The International Maritime Organization (IMO) Marine Environment Protection Committee (MEPC) met in London last week for what was expected to be a pivotal meeting. On Friday, the committee agreed on a framework and achieved an important step to reduce greenhouse gas (GHG) emissions from global shipping and- as a first for a global industry sector. As alluded to in our pre-meeting analysis, the most anticipated outcome from the meeting was the establishment of a fuel intensity standard with a flexibility mechanism, and that is what was achieved.
In 2023, the IMO revised its GHG reduction strategy. The revised strategy aims to reduce emissions by 20% by 2030 (compared to 2008 levels), 70% by 2040 and achieve net-zero emissions by 2050. Until last Friday, the strategy lacked measures to achieve these goals.
The IMO Net-zero Framework plans to combine emission limits with a carbon pricing element. If fully implemented, it will become mandatory for large ships over 5,000 gross tonnage – a similar scope to the regulations for the maritime sector in the EU. The final summary of the meeting is not yet published, but this is a summary of what has been gathered from the IMO and other sources.
The IMO Net-zero Framework will be included in the International Convention for the Prevention of Pollution from Ships (MARPOL), where the goal is to achieve the targets of the 2023 GHG strategy mentioned above.
In the draft regulation, ships will be required to comply with a global fuel standard, where the need to reduce their greenhouse gas fuel intensity (GFI). This means that they need to reduce greenhouse gas emissions per energy unit used. This is very much analogue to the Fuel EU Maritime regulation where the greenhouse gas fuel intensity is measured in grams of CO2e per MJ. The IMO takes a well-to-wake approach, meaning they include emissions throughout the life cycle.
To add some flexibility, the IMO will also establish a global economic measure. Ships that emit above or below the base target will have the possibility to acquire or sell units, depending on their surplus or deficit of emissions. There will be an IMO GHG fuel intensity registry, and units can be transferred between ships or banked for a limited period.
For ships that are not in compliance there will be a penalty fee of $100 or $380 per unit, depending on the deviation from the base target. This will provide a new incentive for the transition to biofuels and alternative fuels for the global shipping fleet. The fee is lower than the fee in the Fuel EU Maritime regulation that is currently €2400/ton CO2e. The IMO Net-Zero Fund will be established and collect revenues from the penalties that will in turn be used for emission reduction projects in the sector.
Assuming no hick-ups, the regulation win enter into force early 2027, 16 months after adoption, which is planned for an extraordinary session in the MEPC in October 2025. The GFI will then gradually tighten annually starting from 2028, which means business as usual for still some years for shipping.
As mentioned, this framework is different from the EU ETS where you must surrender allowances to cover all your direct emissions. The IMO Net-zero framework is more in line with the FuelEU Maritime regulation that has a fuel intensity target that gradually tighten and has a penalty for non-compliance.
The ambitions are not straightforward to compare since the IMO framework is compared to 2008 intensity, while the FuelEU Maritime regulation compares with 2020 emissions.
The IMO will annually tighten the target, while FuelEU Maritime starts in 2025, and tightens in 5-year intervals.
The FuelEU Maritime has a pooling mechanism for ships to achieve the goal in a fleet of ships, while the IMO framework will have a global registry of units.
If the Net-zero Framework is adopted, which is planned for later this year, the FuelEU Maritime regulation states that the Commission shall present a report to the European Parliament and Council, examining the ambition of the global measure in light of the objectives of the Paris Agreement. After process, this the EU could reconsider the FuelEU Maritime and align with the international rules.
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