MEPC 83: global shipping gets its first-ever emissions pricing mechanism

By Julian Atchison on April 23, 2025

Entry into force March 2027, first reporting in 2028

Visual representation of compliance thresholds for vessels under the new IMO regulations.

Click to enlarge. Visual representation of compliance thresholds for vessels under the new IMO regulations. From News Brief MEPC 83 (American Bureau of Shipping, Apr 2025).

Following a historic vote at the IMO on Friday 11 April, global shipping has “achieved another important step towards establishing a legally binding framework to reduce greenhouse gas (GHG) emissions”. Passed by a majority of members of the Marine Environment Protection Committee, the draft regulations will be further honed and formally adopted at an extraordinary MEPC session in October, before being formally approved at MEPC 84 in around twelve month’s time, followed by entry into force in March 2027. The regulation will be mandatory for ocean-going ships over 5,000 gross tons – a vessel cohort responsible for 85% of the total CO2 emissions from international shipping.

The approval of draft amendments to MARPOL Annex VI mandating the IMO net-zero framework represents another significant step in our collective efforts to combat climate change, to modernize shipping and demonstrates that IMO delivers on its commitments. Now, it is important to continue working together, engaging in dialogue and listening to one another, if we are to create the conditions for successful adoption.

IMO Secretary-General Arsenio Dominguez in his organisation’s official press release, 11 Apr 2025

In terms of timelines for shipowners and operators, it should be noted that, although the regulations are scheduled to enter into force in March 2027, reporting will not begin until 2028. There will be no penalties for non-compliance in 2027, which becomes the year of preparation to ensure zero or near-zero (ZNZ) fuels will be available. The first reward payments for vessels using ZNZ technologies and fuels (see below) are anticipated in mid 2029.

Compliance and mechanisms

Regulated vessels will be required to reduce – over time – their “annual greenhouse gas fuel intensity (GFI)”, or GHG emitted per unit of energy used, calculated using a well-to-wake approach. Vessels emitting above GFI thresholds will have to acquire remedial units to meet the deficit in a two-tier system, while vessels using ZNZ technologies will also be eligible for financial rewards. Vessels emitting above certain GFI thresholds will acquire remedial units by:

  • Transferring surplus units from other, “over performing” ships
  • Using surplus units already banked by the vessel (these banked units are valid for 2 years)
  • Contributing to the new IMO “Net-Zero Fund”
The two-tiered GFI structure for vessels operating under the new IMO regulations.

Click to enlarge. The two-tiered GFI structure for vessels operating under the new IMO regulations. Source: the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping.

We have already explored the pooling and banking mechanisms in the FuelEU scheme (as well as the concept of surplus units and “over performing” vessels), and very similar mechanisms have been included in the draft regulations at the IMO. The IMO Net-Zero Fund will be responsible for collecting and disbursing funds for a variety of uses, including:

  • Rewarding the operation of vessels sailing on ZNZ fuels or technologies
  • Supporting innovation, research, infrastructure and just transition initiatives in developing countries
  • Training, technology transfer and capacity building
  • Mitigate negative climate impacts on vulnerable states, such as Small Island Developing States and Least Developed Countries

The proposed scope of this Net-Zero Fund covers some of the aspects of a global levy proposal that was one of the regulatory options on the table at MEPC 83. But, while the global levy proposal was heavily focused on “just and equitable” elements, including direct financial support for decarbonization in the smaller and least-developed maritime nations, it remains unclear just how much of the Net-Zero Fund will be directed towards those initiatives.

So…what does this all mean?

Many of the fine details of these draft regulations are still to be worked out, and will continue to be debated right up until (and beyond) the extraordinary session of the MEPC in October later this year.

But we do know that the draft regulations send a clear signal to the industry: business as usual operations will become significantly more expensive, and non-compliance will put companies at a financial disadvantage. Shipowners and operators will now be running the numbers to assess their options to reduce fleet emissions. There are a suite of options available to achieve these reductions, and ZNZ technologies and fuels represent one of the better opportunities to make deep emissions cuts.

ZNZ fuels will be one of the most straightforward, immediately-implementable ways for stakeholders to operate “over performing” vessels, pooling emission reductions across their fleet, and avoiding the costs of fleet-wide retrofits. Vessels operating on ammonia fuel compliant with the CI thresholds (19g CO2e per kg fuel on a well-to-wake basis, dropping to 14g CO2e per kg post-2035) will also be eligible for financial rewards from the Net-Zero Fund, incentivising the use of low-emission fuel (and its production!). These elements bring more certainty to stakeholders, making investment decisions around alternative fuels easier.

The draft regulations are certainly not stringent enough to make ZNZ technologies and fuels an accomplished fact. Further ratcheting up of these mechanisms is required, and many industry stakeholders see the outcomes of MEPC 83 as a starting point, with higher ambition required. Just and equitable elements will also need to be included in the Net-Zero Fund to ensure smaller and developing maritime nations are not left behind.

Gaps, questions and hurdles ahead

There are many aspects to be worked out, and many questions still to be answered. Uncertainties include:

  • What happens to FuelEU and similar emissions reduction schemes?
    • Will there be double counting and enforcement of both, or will harmonization and mutual recognition occur?
    • Will FuelEU be repealed or superseded by the new global scheme?
  • While GHG emissions reporting for individual ships is now a common practice, will there be changes under the new regulations?
  • What is a “ZNZ” technology or fuel? At present, there is no formal definition in the IMO draft regulations.
    • How will ZNZ technologies and fuels be certified and reported? LCA guidelines for ZNZ fuels are being developed by another UN body (GESAMP). There is hope that these will be ready by MEPC 84 next year, but there is currently limited visibility into what the guidelines will contain.
  • What does the Net-Zero Fund look like, and how does it function?
    • What do “financial rewards” for vessels sailing on ZNZ threshold technologies and fuels below the CI threshold entail? How will they be overseen and disbursed?
    • Will enough funds be raised (in the appropriate time frame) to support the deployment of ZNZ fuels and to carry out a just and equitable transition for smaller and developing maritime nations? How do we quantify and budget these two important programs?
  • While there is general consensus that an IMO registry will handle transfer of surplus and remedial units, what does the exchange of units between parties look like? Will a market emerge for selling and buying these units, and how will this be overseen?

In the lead up to the extraordinary session of the MEPC this October, we will check-in on progress towards answering these questions, and what decisions will be pushed back.

There are many in-depth readouts from MEPC 83 available, including: