Post by : Meena Rani
The global shipping industry, responsible for nearly 3% of total greenhouse gas emissions, is now facing its most ambitious climate regulation yet — the IMO Net-Zero Framework. This landmark framework, expected to take effect in 2027, introduces binding emission intensity limits, a carbon pricing mechanism, and fuel transition requirements for ships exceeding 5,000 gross tonnage.
For decades, international shipping enjoyed exemption from many climate rules, primarily due to its complex global nature. Now, under the leadership of the International Maritime Organization (IMO), that era is ending. The framework will not only drive operational and technological transformation but also redefine trade economics, vessel financing, and port competitiveness worldwide.
The IMO’s journey toward climate action began years ago with voluntary strategies and fuel-efficiency standards. The first major milestone was the Energy Efficiency Design Index (EEDI), which set minimum performance standards for new ships. However, these measures were insufficient to meet global emission reduction goals.
In 2023, the IMO adopted an updated Greenhouse Gas Strategy, committing to cut total GHG emissions by at least 20% by 2030 (with an ambition of up to 30%) and 70% by 2040, with the long-term vision of reaching net-zero emissions by around 2050. While this strategy represented progress, it lacked enforcement mechanisms. The Net-Zero Framework (NZF) now transforms those aspirations into enforceable global obligations.
The Net-Zero Framework is a comprehensive regulatory structure that integrates three key pillars:
Mandatory emission intensity limits — setting strict caps on how much carbon dioxide equivalent a ship can emit per unit of transport work.
Carbon pricing through remedial units — introducing a global fund that monetizes emissions exceeding set limits.
Fuel and technology neutrality — allowing any propulsion system or energy source as long as it meets the emissions thresholds.
It will apply to ships above 5,000 gross tonnage engaged in international trade, which together account for more than 90% of the sector’s CO₂ output. The regulation will become part of MARPOL Annex VI — the same framework that governs air pollution and fuel sulfur content in shipping.
The framework requires every covered vessel to report verified data on its greenhouse gas emissions. Ships that operate within defined limits will be fully compliant; those exceeding them must purchase remedial units — effectively a form of carbon credit.
The collected revenues will go into a Net-Zero Fund, used to support research, development, and deployment of zero-carbon fuels and technologies, with a particular focus on helping developing countries transition.
Unlike regional systems such as the European Union’s Emissions Trading Scheme, the IMO framework aims to create a single global standard to prevent regulatory fragmentation and ensure fair competition among shipowners.
The roadmap for implementation unfolds in distinct phases:
The framework is expected to be formally adopted by the IMO in late 2025. Once approved, it enters a 16-month acceptance period before becoming law under MARPOL Annex VI. It will likely come into force in March 2027, and the first mandatory compliance reports will begin in January 2028.
Between 2025 and 2027, shipping companies will need to conduct emissions audits, set up fuel monitoring systems, and prepare compliance documentation to avoid penalties. By 2030, the first performance review will evaluate whether emission targets are being met, setting the stage for stricter 2040 and 2050 milestones.
At the heart of the NZF lies a new carbon pricing mechanism. Under this system, each ship’s emissions will be assessed annually.
If a vessel emits more than its permitted level, the owner will need to buy remedial units equal to the excess tonnage of CO₂ emitted. Conversely, ships performing better than required can sell surplus units or bank them for future compliance periods.
This system introduces direct economic accountability into ship operations. Efficient ships powered by clean fuels will not only save on carbon payments but could also generate additional revenue by trading surplus credits. Meanwhile, inefficient fleets burning traditional heavy fuel oil will face rising operating costs.
While the framework enjoys wide international support, it has also ignited political controversy. Several major shipping nations back the plan, but the United States and a few others have raised strong objections, calling the system a “global carbon tax.”
Opponents argue that the measure could unfairly increase freight costs, reduce competitiveness, and undermine national sovereignty over taxation. Some also fear that the Net-Zero Fund could become a tool for wealth redistribution under the guise of climate policy.
Despite these objections, the majority of IMO member states — including the EU, Japan, Singapore, and South Korea — see the NZF as essential for maintaining a level playing field in a decarbonizing global economy.
The NZF is set to reshape the cost structure of global shipping in several fundamental ways.
First, fuel expenses will rise. Zero-carbon fuels such as green methanol, ammonia, and hydrogen are two to four times more expensive than conventional bunker fuel. Carbon pricing will further increase total voyage costs.
Second, capital expenditures will surge. Shipowners will need to retrofit existing vessels with dual-fuel engines, install energy-efficiency systems, or order new vessels designed for alternative propulsion. These investments could increase the price of a new ship by up to 30%.
Third, operational data management will become mandatory. Every voyage’s emissions, fuel type, and efficiency metrics must be accurately recorded and verified, increasing administrative overheads and pushing digitalization across fleets.
Lastly, market differentiation will emerge. Early adopters of cleaner technology will gain commercial advantage through lower carbon costs, preferred charters, and access to green financing.
The introduction of carbon pricing and emission caps creates a host of operational and strategic challenges:
Fuel uncertainty — No single alternative fuel has emerged as the universal solution. Ammonia, hydrogen, and methanol each have infrastructure, safety, and scalability challenges.
Compliance complexity — Operators must align with multiple overlapping schemes such as the EU ETS, FuelEU Maritime, and now the IMO NZF, each with different metrics and deadlines.
Financial risk — Older ships may become uneconomical, forcing premature retirement and potential asset write-offs.
Data integrity — Shipowners must ensure accurate emissions reporting, as penalties for falsification will be severe.
Crew training — Handling new fuels and technologies will require new skillsets, increasing training and safety requirements.
Shipowners and operators can take proactive steps to mitigate risk and leverage opportunities:
Conduct a fleet emissions audit to benchmark current performance and identify high-risk assets.
Develop a clear fuel transition strategy, prioritizing vessels suitable for retrofitting or early replacement.
Invest in digital emission monitoring systems to ensure accurate, verifiable data collection.
Engage in partnerships with ports and energy providers to secure future fuel supply chains.
Explore green financing options, such as sustainability-linked loans and carbon credit funding, to offset capital costs.
Advocate through trade associations for equitable policies, transitional support, and harmonized compliance rules.
By moving early, companies can minimize disruption and position themselves as leaders in sustainable shipping.
The Net-Zero Framework will not only affect shipowners but also ripple through the entire maritime ecosystem.
Fuel suppliers will face huge pressure to scale production of low-carbon fuels. Demand for green ammonia, hydrogen, and bio-methanol is expected to grow exponentially.
Shipyards will accelerate the development of new-generation vessel designs, integrating hybrid propulsion, energy recovery systems, and wind-assist technologies.
Ports will need to invest in storage and safety infrastructure for alternative fuels. Those that adapt quickly will become preferred hubs for bunkering and logistics.
Financial institutions will factor carbon exposure into lending decisions. Ships with strong environmental performance will enjoy lower borrowing costs and higher asset valuations.
Insurance companies may introduce climate-related risk premiums, differentiating between compliant and non-compliant fleets.
This comprehensive transformation will create both winners and losers — rewarding innovation and punishing inertia.
The NZF offers opportunities for companies that act strategically. Compliance can become a brand advantage.
Shipowners who invest in clean technology can attract environmentally conscious cargo owners and multinational clients seeking low-carbon logistics partners.
Charterers may begin demanding “green certification” for vessels, rewarding transparency in emissions data.
Ports that build renewable bunkering capabilities can capture new trade flows and revenue streams.
Financial institutions and insurers aligned with sustainable finance frameworks will prioritize green fleets, making capital more accessible to progressive operators.
In essence, decarbonization can transform from a compliance burden into a competitive differentiator.
Despite its potential, the Net-Zero Framework faces several barriers.
First, technology readiness remains a major hurdle. Scalable zero-emission propulsion systems are still under development, and global infrastructure for green fuels is insufficient.
Second, economic disparity between developed and developing nations could slow global adoption. Many developing states depend on older fleets and lack access to green technologies or financing.
Third, geopolitical friction could weaken enforcement if major economies refuse participation.
Fourth, regulatory overlap between regional systems and the global framework may create confusion and inefficiency.
Finally, market volatility in fuel prices could discourage investment if long-term pricing signals remain uncertain.
As the IMO moves toward adoption, the next two years will be pivotal. Shipowners, regulators, and financiers must align on technical standards, reporting formats, and enforcement protocols.
The NZF’s success depends on global cooperation — ensuring that compliance costs do not create trade distortions or penalize smaller economies.
If implemented effectively, this framework could catalyze one of the largest technological transitions in maritime history, driving the industry toward full decarbonization by 2050.
Failure, however, would risk regulatory fragmentation, leaving room for inconsistent standards and loopholes that undermine environmental progress.
When does the IMO Net-Zero Framework start?
It is expected to enter into force in March 2027, with compliance reporting starting January 2028.
Who will it apply to?
All ships above 5,000 gross tonnage operating internationally will fall under the regulation.
Will it require a specific fuel type?
No. It is fuel-neutral, allowing any technology that meets emission targets.
What happens if a ship exceeds emission limits?
The operator must purchase remedial units equivalent to excess emissions, which finance the global Net-Zero Fund.
What are the benefits for compliant ships?
Efficient vessels can trade surplus credits, enjoy lower operating costs, and gain market preference for sustainability credentials.
This article is for informational purposes only. It does not constitute legal, regulatory, or investment advice. All details are based on public drafts and policy discussions available as of October 2025. Readers should verify the final IMO text, national regulations, and seek expert counsel before making business or compliance decisions.
IMO, net-zero framework, carbon pricing, maritime regulation, MARPOL Annex VI, GHG emissions, shipping decarbonization, low-emission fuels
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