IMO MEPC83: New Net Zero Framework for shipping

In the wake of a momentous meeting of the International Maritime Organisation’s (IMO) Marine Environment Protection Committee (MEPC) last week, our decarbonisation team summarise the top ten takeaways pertaining to a new Net Zero Framework for shipping.

1. New greenhouse gas (GHG) emission rules for shipping, designed to decrease the GHG intensity of shipping and drive the uptake of alternative fuels, have been approved. If the new Net Zero Framework is adopted at the next meeting of the MEPC in October 2025 the new rules will enter into force by 2027, taking effect as amendments to MARPOL Annex VI.
    
2. The Net Zero Framework brings together a technical (fuel) measure and an economic (pricing) measure in one regulatory framework. This differs from the current EU regime regulating GHG emissions from shipping, whereby an economic measure (the Emissions Trading Scheme) and a technical measure (FuelEU Maritime) are enshrined in separate regulations.
    
3. The Net Zero Framework GHG Fuel Intensity mechanism (GFI) provides for compliance options and penalties on two tiers with flexible compliance mechanisms similar to FuelEU available. Vessels can also make use of remedial credits through contributions to a new Net Zero Fund (to be established).
     
4. The Net Zero Framework will be administered through a GFI Registry (to be established). All ships over 5000GT will be required to open a registry account by 1 October 2027.
    
5. Payments made pursuant to the Net Zero Framework will be collected by an IMO Net-Zero Fund (to be established) and used to reward the use of zero/near-zero GHG emission fuels and support the energy transition of developing countries.
    
6. Like FuelEU, the GFI will employ a lifecycle well-to-wake methodology. Calculation guidelines will be revisited before the GFI comes into force and Member States may submit their proposals for default emission factors to the relevant IMO working group.
    
7. As the Net Zero Framework will be a two-tiered scheme there will be two compliance targets for ships: a Base Target and a Direct Compliance Target.
    
8. The Base target is the minimum GHG intensity reduction trajectory a ship must adhere to. Ships failing to meet the base target will pay penalties in the form of Tier 2 remedial units (RUs) which will be priced at $380 per tonne of CO2e until 2030. Post-2030 values will be decided in the future.
    
9. The Direct Compliance target is a secondary GHG intensity reduction target. Ships failing to meet the direct compliance target will pay penalties in the form of Tier 1 RUs which will be priced at $100 per tonne of CO2e until 2030. Post-2030 values will be decided in the future.
    
10. Surplus Units (SUs), i.e. rewards which will be provided to ships exceeding the direct compliance target, may either be banked for up to two years for future use, sold to ships failing to meet base targets or cancelled voluntarily and can help to reduce the price gap between the lowest GHG emission fuels and more polluting alternatives. 
     

We look forward to getting into the details of the new rules in the coming days and to supporting you with any queries you may have.

Authors

Rachel Hoyland, Of Counsel
Pia Rebelo, Legal Analyst