becomes another source of trade fragmentation.

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Sebastiano Gianino is PhD Fellow, Faculty of Law, University of Copenhagen; and PhD Fellow at the Global Maritime Forum.

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