Global Shipping Net-Zero Regulations Agreed by IMO

This week the International Maritime Organisation (IMO), the United Nations agency responsible for regulating maritime transport, reached agreement (click here) on global GHG emissions pricing and mandatory marine fuel standard regulations for global shipping.

What is it about?

• The IMO’s Marine Environment Protection Committee (MEPC) has agreed on a new fuel standard for ships and a global pricing mechanism for emissions. The so-called “IMO Net-zero Framework” is thought to be the first scheme in the world to combine mandatory emissions limits and greenhouse gas (GHG) pricing across an entire global industry sector. The agreement does not however fulfil global shipping’s emissions reduction goals under the Paris Agreement. Despite this it is seen as a major step towards establishing a legally binding framework for achieving net-zero emissions in global shipping by 2050. The scheme sets the first ever global pricing mechanism for emissions, which along with financial incentives, is designed to encourage shipping companies to use the cleanest fuels and technologies early on;
• The measures will be mandatory for large ocean-going ships of over 5,000 gross tonnage, which are thought to be responsible for emitting 85% of the total carbon emissions from international shipping. For the global fuel standard, ships will need to reduce their annual greenhouse gas fuel intensity (GFI) over time using a “well-to-wake” approach which considers the full life-cycle emissions of the fuels. The approach uses standardised criteria and a common certification scheme for fuels that allows for a level-playing field, irrespective where a fuel is produced, transported or used. Ships that emit emissions above specified GFI thresholds will have to acquire remedial credits to balance its deficit emissions, while those using zero or near-zero GHG technologies will be eligible for financial rewards;
• If adopted, the IMO Net-Zero Framework will be included as a new chapter in Annex VI (Prevention of air pollution from ships) of the International Convention for the Prevention of Pollution from Ships (MARPOL). According to the IMO, over 97% of the world’s merchant shipping fleet by tonnage is already signed-up to MARPOL Annex VI. The Annex already includes mandatory energy efficiency requirements for ships. The measures, if adopted in October 2025, will enter into force in 2027. The pricing mechanism will apply to a share of international shipping emissions from 2028, with an initial price of USD $100 per tonne of carbon.

The mechanics of the scheme are reasonably complex with two compliance thresholds set based on GFI targets namely (1) the Base Target (BT) and (2) the stricter Direct Compliance Target (DCT). Ships with a GFI higher than the BT will need to pay USD $380 per tonne of carbon or carbon equivalent on any emissions over the BT. They will also pay a penalty of USD $100 per tonne of carbon by buying “remedial units” (RUs) on any emissions between the BT and DCT. Ships however with a GFI below the DCT, the stricter tier, will generate surplus units which they can either retain for use in later compliance years or sell to ships with a deficit.

Ships that emit above the set thresholds can balance their emissions deficit by transferring surplus units from other ships, by using surplus units that they have already banked from prior years or by using RUs purchased from the IMO Net-Zero Fund.

The still-to-be established IMO Net-Zero Fund will be funded through collecting carbon pricing contributions from emissions as outlined above which will be used, amongst other things, to reward low-emission ships, support innovation and research as well as to help developing countries with the transition.

According to this announcement by the EU Commission, a strong supporter of the IMO Net-zero Framework, the scheme is set to raise an estimated to be USD $11-13 billion annually.

The agreement has many detractors who claim that the scheme is either too strong or too weak in terms of targets. It also leaves critical details to guidance which is yet to be negotiated, does not have a market-related carbon pricing mechanism and is too complex.

There are still several gates to pass through before the rules are finalised. The agreed MARPOL Annex VI will now be formally circulated to IMO Member States where in the October 2025 meeting, the MEPC will approve it along with any amendments. The implementation guidelines are planned to be approved at the spring meeting of the MEPC in 2026, with entry into force planned to be 16 months after adoption at some point in 2027. A lot can happen between now and October with the US notably absent from the agreement. RegTrail will continue to track this topic.