The long-awaited carbon levy on international shipping that was to supply vital climate finance looks set to be significantly diluted, after the EU appeared to be backing down in global talks, in a blow to vulnerable countries.

The EU is set to accept a compromise that would allow companies to enter into a system of trading carbon credits instead of paying directly for their emissions, the Guardian has learned.

Campaigners and experts said the move would mean less money for the rescue and rehabilitation of countries stricken by climate disaster and made it less likely that shipping companies would move quickly to decarbonise their fleets.

“This compromise fundamentally ignores the needs of some of the most vulnerable countries,” said Tristan Smith, associate professor in energy and transport at University College London. “There is a better compromise available.”

According to the International Energy Agency (IEA), the shipping industry produces about 2.2% of global CO2 emissions. Forcing shipowners to pay a small charge for every tonne of carbon dioxide their vessels produce has been touted as a key way to raise some of the hundreds of billions of dollars needed for climate finance.

A proposal for such a levy, which has the support of scores of developing countries, the EU and the UK, is under discussion at the International Maritime Organization (IMO) in London, in talks that started last month and resume next week before finishing on 11 April.

But the levy faces fierce opposition from China, Brazil, Saudi Arabia and about a dozen other countries that have strong interests in exports or fossil fuels, and argue that it would raise prices for consumers. Some members have argued that a majority vote could push through the levy, but China has made it clear it would not accept such an outcome and has threatened to effectively withdraw from the IMO if the issue was forced.

Arsenio Dominguez, the secretary general of the IMO, does not want to enforce a majority vote if it can be avoided. “We work on consensus, that’s always the focus of the IMO,” he told the Guardian. “During adoption of the rules, member states can express their concerns, they can express their support to one proposal or another. My objective is always to work with the member states to get an agreement, a consensus approach, and if there are any concerns raised during that consensus approach, to continue to work on that, to address it. But to keep the house together.”

The EU, which held an emergency meeting on the issue on Thursday, will still formally state its preference for a simple levy. But the Guardian understands that the bloc will concede key ground by falling back on a compromise proposal involving carbon trading, tabled by Singapore, provided that it aims to raise as much cash as a levy would.

Analysis by Smith and other experts suggests the Singapore proposal would provide perverse incentives for shipowners to use short-term solutions to cut their carbon, such as heavy investment in biofuels, rather than seek long-term solutions in the form of new fuels, such as ammonia.

“Carbon trading is uncertain and volatile, and not investable,” said Smith. “It will not result in more investment for long-term technologies.”

Biofuels are often environmentally unsustainable, as they compete with food crops for scarce agricultural land.

Another compromise proposal that has been tabled by the International Chamber of Shipping (ICS) and has the backing of a large proportion of the industry, would, Smith said, be preferable to the Singapore plan. Ships would pay a charge for their carbon output, but it would be more flexible than a levy, would represent a single flat fee and, because it would fall under technical regulations on fuel standards, would not face problems with adoption by countries such as the US that require legislative approval for taxes.

Proponents of the ICS plan, including some developing countries, argue it should be acceptable to China, Brazil and their allies, because it uses a standard for fuels that they have already agreed to and starts at a low cost that can be scaled up later.

Andrew Forrest, the Australian mining billionaire turned green advocate, who is investing in hydrogen-powered ships, had harsh words for those who seek consensus. “I challenge anyone who advocates for a consensus, because they’re not actually advocating for a consensus, they are a wolf in sheep’s clothing intending to hold the status quo of fossil fuel and accelerate the pollution of our environment and the inefficiency of our shipping industry,” he told the Guardian.

Friederike Roder, the director of the Global Solidarity Levies Task Force, said: “In two weeks’ time, we could have the world’s first international levy on shipping emissions. This would be a milestone in our efforts to raise climate finance, hold polluters to account and support the global south. We need a strong agreement which delivers climate ambition and decarbonisation for the shipping sector, while shielding the most vulnerable economies.”