Key takeaways

• IMO sets legally-binding emission reduction targets and prices for non-compliance for international ships over the next 30 years and beyond.
• While this agreement is a monumental step forward, the targets fall short of meeting the IMO’s revised Greenhouse Gas (GHG) Strategy goals, let alone the more ambitious pace required by the Paris Agreement.
• A multitude of options creates complex decision pathways that will differ for each company and muddy the waters for fuel producers and investors hoping for clarity and certainty.
• The text will still need to be adopted during the next Marine Environmental Protection Committee (MEPC) meetings in October 2025.

On April 11, 2025, the International Maritime Organization made history and voted to approve the IMO Net-Zero Framework, setting legally-binding emission reduction targets and prices for non-compliance for international ships over the next 30 years and beyond. This is the first time an entire industry has set a price on carbon emissions on a global scale and the importance of this agreement cannot be overstated. While this agreement is a monumental step forward, the targets fall short of meeting the IMO’s revised Greenhouse Gas (GHG) Strategy goals, let alone the more ambitious pace required by the Paris Agreement.

However, those on the ground in London for the meetings saw courage in the face of compromise from the “ACP Plus” group, consisting of climate leaders from African, Caribbean and Pacific Island countries. Despite narratives from other countries that the measures would harm the economies and trade of developing countries, the ACP Plus group (nations highly dependent on shipping for survival and therefore sensitive to costs) consistently pushed back that the costs and impacts of climate change will far outweigh those of even the most ambitious of the proposed texts. Without the leadership of the Marshall Islands, Tuvalu, Tonga other Pacific Islands, as well as the United Kingdom, the agreed upon GHG fuel intensity targets would likely have been even higher than the current targets. 

For nearly 15 years, Pacific Environment has been one of only a handful of eNGOs granted permanent consultative status at the IMO and has been active in attending the revised Greenhouse Gas Strategy meetings that began in 2023, as well as broader maritime pollution meetings since Pacific Environment achieved consultative status in 2011.

Outcomes of the agreement

Ultimately, the IMO agreed to create a two-tier system that integrates the fuel standard and carbon price into one — where ships that use fuels above certain carbon intensity levels must pay a set price (or for the least compliant ships, purchase a credit from over compliant ships). Never one for simplicity, the IMO decided to set two GHG intensity thresholds: a Direct Compliance Target and a Base Target. This creates three tiers of ships: 

• Those below the Direct Compliance Target do not have to pay a fee and instead generate credits, called Surplus Units (SUs) they can sell to under compliant ships; 
• Tier 1 ships falling in between the Direct Compliance and Base Compliance lines; and,
• Tier 2 ships that do not meet even the minimum Base Compliance targets. 

Tier 1 and Tier 2 ships that do not meet the compliance targets generate Remedial Units (RUs) for each ton of emissions above the yearly thresholds. Tier 1 ships must pay $100/tonne for these emissions above the Direct Compliance line, while Tier 2 ships — in addition to payment for their Tier 1 RU emissions — must either pay $380/tonne per carbon dioxide equivalent or purchase a Surplus Unit from a direct compliant ship to offset their Tier 2 Remedial Unit. Note that purchasing an SU from a direct compliant ship is only available for Tier 2 emissions. 

The emissions payment and credit scheme is shown illustrated below.

In addition to the emission reduction targets and carbon price, a reward threshold was set determining the carbon intensity of fuels that will also receive targeted funding from the IMO for what will be considered a zero and near-zero (ZNZ) fuel or technology. Given the scale of investment needed to increase supply of long-term sustainable fuels, this reward is intended to support emerging industries and supply chains, especially for green e-fuels that will require additional renewable energy and fuel production infrastructure to reach scale sustainably. Fuels that meet the GHG fuel intensity threshold of 19.0 gCO2e/MJ until the beginning of 2035 and then below 14.0 gCO2e/MJ will qualify for a reward to further incentivize their uptake and stimulate developing industries of sustainable fuels.

Pacific Environment’s analysis on results of negotiation

Overall, the agreement is a momentous achievement for a global industry, especially at this moment of complicated geopolitics. But this success is put into perspective when considering the level of investment and pace needed both to meet the IMO’s GHG Strategy goals as well as to meet the Paris Agreement’s goal of limiting warming to 1.5C. 

With that view, the outcome is insufficient. Both the agreed upon emission reduction targets and the penalties for Tier 1 and Tier 2 noncompliance, as well as the revised short-term energy efficiency targets, are not enough to meet the 1.5C goal. Transport & Environment analyzed the needed emission reduction pathways to meet the IMO GHG Strategy goals (base and striving) as well as the Paris Agreement’s 1.5C pathway, and their analysis shows that this agreement fails to meet all of the above.

In addition, the prices of the Tier 1 and Tier 2 Remedial Units are not sufficient to send clear signals for fuel switching in the critical next few years, further delaying and complicating the energy transition for the maritime sector. The low RU prices will also only raise a fraction of the revenue that was estimated necessary to enable the energy transition in a just and equitable way. With lower revenues collected, there will likely be greater limits imposed on which projects can be funded and could lead to greater inequity in a worst case scenario. In addition, low RU prices raise the risk of operators choosing to “pay to pollute” without changing behavior or fuel consumption. 

In terms of real-world impacts on fuel decisions, much remains to be seen if the investment signals for green e-fuels are strong enough to increase fuel production. But given the complexity of the legal text and the questions remaining for what is to come in the guidelines, stakeholders including shipowners and carriers might wait until those are finalized in 2026 or early 2027 — a delay that further weakens the impact of the framework. 

Reliance on a credit trading system of SUs and RUs also creates uncertainty given the unpredictable nature of credit prices added onto a sometimes volatile fuel market that will determine the fuel decisions of ship operators. These SU credits can be banked for two years or used to pool with other ships and avoid fees, in addition to being able to trade them to Tier 2 under-compliant ships. The multitude of options creates complex decision pathways that will differ for each company and muddy the waters for fuel producers and investors hoping for clarity and certainty from the framework decision.

We also see liquefied natural gas (LNG) rewarded in the first couple of years of the framework, but beyond 2030 it will be penalized in the Tier 1 category; biofuels will remain directly compliant — and thus rewarded by generating SUs — through 2040, with waste-based biofuels potentially additionally rewarded by the ZNZ fuel reward if limitations are not developed in the guidelines. 

Next steps

The text will still need to be adopted during an extraordinary session of the Marine Environment Protection Committee meetings in October. Immediately following the close of the MEPC meeting, development will begin on the framework’s guidelines to set further details, such as the targeted reward dollar amount for ZNZ fuels and technologies, the mechanism for dispensing that reward, allowed uses of revenue and the mechanisms for disbursement, along with many other details. 

Key areas that will be decided in the Framework Guidelines and Life Cycle Assessment Guidelines:

• Targeted reward for ZNZ fuels and technologies, including the reward amount and mechanism
• Additional details on fuels and technologies that qualify for ZNZ reward
• Current definition is pathway agnostic and only uses a well-to-wake carbon intensity threshold, but additional criteria may be considered.
• Further details on revenue use and mechanism for disbursement
• Upfront capital or retroactive reimbursement and the pace of disbursement will heavily impact which projects are supported and where those are located.

In addition, the Life Cycle Assessment (LCA) Guidelines will be finalized by scientific experts in a working group, including default emission factors for various fuel pathways, including LNG methane slip and guidance on how indirect land use change (ILUC) will be considered for biofuels.

In addition to the Framework Guidelines, the LCA Guidelines will also be finalized at the MEPC 84 meeting in Spring 2026. The LCA Guidelines will be critical in how the IMO ultimately evaluates fuels within the maritime energy transition, and will be especially critical for how LNG and biofuels are scored within the framework. Both of those types of fuels have carbon intensities that verge on the border of direct compliance or Tier 1 categorization in the first  3-10 years and thus emission factors for their various pathways will have a much stronger impact on how they are either rewarded or penalized within the framework. 

Pacific Environment, a leading nonprofit advocating for the strongest outcomes at the IMO 

Pacific Environment strives to ensure the goals and outcomes of the IMO are as environmentally sound and ambitious as possible, informed by our experience working with California, East Asia ports, policymakers and others. In addition, Pacific Environment strives to bring voices of impacted communities to speak directly to policymakers. During MEPC 82, we sponsored attendance for Global South youth advocates to attend the IMO in order to center their frontline experiences. 

Pacific Environment will continue to advocate for the most ambitious and equitable outcome for global communities impacted by shipping emissions and pollution. This outcome from the IMO is a significant but small step toward that which represents the floor of action to come in the next few years. We will continue to leverage our advocacy across local, state, regional and private industry actors in order to fill the gap of what the IMO has decided and what is needed to move the shipping industry toward a truly zero-emission future.

Pacific Environment Climate and Renewable Energy Analyst Jamie Yates and Senior Director of Arctic Jim Gamble at the latest IMO meeting.