Shipping and alternative fuels producers await IMO Regulations on GHG Emissions Framework

During 2025, the International Maritime Organisation (IMO) will consider adopting new "mid-term measures" for managing greenhouse gas (GHG) emissions. This will include proposed new shipping fuel standards on maximum permitted carbon emissions intensity from ships, and a market-based mechanism for GHG pricing and enforcement. If agreed, they would be adopted as amendments to Annex VI of the MARPOL Convention.

IMO's global role for international shipping

The IMO, a United Nations specialised agency, has responsibility for the safety and security of international shipping, and the prevention of marine and atmospheric pollution by ships. Its work includes international law reform initiatives, such making regulations covering liability and compensation for damage, such as pollution, caused by ships.

The IMO's development and reform agenda responds to the UN's Sustainable Development Goals. Building on its early work establishing the first ever comprehensive antipollution convention, the 1973 International Convention for the Prevention of Pollution from Ships (MARPOL Convention), these regulations now include added requirements addressing pollution from chemicals, other harmful substances, garbage, sewage and – under an Annex VI adopted in 1997 – air pollution and emissions from ships.

Regulation of shipping emissions and efficiency

The first mandatory international measures to improve energy efficiency for ships was issued on 15 July 2011. These introduced controls including the International Air Pollution Prevention Certificate and the International Energy Efficiency Certificate regimes. Further progress was made through the 2018 Initial IMO GHG Strategy and the 2023 Strategy on Reduction of GHG Emissions from Ships.

The IMO's most recent set of "short term" technical and operational measures, the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), have been in force since 1 January 2023.

EEXI framework

Existing ships of 400 GT and above must calculate their attained Energy Efficiency Existing Ship Index (EEXI), which reflects the "technical" or "design" efficiency of the ship. (The IMO will be reviewing the effectiveness of the EEXI requirements during 2025.)

Ships then have to reach a "required EEXI", equivalent to the Required Energy Efficiency Design Index levels for new vessels for 2022 — a technical efficiency measure for ship design, based on a minimum energy efficiency level per capacity mile (eg. tonne mile) for different ship types and sizes.

The EEXI framework is technology (including fuel-type) neutral: the shipowner or charterer can choose the most appropriate means to achieve the goals set by IMO regulations.

CII Rating

This reflects the operational energy efficiency of ships, building on baselines set by previous fuel oil consumption regimes. It is mandatory for ships of 5,000 gross tonnage and above.

Attained annual operational CII must be documented and verified against the required annual operational CII for a ship. The annual carbon intensity reduction factor is equivalent to business-as-usual until entry into force, then 2% from 2023 to 2026, and finally to be further strengthened for the period 2027 to 2030.

The ship's operational carbon intensity rating must be states on a performance level scale of A (major superior), B (minor superior), C (moderate), D (minor inferior) or E (inferior). A ship rated D for 3 consecutive years or rated as E must develop a "Plan of corrective actions".

Fuel type and efficiency is a material component of the CII rating.

Figure 1 – IMO summary of EEDI, EEXI and CII requirements under MARPOL Annex VI

2023 GHG Strategy on Reduction of GHG Emissions from Ships

The 2023 IMO GHG Strategy sets ambitious targets to reduce GHG emissions in international shipping, emphasising technological innovation and alternative fuels.

Key goals include:

• Carbon intensity reduction – Improving energy efficiency for new ships and reduce CO₂ emissions per transport work by at least 40% by 2030, compared to 2008 levels.
• Adoption of Low / Zero-Emission Technologies – By 2030, at least 5% (striving for 10%) of shipping energy use should come from zero or near-zero GHG emission sources.
• Net-Zero Emissions by 2050 – Emissions should peak as soon as practicable, and reach net-zero by 2050.
• Indicative interim checkpoints – Cutting total annual GHG emissions by 20-30% by 2030, and by 70-80% by 2040, compared to 2008 levels.

In the medium term, the IMO has indicated that "a basket of candidate measure(s), delivering on the reduction targets, should be developed and finalised, comprised of both:

• a technical element, namely a goal-based marine fuel standard regulating the phased reduction of the marine fuel's GHG intensity; and
• an economic element, on the basis of a maritime GHG emissions pricing mechanism."

Because the IMO is taking a regulatory approach which is technology and fuel-type agnostic, and focusses instead on emissions intensity, it is not setting specific targets for the use of particular fuel types. However, it can be reasonably anticipated that, over time, the approach will be effective in moving shipping fleets from using emissions intense fuel types such as heavy fuel oil, very low sulphur fuel oil and marine diesel to fuels that have a higher energy profile and lower emissions intensity, such as LNG, methanol, ammonia and hydrogen.

Many shipping companies, particularly those with a European operations base, have already started down a comparable path of GHG emissions reductions as a result of the EU's Monitoring, Reporting and Verification Maritime Regulation and the scheduled progressive coverage of the European Emissions Trading Scheme to cargo and passenger ships.

What is the IMO's timetable and substantive focus?

The IMO 2023 GHG Strategy includes a timeline for adoption of these mid-term measures:

• Northern Spring 2025: approval of mid-term measures;
• Northern Autumn 2025: adoption of mid-term measures at an extraordinary session of the Marine Environment Protection Committee; and
• 2027 (16 months after adoption): entry into force of mid-term measures.

The IMO initially released a preliminary "illustration" of a possible draft outline of an "IMO net-zero framework", listing regulations under the International Convention for the Prevention of Pollution from Ships (MARPOL) to adopt or amend to allow for a new global fuel standard and a new global pricing mechanism for maritime GHG emissions.

The illustration identifies the following possible amendments to MARPOL Annex VI in a new Chapter 5 entitled "Regulations on the IMO net-zero framework":

• New Chapter 5.1: Goal-based marine fuel standard regulating the phased reduction of the marine fuel’s GHG intensity — with specific new regulations covering its application, goals, functional requirements, attained GHG fuel intensity (GFI), target / required GFI; GFI data collection and reporting; alternative compliance approaches; and a central GFI Registry.
• New Chapter 5.2 - Economic mechanism(s) to incentivize the transition to net-zero – with new regulations for application, calculation of economic contribution by ships, collection of economic contribution by ships, flexible compliance mechanism(s), central management / oversight of collected revenue, and distribution of revenue.

At the MEPC 82 meeting, possible draft amendments to MARPOL Annex VI on the net-zero framework (MEPC 82/WP.9, annex 1) were presented as "a work in progress", and this document continue to be evaluated by the IMO Secretariat, expert working groups and member States in advance of the further deliberations schedule for 2025.

However, some notable aspects of the working draft include:

• Well-to-wake scope – The regulations will be based on reported, verified and determined "well-to-wake" GHG emissions produced by the fuel used on board the ship.
• Scaled reduction factors – The regulations will set out prescribed reduced factors with dates by which the annual GFI of a ship must be reduced with reference to the GFI reference value, with "base" and "strive" targets.
• Emissions pooling – An annual GFI over-compliant ships are to be permitted to pool their surplus compliance units with excess emissions from under-compliant ships, to achieve an overall pool compliance balance of zero.
• Financial contributions to IMO Net Zero Fund – A new Fund will be established and ships will be required to make an annual GHG fuel contribution, based on the amount of its GHG emissions multiplied with a contribution rate per tonne of CO2eq as determined by the MPEC, on a well-to-wake basis to be defined in the guidelines to be developed by the IMO.
• Statement of Compliance – Will be used as the primary document in which annual GHG fuel intensity and the corresponding GHG fuel contribution to the fund is evaluated.
• GFI Registry – A central GFI Registry administered by the IMO will be the record keeper and administrator for both individual and pool data.
• Enforcement alternatives – May include either or both of requirements to bring Statements of Compliance into order and / or the imposition of additional charges or the detention of ships by a Port State until compliance is demonstrated.