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IMO MEPC 83's Landmark 'Net-Zero Framework': Understanding the New Fuel Standard & Carbon Price

IMO MEPC 83 approved a landmark Net-Zero Framework! Understand the new global fuel standard & carbon price mechanism impacting shipping from 2027.
Written by
Victor Lee
Published on
April 12, 2025

The International Maritime Organization's (IMO) Marine Environment Protection Committee (MEPC) concluded its 83rd session (April 7-11, 2025) by approving a landmark draft regulatory framework aimed at achieving net-zero greenhouse gas (GHG) emissions from international shipping by or around 2050. This "IMO Net-Zero Framework" represents a critical step, establishing the world's first mandatory global GHG fuel standard combined with an emissions pricing mechanism for an entire industry sector (Source: IMO). For shipowners, operators, and charterers, understanding the components of this framework is essential for future planning and investment.

The Road to Net-Zero: Context & Timeline

This framework builds upon the ambitious targets set in the 2023 IMO Strategy on Reduction of GHG Emissions from Ships. The newly approved measures, expected to be formally adopted during an extraordinary MEPC session in October 2025, are slated to enter into force likely on March 1, 2027, following the MARPOL amendment process (Source: Lloyd's Register). The regulations will apply to ships over 5,000 gross tonnage engaged in international voyages, covering the vast majority of emissions from the sector.

Component 1: The Global Fuel Standard (GFS)

This is the technical core of the framework, designed to progressively reduce the climate impact of marine fuels:

  • Mandatory GHG Intensity Reduction: The GFS requires ships to reduce their annual average GHG Fuel Intensity (GFI) over time. This means the amount of GHG emitted per unit of energy used by the ship must decrease according to a set schedule.
  • Well-to-Wake Basis: Importantly, the GFI calculation uses a Well-to-Wake (WtW) approach, considering emissions from fuel production (Well-to-Tank) through to combustion onboard (Tank-to-Wake). This encourages the adoption of fuels with lower lifecycle emissions.
  • Phased Targets: Reduction requirements will be phased in, tightening gradually towards the 2050 net-zero goal. MEPC 83 agreed on the trajectory, providing increasing certainty for investment decisions (Source: Safety4Sea).
  • Implication: To comply, vessels will increasingly need to utilize low- and zero-GHG fuels (such as sustainable biofuels, methanol, ammonia, or potentially hydrogen) and/or adopt energy-saving technologies (like wind-assist propulsion, hull coatings, route optimization) to meet the progressively stricter GFI limits.

Component 2: The GHG Emissions Pricing Mechanism

Complementing the fuel standard is an economic measure designed to incentivize emissions reduction:

  • Carbon Price: The framework establishes a global pricing mechanism for maritime GHG emissions. While the exact form (e.g., levy per tonne of CO2 equivalent) and price level are subject to finalization before adoption, the principle of pricing emissions has been approved (Source: Marine Log).
  • IMO Net-Zero Fund: Revenue generated from the pricing mechanism will be collected via a new "IMO Net-Zero Fund."
  • Fund Purpose: These funds are intended to be reinvested to support the maritime energy transition, potentially funding R&D for alternative fuels, supporting infrastructure development, and assisting developing countries, particularly Small Island Developing States (SIDS) and Least Developed Countries (LDCs), in their transition efforts (Source: IMO).
  • Implication: This creates a direct financial incentive for ships to reduce emissions, making lower-emission fuels and technologies more economically attractive compared to conventional fossil fuels subject to the carbon price.

How Compliance Will Work: Targets, Surpluses & Deficits

The framework includes a mechanism to manage compliance with the GFI targets:

  • Two-Tier Targets: Ships will have two GFI targets: a 'Base Target' and a stricter 'Direct Compliance Target'.
  • Surplus Units (SUs): Ships performing better than the Direct Compliance Target can earn SUs.
  • Deficits: Ships emitting above the Base Target incur compliance deficits (split into Tier 1 and Tier 2 based on the targets).
  • Balancing: Deficits must be balanced. This can be done by using previously banked SUs, transferring SUs from other ships (creating a potential market), or purchasing 'Remedial Units' (RUs) through contributions to the IMO Net-Zero Fund (effectively paying the carbon price for excess emissions) (Source: Safety4Sea).
  • Implication: This system provides some flexibility but requires careful monitoring of ship performance, strategic decisions about fuel/technology use, and potential engagement with carbon markets or payments into the fund.

Industry Reactions & Next Steps

The approval of the draft framework marks a significant, legally binding global commitment. However, the agreement wasn't unanimous, and some environmental groups and nations have criticized the agreed ambition levels and the compliance mechanism, suggesting potential loopholes (e.g., reliance on biofuels without strict sustainability criteria) or insufficient revenue generation for a truly just transition (Source: WorldCargo News).

The crucial next step is the Extraordinary Session of MEPC scheduled for October 2025, where the final text of the MARPOL Annex VI amendments incorporating this framework is expected to be formally adopted.

Conclusion

The IMO Net-Zero Framework approved at MEPC 83 sets a clear, albeit challenging, path towards decarbonizing international shipping. The combination of a mandatory fuel standard and a global carbon pricing mechanism will fundamentally reshape vessel operations, fuel choices, and investment decisions in the coming years. While the precise details of the carbon price and reduction trajectory will be finalized later this year, shipowners and operators must begin strategic planning now for the 2027 entry into force. This includes evaluating alternative fuel pathways, investing in energy efficiency technologies, understanding the compliance mechanisms, and closely monitoring ongoing IMO developments.

Lightspeed Marine is monitoring these developments closely to advise clients on navigating future regulatory requirements in Vietnam and globally.

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