Introduction

On 11 April 2025, the International Maritime Organization (“IMO”) approved draft amendments to Annex VI (Prevention of Air Pollution from Ships) of the International Convention for the Prevention of Pollution from Ships (“MARPOL”). A new Chapter 5 will insert regulations aiming to take international shipping to net-zero emissions by 2050 (the “IMO Net-Zero Framework”).

Read also: Trump Administration Rejects Global Shipping Net-Zero Plan, Calls It “UN Tax on Americans”

MARPOL Annex VI currently has 108 Parties, covering 97 percent of the world’s merchant shipping fleet by tonnage, and already includes mandatory energy efficiency requirements for ships. Starting from 2028, the IMO Net-Zero Framework will be mandatory for large ocean-going ships over 5,000 gross tonnage (“GT”). The IMO Net-Zero Framework will not apply to ships not propelled by mechanical means, as well as platforms such as floating production storage and offloading (FPSOs), floating storage units (FSUs) and drilling rigs, regardless of their propulsion. The IMO Net-Zero Framework is expected to impact stakeholders across the maritime value chain. 

• For ship owners and operators, a close evaluation will need to be made of how the IMO Net-Zero Framework will affect fleet emissions and fuel costs, as well as any consequential impacts on investment decisions and build compliance strategies. 
• For fuel providers, the IMO Net-Zero Framework reinforces the importance of developing and scaling up lower-emission fuels that comply with upcoming requirements, making robust life cycle evaluations and certifications a growing priority. 
• For lenders and investors, the IMO Net-Zero Framework will go some way towards reducing the regulatory uncertainty around emissions in the maritime sector. Still, barriers remain, particularly where investments are spread across different jurisdictions (each with their own ‘green’ eligibility criteria and timelines for unlocking financing), making it difficult to coordinate funding towards maritime decarbonisation initiatives.
• For customers, as the cost of decarbonisation passes through supply chains, customers may see rising cargo rates and increased scrutiny around their shipping choices and emissions.

When will the IMO Net-Zero Framework come into force? 

Now that the draft amendment to MARPOL Annex VI has been approved, it will be formally circulated to IMO Member States. The anticipated timeline is as follows:

• in October 2025, the amendments will be adopted during an extraordinary session of the Marine Environment Protection Committee (in accordance with MEPC/ES.2); 
• in Spring 2026, detailed implementation guidelines for the IMO Net-Zero Framework will be approved (in accordance with MEPC 84); 
• by March 2027, the IMO will be required to publish a list of recognised Sustainable Fuels Certification Schemes to certify the GHG emission factors of specific fuels;
• in 2027, if ratified as expected, the IMO Net-Zero Framework will enter into force, 16 months after adoption (in accordance with MARPOL articles);  
• from 2028, the first monitoring year of the IMO Net-Zero Framework will start, requiring mandatory emissions reporting and compliance. 

The IMO Net-Zero Framework obligations

Assessed on a ship-by-ship basis rather than a fleet basis, ships must calculate and reduce, over time, their annual greenhouse gas fuel intensity (“GFI”) — i.e. the amount of GHG emitted per unit of energy used — at the following rates:

1. The “Base Target” reduction rate is 4%, which will increase annually to 30% by 2035. 
2. The “Direct Compliance Target” reduction rate is 17%, increasing annually to 43% by 2035.

Ships that exceed or ‘over-comply’ with the Direct Compliance Target earn “Surplus Units”, which can be spent above the Base Target; banked for up to two years to be used in the future; or sold to under-compliant ships which have failed to meet the Base Target (but only once per unit). Ships which run on more expensive e-fuels can generate and sell Surplus Units to help reduce the price gap between these fuels and low-carbon alternatives. 

Ships emitting above the set thresholds will need to buy “Remedial Units”. These are non-transferable units acquired by means of GHG emissions pricing contributions to the IMO Net-Zero Fund (see “The IMO Net-Zero Fund” below). The IMO Net-Zero Framework sets out guidance on a two-tiered pricing mechanism for ships in a compliance deficit:

A. Ships which miss the Base Target

A compliance deficit in the Base Target can be balanced through one or more of the following GFI compliance approaches:

• purchasing Surplus Units from other ships;
• using Surplus Units banked from previous reporting periods; and/or
• buying Tier 2 Remedial Units — the price of which is calculated by taking the differential to the Base Target and multiplying this by the total energy use for the year and the price of US$380 per tonne of CO2 equivalent on a well-to-wake basis (this is the initial price for the reporting periods 2028–2030).  

B. Ships which miss the Direct Compliance Target

A compliance deficit in the Direct Compliance Target can only be balanced through buying Tier 1 Remedial Units. Tier 1 Remedial Unit pricing is calculated by multiplying the gap between the Base Target and Direct Compliance Target with the total annual energy use for the year and a price of US$100 per tonne of CO2 equivalent on a well-to-wake basis (this is the initial price for the reporting periods 2028–2030). 

Tier 1 Remedial Units are priced cheaper than their Tier 2 equivalents, making them the most attractive compliance option which sets the incentive structure so that it is cheaper for ships to miss their Direct Compliance Target rather than their Base Target. 

The IMO Net-Zero Fund

As outlined above, one of the ways that ships can balance their compliance deficit is by using Remedial Units acquired through contributions to the IMO Net-Zero Fund.

The IMO Net-Zero Fund will be used to:

• annually reward low-emission ships with compensation payments for their use of zero or near zero GHG emissions technologies, fuels and/or energy sources (“ZNZs”) with an initial GFI below 19 gCO2eq/MJ. The guidelines surrounding the amount and form of the reward (such as whether this will be in the form of preferential rates or a grant) are yet to be developed;
• facilitate environmental and climate protection, adaptation and resilience building within the boundaries of the energy transition in shipping, paying particular attention to the needs of developing countries. In particular, there will be a focus on the least developed countries and small island developing States by allocating sufficient revenue for researching and developing ZNZ fuels and technologies;
• fund training, technology transfer and capacity building to support the IMO GHG Strategy;
• support the development and implementation of National Action Plans, including fleet renewal and upgrade.

Reporting and Enforcement under the IMO Net-Zero Framework 

Each ship falling within the scope of the IMO Net-Zero Framework will be required to calculate its attained annual GFI over a 12-month period (from 1 January to 31 December) for the preceding calendar year. 

Each ship shall report to the Government of the State under whose authority the ship is operating (the “Administration”) by 31 March in the following calendar year. The relevant Administration shall then be responsible for verifying the data and reporting to the IMO GFI Registry (to be established by the Secretary-General of the IMO). By 30 September, the relevant Administration will be required to issue a Statement of Compliance for each ship, documenting its annual GFI. 

It remains to be seen how the IMO Net-Zero Framework will be enforced in practice and what specific consequences will follow from non-compliance. Regulation 10.1 and 10.2 of MARPOL Annex VI provides that a ship of any flag, when in a port or offshore terminal under the jurisdiction of another State, is subject to inspection by officers of that State (and the State may hold the ship at berth until it is compliant). Further, Regulation 10.5 provides that any port State may inspect and verify a ship’s Statements of Compliance related to fuel oil consumption reporting, operational carbon intensity rating and annual GHG fuel intensity. In practice, these inspection and verification rights could make compliance with the IMO Net-Zero Framework a necessity for international port access. However, the penalties that might apply if targets are missed or if carbon unit obligations are not met remain to be seen. It is possible that States will have discretion in addressing non-compliance through their national laws; the IMO is expected to provide further clarification during the MEPC 84 conference to be held in October 2025, as well as through their detailed implementation guidelines (currently expected to be released in Spring 2026). 

The IMO will also conduct periodic audits of the Parties to the IMO Net-Zero Framework to verify compliance with and the implementation of the IMO Net-Zero Framework. 

Observations

FuelEU Maritime Regulation

Comparison between the IMO Net-Zero Framework and the FuelEU Maritime Regulation: 

Many elements are comparable to those of the FuelEU Maritime Regulation, which also focuses on well-to-wake GHG intensity. However, the IMO Net-Zero Framework is more complex and goes further, with two tiers of compliance targets and two tiers of Remedial Unit pricing. This layering brings both opportunities and challenges as shipowners and charterers will need to collaborate closely to navigate commercial and regulatory coordination.

Figure 1: A comparison between the IMO Net-Zero Framework and the FuelEU Maritime Regulation

Challenges for ships in complying with both:

There is no mention of other existing frameworks in the IMO Net-Zero Framework, which means that ships trading within the EU or European Economic Area may need to ensure compliance with both the IMO Net-Zero Framework and the FuelEU Maritime Regulation. FuelEU Maritime Regulation acknowledges the overlap between the two regimes regarding the GHG emissions reductions requirements at Recital 69 and requires the European Commission to review the FuelEU Maritime Regulation once an agreement is reached at the IMO level “with a view to aligning it, where appropriate, with international rules”. Nonetheless, harmonisation has not yet been implemented. In practice, operators may therefore be required to track two sets of rules, fuel eligibility criteria as well as methods for accounting carbon emissions intensity, which could lead to administrative burdens and increased compliance costs. For example, a ship using first-generation biofuels could satisfy the IMO Net-Zero Framework GFI targets but fall short of the FuelEU Maritime Regulation compliance targets. 

Opportunities for ships in complying with both: 

The differences between the FuelEU Maritime Regulation and the IMO Net-Zero Framework may also present advantages. If ships comply with the more stringent requirement, they may by default be eligible to receive Surplus Units under the IMO Net-Zero Framework which may then be utilised strategically. Further, if maritime stakeholders coordinate fuel procurement to align with stricter requirements, such as using second-generation biofuels, the consequent rise in use of fuels such as blue/green hydrogen and e-ammonia could simplify compliance under both schemes in the long run. 

Practicality of compliance

It may be difficult for many ships to comply with the IMO Net-Zero Framework, particularly with the existing state of the global fleet and port infrastructure. As of the beginning of 2025, the dual-fuel fleet consists of 2,119 vessels, which represents around 7.4% of the global maritime fleet by gross tonnage. Whilst these newer ships allow for dual-fuel capabilities, this indicates that over 90% of existing vessels may operate on conventional fuels like diesel. It is likely that a large proportion of the current ship fleet will still be in service well into the 2040s. Fitting these older fleets retroactively to accommodate low-carbon emission fuels is likely to be technically complex and financially burdensome. For instance, converting a vessel to LNG dual-fuel capability involves significant modifications to the fuel storage, piping and engine systems, which may not be viable for older ship models. 

A survey conducted by the Global Centre for Maritime Decarbonisation, Global Maritime Forum, and the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping, with analytical support from McKinsey (the “Survey”), found that shipping companies’ top priorities are for fuel providers to bring alternative-fuel projects to final investment decisions and to commence commercial operations while bringing down the cost of these fuels as they scale-up. In this environment, dual-fuel engines offer a transitional hedge by reducing the risk of fuel inaccessibility for global voyages. When asked about engine types in the Survey, the consensus was that Internal Combustion Engines (“ICEs”) — which today can run on fuel oil, methane (in liquified form), and methanol, with ammonia ICEs available in the near future — will remain the dominant propulsion method for ships well out to 2050. Further still, the Survey’s participants forecasted that fuel cell configurations (which use hydrogen or other alternative fuels to produce electricity that can propel ships) are expected to see significant development between 2030 and 2050 but will only be used for ‘niche applications’. 

Notably, the Survey’s respondents broadly chose to adopt a view that in 2030 and 2050, their fuel usage would be a diversified mix of fuels rather than a single ‘destination’ fuel. Consumption was expected to be spread across multiple fuel ‘families’ (consisting of fuels that ship engines can use interchangeably, such as marine diesel oil in one category with methane (LNG) in another). The most common scenario projected by 2050 is a fleet running ships on variants of biodiesel, methane, methanol and ammonia — a significantly increased complexity compared to the current typical fleet being made up of just biodiesel and methane. In practice, this shift would require fleets incorporating dual-fuel and even tri-fuel designs, with ships capable of processing alternative fuel mixes. 

Despite the costs and complexity, there are already signs of momentum. The maritime sector has witnessed a resurgence of engine retrofits of LNG marine fuel, as well as shipowners’ choice for immediate carbon reductions led to more than 305 LNG-fuelled ships being ordered in 2024, accounting for approximately 14% of newbuilding orders. 

On the infrastructure side, progress is mixed. The number of ports equipped with LNG bunkering facilities — featuring dedicated storage tanks, LNG distribution pipelines, and advanced safety systems — has increased to 201 ports globally with an additional 57 ports expected to be equipped by the end of 2026. However, the infrastructure for other alternative fuels such as green ammonia, e-methanol or green/blue hydrogen remains scarce and unevenly distributed, with most ports still lacking the necessary investment certainty. 

Fuel Mix and Fuel Production

For the LNG sector, this fuel remains a part of the compliance mix as it is not completely excluded under the IMO Net-Zero Framework and compliance is based on overall GFI. While the Direct Compliance Target means that LNG will likely not generate Surplus Units, this fuel option may still allow ships to meet the Base Target. This means that LNG can serve as a transitional compliance option, particularly in the near term. With LNG dual-fuel vessels currently comprising around 1,042 of the total amount of 1,821 of the global dual-fuel orderbook, clarity is crucial to this sector and the continued recognition of this fuel as viable to ensure certainty that these assets retain their value. For future projects, this still raises questions about the long-term future-proofing of LNG usage in the shipping industry — especially if the recalibrated Remedial Unit Prices (which will be determined in 2028 for 2031 onwards) make LNG more expensive to use. 

Under the IMO Net-Zero Framework, ships are also allowed to use biofuels that can meet the Base Target when combined with conventional fuels. This raises the question of whether the IMO Net-Zero Framework provides sufficient incentive to transition beyond interim, near-term solutions. Biofuels are often the most cost-effective lower-carbon option, as they can be used in existing ship engines without requiring new technology or retrofits. However, the IMO Net-Zero Framework does not explicitly restrict the use of first-generation biofuels with high indirect land-used change (“ILUC”) impacts — such as palm-oil biodiesel — which presents ESG concerns. First-generation biofuels have been linked to deforestation and ecosystem degradation, which results in substantial indirect emissions that are not captured in the IMO Net-Zero Framework’s current GHG intensity calculations (unlike their complete exclusion in the FuelEU Maritime Regulation). By not excluding first-generation biofuels or incorporating ILUC emissions, the calculations risk underestimating the true carbon emission impact of these food- and feed-based biofuels. Similar to LNG fuel usage above, operators could be tempted to favour near-term compliance strategies using first-generation biofuels, which may be recalibrated in the future and will not be recognised at all for ships also operating under the FuelEU Maritime Regulation, rather than investing in cleaner, more sustainable alternative fuels. 

Despite this potential for short-term compliance strategies, some shipping companies are taking a longer term view and are looking to buy more ZNZs on the basis that they may eventually be necessary to comply with the IMO Net-Zero Framework. This forward-looking approach may open up future revenue streams, as companies that over-comply could earn and sell Surplus Units. ZNZ producers may also benefit from the support provided by the IMO Net-Zero Fund, which is intended to accelerate decarbonisation efforts by channelling finance towards the production and deployment of low-emission fuels. 

General criticisms of the effectiveness of the IMO Net-Zero Framework 

Shortly prior to the IMO’s approval of the IMO Net-Zero Framework, the United States announced its withdrawal from the MEPC 83 negotiations and stated that the country “rejects any and all efforts to impose economic measures against its ships based on GHG emissions or fuel choice”. United States delegates did not participate in the final vote and urged other governmental entities to reconsider their support for the scheme. While this move casts doubt over the United States’ commitment, the country has shown no further indication of withdrawal from the broader MARPOL Convention, nor has it lodged a formal specific objection to the IMO Net-Zero Framework under the IMO’s Tacit Acceptance Procedure (meaning the IMO Net-Zero Framework would not be enforced in the United States). As a non-objecting party to MARPOL Annex VI, the United States will still be bound by the IMO Net-Zero Framework from 2028 onwards, if and when ratified.

The outlook may also hinge on domestic political developments. President Trump, who has twice withdrawn the United States from the Paris Agreement, is reportedly considering similar actions regarding the IMO Net-Zero Framework and has reportedly threatened retaliatory fees should the IMO Net-Zero Framework be enforced against United States shipping. Nonetheless, under current law, implementation of MARPOL Annex VI falls under the joint oversight of the U.S. Environmental Protection Agency and the U.S. Coast Guard. Unless the United States takes formal steps to object to the new measures, U.S.-flagged vessels and foreign ships calling at United States ports may still be subject to the IMO Net-Zero Framework’s requirements, creating a potentially complex legal and compliance landscape in the years ahead.

Beyond the United States, the IMO Net-Zero Framework has not been without criticism. Smaller islands (including Fiji, the Marshall Islands, Seychelles, Solomon Islands, Tuvalu, Vanuatu and Palau) all abstained on the vote, refusing “to support an agreement that would do too little, too late to cut shipping emissions and protect their islands”. Their representatives criticized the deal for falling short of the IMO’s own climate strategy and failing to align with the 1.5°C pathway. This sentiment has been echoed by other civil groups, such as the Clean Shipping Coalition and Transport & Environment warning that the IMO deal will create the biggest push to “the forest-destroying first generation biofuels”. 

Conclusions

The IMO Net-Zero Framework represents a significant step towards aligning the shipping industry with global decarbonisation objectives. While many shipping companies have already developed their own emissions reductions targets, the introduction of binding regulation provides clarity on the direction and change of pace required to necessitate change. The IMO Net-Zero Framework establishes a global reference point that can help align carbon-emissions reductions across the sector. 

Some observers worry that the IMO Net-Zero Framework may lead to a focus on short-term compliance over longer-term innovation in green alternatives like e-fuels, green ammonia and green hydrogen. However, it also opens up meaningful opportunities for proactive shipowners and operators. For ships that embrace the right fuel strategies early-on, they can generate and sell Surplus Units through the system, as well as benefit from potential financial rewards from the IMO Net-Zero Fund. Whilst further guidance is yet to be published on how these rewards will be sized and allocated, the mechanism will help catalyze the uptake of cleaner fuels and the technologies required to produce them. Further still, ships that comply with stricter requirements may well find themselves strongly positioned to financially benefit under both the IMO Net-Zero Framework and the FuelEU Maritime Regulation. 

For the LNG sector, the IMO Net-Zero Framework provides a realistic transitional pathway. LNG is not excluded and initially can be used by ships to meet the Base Target. As the GHG intensity thresholds increase over time, operators will look to gradually phase-out LNG fuels to remain compliant. This transition helps safeguard current LNG investments whilst gently encouraging the sector to look towards cleaner fuels for the future, ultimately providing a smoother and more commercially viable transition to a globally decarbonized industry. 

For shipping companies, there will be a need to think strategically about when and how to introduce each new low-carbon fuel family to the fleet as fleets will likely be required to run on multiple fuel families. Mechanisms such as green corridors (specific trade routes established between ports equipped to handle future fuels) and multiyear offtake agreements (contracts assuring stable fuel demand) could help reduce risk and encourage adoption. 

For fuel producers, the speed of adoption of alternative fuels will be a product of the cost gap between green and fossil fuels and the availability of these fuels at global ports. There may be opportunity for partnerships between fuel producers and bunkering providers which offers more certainty in navigating when and where certain alternative fuels may become available at ports. The question then is — how will we see fuel providers align scale production with bankable demand? 

For ports and bunkering companies, these entities should consider and prepare for a long-term strategy of building infrastructure that offers a multitude of fuel types in order to attract the greatest possible number of future vessels. This may initially involve making individual alternative fuels available in the near term, utilizing nearby fuel production plants or participating in green corridors, with the gradual transition towards offering duel- or even tri-fuels. 

Looking forward, the IMO Net-Zero Framework has paved the way for these key players to effect change in fuel production and usage across the supply chain. Early movers who invest in lower-carbon fuels and technologies may find themselves better positioned for compliance in the future. While uncertainties remain, the IMO Net-Zero Framework offers a foundation for decarbonization, which stakeholders can build upon with clarity and innovation on a long-term basis.