The International Maritime Organisation’s Net-Zero Framework is a necessary starting point but urgently needs greater ambition and binding revenue earmarking for decarbonisation and a just transition.
The shipping sector accounts for 3% of global greenhouse gas (GHG) emissions. This share could soar to 10% by 2050 at current growth rates.
Although the International Maritime Organisation (IMO) updated its climate strategy in 2023, the new targets remain far below what is needed to align with the Paris Agreement’s 1.5°C goal. Achieving that goal would require a 45% reduction in emissions by 2030, versus 20-30% in the IMO Strategy, which is, in itself, grossly overstated as our study will reveal. This means that the international shipping sector, under the stewardship of the IMO, is drifting way off course.
At its 83rd session in April 2025, the IMO’s Marine Environment Protection Committee (MEPC) was expected to agree on a set of mid-term measures to steer international shipping towards full decarbonisation, in line with the organisation’s updated greenhouse gas (GHG) strategy. Rather than adopting an effective carbon levy, the IMO settled on a weak compromise, which it optimistically called its ‘Net-Zero Framework’ (NZF): a hybrid approach combining a GHG fuel standard with a limited carbon pricing mechanism.
While a diplomatic success in troubled times and a starting point for action, the NZF falls far short of the ambition demanded by the escalating climate crisis. As civil society organisations warned right after the deal was sealed in April, the scheme doesn’t lead to enough emission reductions, does not price enough emissions, does not price those high enough, and does not generate enough revenue.
A forthcoming CMW study, led by Professor Michele Cincera from the Université Libre de Bruxelles (ULB), will provide data and in-depth analysis to highlight these critical gaps. The study will be published in November. This article provides a preview of the study’s main arguments and proposals before the IMO votes on the deal this week during the Marine Environment Protection Committee meeting in London (14-17 October).
While the NZF falls short of what is needed to tackle shipping emissions, it is essential that IMO member states vote in favour of the deal, work to strengthen it as soon as possible, and resist attempts to dilute its provisions further. Rejecting the framework and the chance of improving it would only be playing into the hands of the Trump administration and Big Oil, and delay the urgently needed decarbonisation of the shipping sector.
We call on IMO national delegations and relevant stakeholders to close the ambition gap as soon as possible through more ambitious GHG fuel intensity (GFI) trajectories, broader emissions coverage, and binding revenue earmarking for climate action and vulnerable states.
Speeding up action
The IMO NZF scheme is based on a greenhouse gas (GHG) fuel standard for international shipping emissions. It is a command-and-control type of policy that operates through standards and penalties, comparable in its functioning to the EU’s FuelEU Regulation. Each year, it sets emissions targets through pre-determined GHG intensity reduction factors (also known as ‘Z factors’). As these emission reduction percentages become more ambitious over time, ships and fleets must lower their GHG fuel intensity (GFI), meaning the amount of GHG emitted per unit of energy used. For example, ships and fleets could lower their GHG fuel intensity with cleaner fuels.
Z factors are currently defined for each year from 2028, when the scheme is set to begin, to 2035 only. Two levels of ambition are provided: a less demanding ‘Base Target’ trajectory and a more ambitious ‘Direct Compliance’ curve. A Base Target level is also indicated for 2040. However, the IMO NZF does not refer to 2050 – the year around which international shipping must reach carbon neutrality under the IMO’s GHG Strategy.
Figure 1 outlines these trajectories and highlights the various compliance and non-compliance zones that fleets may fall into, depending on the amount of GHG emitted per unit of energy used.
The green zone is a first compliance zone (direct compliance), where ships meet the most ambitious decarbonisation targets. Ships in this category have significantly reduced their GHG emissions per unit of energy used. They earn surplus units as a reward, meaning emissions units they have not used due to outperforming the direct compliance target. These surplus units can be sold to non-compliant (tier 2) ships in the red zone, providing additional revenue for the most ambitious fleets.
If ships fail to meet direct compliance but meet the base target, they land in the blue zone (Tier 1). Although these ships meet the minimum standard, they are still required to purchase tier 1 remedial units, which carry a carbon price of $100/tCO2eq.
Finally, if a fleet does not comply even with the less ambitious base target, it is in the non-compliance red zone (tier 2). These ships must either buy surplus units from overcomplying ships or pay for more expensive tier 2 remedial units priced higher at $380 per tonne of CO2 equivalent. However, as discussed below, the actual price levels of these remedial and surplus units (RUs and SUs) are far lower in practice.
The dangers of relativity
It is crucial to highlight that the NZF is not designed to deliver an absolute reduction in emissions levels – unlike a universal levy or the EU ETS. Instead, it targets the GHG intensity levels of the energy used. Moreover, it does not consider activity growth in the international sector, meaning international shipping GHG emissions. Therefore, total emissions can continue to rise, provided that the GHG intensity of the energy consumed is decreasing.
CMW’s forthcoming study, based on a realistic annual emissions growth rate of 3% in international shipping, will demonstrate that the emission reductions achieved through the IMO NZF’s Z factors fall significantly short of meeting the targets set by the IMO’s GHG Strategy.
This 2023 strategy had set a base target of 20% of emission reductions, and striving for 30%, by 2030, compared with a 2008 baseline, and a base target of 70% emission reductions, and striving for 80%, by 2040. There is currently a tangible risk that the NZF hybrid scheme would lead to missing these targets, which would put the IMO completely off course to achieve its own GHG Strategy targets and even further away from meeting Paris Agreement objectives.
To tackle these shortcomings, we recommend:
→ IMO national delegations should, at the very least, significantly accelerate the reduction of GHG intensity emissions mandated by the Z factors by increasing the level of the latter to reach the IMO’s 2030 and 2040 targets.
→ Delegations should develop and agree on solutions that directly address absolute emissions, such as a universal levy or cap-and-trade system would do.
Increase the price and coverage of emissions
Although the IMO Net-Zero Framework includes carbon pricing, the scheme’s hybrid design weakens it by applying that price to a portion share of emissions.
The basis of the framework is a GHG fuel standard, where emissions reductions are driven by the increasing Z factors (i.e., decreasing GFI). On top of this, fleets not meeting the direct compliance and/or base target must purchase remedial units: Tier 1 Remedial Units in the former case and Tier 2 Remedial Units (or traded Surplus Units) in the latter. Tier 2 RUs or SUs act as a penalty for failing to meet the defined standard. While the Tier 2 RU price is set at $380 per tonne of CO2 equivalent, the SU price will depend on future market prices, but analyses indicate their price may settle at only around $300 a tonne.
The hybrid element of the scheme rests on the requirement for fleets to pay for a carbon price even if they meet the base target but fail to meet the more ambitious direct compliance target. In this case, fleets must pay a cheaper tier 1 RU, costing $100/tCO2eq. This is the carbon pricing component of the IMO NZF.
However, due to the narrow design of the Tier 1, Carbon Market Watch and T&E estimate that less than 15% of total emissions are being priced through 2035. This limited coverage is the main reason why NZF’s effective carbon price remains so low. Further evidence and data on this will be presented in CMW’s forthcoming study in November.
While any form of carbon price is better than the free pass international shipping has benefited from until now, the current design remains clearly inadequate. It fails to:
- Compensate for the weak emissions reductions resulting from the unambitious Z factors (as outlined in the section above)
- Provide a clear carbon price signal to steer the sector toward decarbonisation and attract investments in clean technologies
- Generate the required revenue for the clean and just transition
To remedy this, we recommend that:
→ IMO national delegations must revise upwards the price levels of tier 1 and 2 remedial units in their planned review after 2028 so that effective carbon pricing levels close to $100/tCO2eq are introduced for the IMO NZF starting in 2031.
→ IMO national delegations must significantly speed up the increase in Z factors for direct compliance to widen the tier 1 zone and broaden the share of priced emissions, indirectly raising the effective carbon price on ships.
Bankrolling a just and equitable transition
In carbon pricing schemes, revenue generation is a major co-benefit next to emissions reductions. For instance, the EU ETS generated about €40 billion of revenue in 2024 through all the sectors it covers. Regarding shipping, the EU ETS raised €2 billion from the limited routes currently covered by the scheme in 2024. With the full phasing in of the sector, this should reach about €5 billion in 2026.
Carbon pricing revenue is key because it can directly contribute to the climate goal that the mechanism was established to pursue, namely decarbonisation. This can be achieved through supporting industry in the construction and uptake of clean technologies, such as wind propulsion and green synthetic fuels, while helping to make up for some of the policies’ potential undesirable effects. These effects could include the increasing cost of, for example, food supply for the most vulnerable citizens, regions, or nations.
The IMO NZF will generate revenue through the carbon pricing element, which rests on tier 1 remedial unit and penalty payments (Tier 2 remedial units) for ships not complying with the base target. These payments will flow to a newly established IMO Net-Zero Fund.
Yet, considering the weaknesses highlighted in the above sections, particularly the low effective carbon price, revenue flows are consequently expected to be limited, according to CMW’s forthcoming study.
To ensure that adequate revenue is generated for decarbonisation and climate justice, we recommend:
→ A just and equitable transition (JET) must be a key priority for the allocation of revenue, alongside the scaling up of zero or near-zero emission fuels and technologies. This is especially important given that JET is central to the IMO’s 2023 GHG Strategy.
