Maritime Organization's Plan for Zero Emissions

The International Maritime Organization (IMO) has approved draft amendments to Annex VI of MARPOL, aiming to take international shipping to net-zero emissions by 2050. This groundbreaking move, known as the IMO Net-Zero Framework, officially comes into effect on January 1, 2024.

Under the new framework, ships must calculate and reduce their annual greenhouse gas fuel intensity (GFI) at rates that increase annually. The Base Target is set at 4%, with a Direct Compliance Target of 17%. Ships that exceed the Direct Compliance Target can earn Surplus Units, which can be spent above the Base Target, banked for future use, or sold to under-compliant ships.

For ships achieving a surplus under the IMO Net-Zero Framework, they can bank the surplus for up to two years, trade with ships not meeting the GFI Base Target, pool with other vessels in a fleet, or cancel the surplus. On the other hand, ships emitting above the set thresholds will need to buy Remedial Units, which are non-transferable units acquired by means of GHG emissions pricing contributions to the IMO Net-Zero Fund.

The IMO Net-Zero Fund will be used to reward low-emission ships, fund environmental protection, and support the development and implementation of National Action Plans. Ships that have a higher GHG intensity than the requirement under the FuelEU Maritime Regulation must pay a penalty corresponding to its compliance deficit.

The FuelEU Maritime scope applies to ships over 5000 gross tonnage, arriving at or departing from EU/EEA ports, that serve the purpose of transporting passengers or cargo for commercial purposes. Ships using first-generation biofuels could satisfy the IMO Net-Zero Framework GFI targets but fall short of the FuelEU Maritime Regulation compliance targets.

The IMO Net-Zero Framework allows ships to use biofuels that can meet the Base Target when combined with conventional fuels. However, it does not explicitly restrict the use of first-generation biofuels with high indirect land-used change impacts, which presents ESG concerns.

The IMO will 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. The penalties for non-compliance with the IMO Net-Zero Framework remain to be seen, with States expected to have discretion in addressing non-compliance through their national laws.

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. 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'.

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. The IMO Net-Zero Framework and the FuelEU Maritime Regulation may require ships trading within the EU or European Economic Area to ensure compliance with both regulations.

It's an exciting time for the maritime industry as it embarks on this ambitious journey towards net-zero emissions. The IMO Net-Zero Framework is a significant step towards a more sustainable future for international shipping. 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, report it to the relevant Administration, and issue a Statement of Compliance. The framework will be mandatory for large ocean-going ships over 5,000 gross tonnage starting from 2028. The IMO Net-Zero Framework does not apply to ships not propelled by mechanical means, as well as platforms such as FPSOs, FSUs, and drilling rigs.

As we move forward, it will be interesting to see how the industry adapts to these changes and what innovative solutions will emerge to meet the challenges posed by the IMO Net-Zero Framework.