The global shipping industry is gaining strong momentum in its transition to net-zero emissions. Over the past few years, the sector has been actively working toward the revised greenhouse gas (GHG) emission strategy targets set by the International Maritime Organization (IMO) in 2023. In April this year, the IMO achieved a milestone by establishing a net-zero framework, providing clear regulatory guidance to drive the decarbonization of global shipping. Although the framework still requires refinement, it is expected to fundamentally reshape the industry.
//- New Regulatory Targets -//
At the 83rd session of the IMO’s Marine Environment Protection Committee (MEPC 83), a foundational agreement was reached to facilitate the shift toward low-carbon shipping fuels, ultimately achieving net-zero emissions and supporting global climate goals. The Global Fuel Standard (GFS), the first globally binding industry emission reduction regulation, is the core of this agreement. The GFS mandates a gradual reduction in the GHG intensity of shipping fuels, aiming to meet the IMO’s phased targets:
· 20% reduction by 2030 (striving for 30%).
· 70% reduction by 2040 (striving for 80%).
· Net-zero emissions around 2050.
Although the fuel transition requirements starting in 2028 are relatively moderate, they will drive the transformation of 30,000 large oceangoing vessels and over 200 million tons of fuel globally by 2040.
//- Implementation Pathways -//
To meet the steep GHG intensity reduction targets by 2040, the shipping industry will need multiple fuel options. In the short term, biofuels (such as bio-MGO and bio-LNG) can be blended into existing fleets and fuel supplies. However, in the long term, biofuels face limitations due to their limited scalability, potential environmental impacts from large-scale production, and competition from industries like aviation and chemicals for these resources. Therefore, the shipping sector will require significant quantities of e-fuels (such as e-ammonia or e-methanol), which are synthesized from hydrogen produced using renewable electricity.
In fact, the IMO’s GHG strategy implicitly acknowledges this need by setting a target for 5% (striving for 10%) adoption of zero or near-zero emission fuels by 2030, helping these currently unavailable fuels—and the vessels that use them—achieve global scale within the next decade. However, while the GFS outlines a clear path for emission reductions, the agreed net-zero framework still requires refinement to ensure the timely introduction of e-fuels.
//- Incentives for Fuel Adoption -//
A key tool to drive e-fuel adoption is clear incentives for zero or near-zero emission fuels (ZNZs). Although the new agreement includes provisions for such incentives, the specifics of implementation remain unclear. ZNZ incentives would essentially be funded by a centrally managed pool, with the IMO imposing penalties on vessels that fail to fully comply with the GFS. A portion of these penalties would then be paid as incentives to shipowners using ZNZs. However, since biofuels are currently cheaper and more readily available than e-fuels, if they also qualify for incentives, the new rules may fail to stimulate investment in e-fuel production. Given that many biofuels already meet GFS requirements with ease, additional subsidies could divert limited funds to support fuels that do not need them, potentially hindering the industry’s long-term transition.
//- IMO’s Next Critical Challenge -//
To avoid this outcome, the IMO must carefully consider several approaches when drafting implementation guidelines for the net-zero framework. The simplest solution would be to target incentives at specific fuel options—namely, those based on scalable electrolytic hydrogen. However, the IMO’s commitment to technological neutrality may hinder efforts to promote emerging technologies.
Another option is to account for the full lifecycle environmental impact of fuels, ensuring that the scalability constraints of biofuels are reflected in incentive eligibility. Alternatively, varying incentive levels could be provided for different fuels based on their costs, fully bridging the gap between fuel costs and baseline costs to create a more level playing field for ZNZs. As the IMO develops its implementation guidelines, these two options should be prioritized.
Currently, a work plan is being developed, with lifecycle assessment guidelines as an ongoing effort, and the incentive mechanism likely to be the next focus. The agreement reached in April will be put to a vote in October, and discussions on these critical refinements will continue thereafter until implementation by the end of 2027.
//- Time Is of the Essence -//
The shipping industry must act immediately to transition to net-zero emissions. Companies need to make large-scale investments in fuel production and bunkering infrastructure, which will partly depend on how today’s decisions stimulate the development of future fuel portfolios. Although the agreed framework provides a solid foundation for decarbonization, only by setting the right incentives from the outset can the industry secure the necessary tools for a smooth transition to a truly net-zero future.
