IMO Net-Zero Factsheet and Update
After months of intense lobbying and criticism, and four days of intense debate, in a decisive vote late on a Friday afternoon in mid-October, the adoption of the International Maritime Organization (“IMO”) Net-Zero Framework (“NZF”) was postponed and the Marine Environment Protection Committee (“MEPC”) will reconvene in October 2026, extending a period of potential uncertainty for shipowners, financiers and fuel suppliers.
What is the IMO Net-Zero Framework?
The IMO is a specialized agency of the United Nations consisting of 176 member states developing the regulatory framework for shipping. The IMO’s MEPC convened in London on April 11, 2025 for its 83rd session (“MEPC 83”), a milestone session following years of negotiation for approving measures as set by the 2023 IMO strategy on reduction of GHG emissions from ships (“2023 Strategy”). The 2023 Strategy set ambitious goals, including (i) to reduce CO2 emissions by at least 40% by 2030, compared to 2008 emissions levels and (ii) to reach net-zero greenhouse gas (“GHG”) emissions close to 2050.
The most notable development at MEPC 83 was the approval of the IMO Net-Zero Framework, a draft international regulation aiming at (i) reducing GHG emissions, (ii) effectively promoting the energy transition of shipping and (iii) providing the world fleet with a needed incentive to decarbonize, while contributing to a level playing field and a just and equitable transition.
The NZF was developed as a first of its kind effort to pair mandatory limits of emissions and a greenhouse gas pricing mechanism for the entire shipping industry. The proposed scheme was designed as a set of proposed amendments to Annex VI of the International Convention for the Prevention of Pollution from Ships (“MARPOL Annex VI”), an international treaty to which states housing 97% of the world’s merchant shipping fleet are a party, and was intended to be adopted by member states at the MEPC session which took place in October 2025.
How does the emissions reduction mechanism work?
If a vessel meets the direct compliance target, it may earn credits which can be sold once, used later (valid for two years) or cancelled voluntarily. If a vessel fails to meet the targets, the owners will need to offset their excess emissions either by purchasing additional offset units (from other vessels or a central registry), use stored credit or buy them from other vessels, ensuring they purchase the applicable tier 1 and/or tier 2 remedial offset units.
An IMO Net-Zero Fund, established to collect, manage and disburse collected revenue from GHG pricing contributions, would have been used to (i) reward low-emission ships; (ii) support innovation, research, infrastructure and transition initiatives in developing countries; (iii) help companies upgrade their vessels and move to lower carbon fuels, and pay for modifications to ports; (iv) fund training, technology transfer and capacity building to support the 2023 Strategy; and (v) mitigate negative impacts on vulnerable member states (small islands and the least developed countries).
Where are we now?
The MEPC met for an extraordinary session from October 14 through 17, 2025, to adopt the draft legal text which, after a decade of negotiations, had been approved by member states at MEPC 83. It was believed that the adoption of the measures would be a formality but the session ended in a year-long adjournment, placing the plans for an emissions pricing mechanism on hold, while committing to continued work on NZF implementation guidelines and further consensus-building among member states.
Nevertheless, the session concluded without adoption after a motion to adjourn for a year passed with a narrow tally of 57 countries voting in favor of delay, 49 countries voting against delaying, and 21 abstentions.[1] Several countries that had previously supported the new measures changed their votes. The EU had reiterated its support and urged adoption, but Greece and Cyprus, member states with major shipping fleets, abstained. China switched positions from supporting the measure at MEPC 83 to voting for the delay, similar to other major shipping nations; such as Singapore and Liberia, who also objected. The United States continues to reaffirm its strong opposition to the NZF.
The decision to adjourn stemmed from a consensus that the NZF contained uncertainties and concerns regarding the type of fuels that could be used to reach net-zero emissions, fuel availability, the infrastructure for new fuels, and port modernization required to achieve the NZF goals. Further, the decision made clear that clarification and additional detail were necessary to understand how the IMO Net-Zero Fund would operate and disburse funds.
The NZF’s challenges
Member states raised three principal areas of criticism of the NZF:
Efficacy: Analysis from Transport & Environment shows that the current goals of the 2023 strategy are not achievable, while also being incompatible with the 1.5ºC temperature goal of the Paris Agreement. Even though the NZF is estimated to be able to generate revenues of approximately $10 billion per year until 2035, analysis shows that the projected revenues may be insufficient to support the goals of the NZF. Unless additional incentives are introduced, the estimated revenues are not sufficient to scale low carbon fuels to meet demand.
Alternatives: There is a lack of sufficient supply for fuels which would meet the GFI targets. Cooking-oil derived fuels could meet the framework’s targets but supply is not projected to meet demand – noting competition from other transition industries for supplies – with shipowners assuming that there is an increased risk of financial penalties. Unless the cost of producing low carbon fuels is reduced member states are faced with compliance challenges.
Equitability: Credit trading systems predominantly favour established shipping and trading companies in developed economies. Owners and regions with higher access to capital will benefit from increased cash flows, making it easier for them to comply compared to owners with older and underperforming (i.e, higher emitting) vessels, while a trading system as a means of encouraging compliance could also be seen as a way of moving money away from them.
The relevant groups (including the Intersessional Working Group on the Reduction on Greenhouse Gas Emissions (the “Working Group”), which met from October 20 through 24, 2025, to advance NZF guidelines) continue working on developing and refining technical and implementation details and guidelines for NZF which may be presented for approval at MEPC in April 2026.
The Working Group’s ongoing work is set to refine critical elements of the NZF’s implementation guidance, including lifecycle assessment methodologies, fuel certification protocols, data verification processes, and the design of reward and pricing mechanisms. Member states will focus on acknowledging the geopolitical and technical complexities at play and building consensus, likely influenced by efforts of the United States to shape negotiations through trade, port, visa, and sanctions policy, until the session reconvenes in October 2026. If adopted, it’s not certain when the NZF may become enforceable, but industry expects that 2028 would be the first reporting year.
IMO adoption of the NZF would have triggered reviews and adjustments to EU measures governing maritime GHGs, including the Emissions Trading System and FuelEU Maritime regulations. With the NZF deferred, EU decarbonization regulations remain in force, and regional frameworks continue to evolve in the absence of unified IMO action. The delay may be advantageous for building consensus but it may also increase uncertainty for the industry, with more time for pressure from nations to abandon the scheme to build and increased risk of other regional regulations being introduced. With the path toward a unified global maritime decarbonization framework preserved, stakeholders should continue monitoring any relevant developments during this period of adjournment while considering the implications of having to comply with a future IMO mechanism.
[1] In April 2025, the NZF had been approved with the support of 63 member states, 16 countries against, and 24 countries abstaining. However, due to the complex rules of the IMO, that vote had to be reaffirmed at the October 2025 meeting.
Vedder Thinking | Articles IMO Net-Zero Factsheet and Update
Article
December 22, 2025
After months of intense lobbying and criticism, and four days of intense debate, in a decisive vote late on a Friday afternoon in mid-October, the adoption of the International Maritime Organization (“IMO”) Net-Zero Framework (“NZF”) was postponed and the Marine Environment Protection Committee (“MEPC”) will reconvene in October 2026, extending a period of potential uncertainty for shipowners, financiers and fuel suppliers.
What is the IMO Net-Zero Framework?
The IMO is a specialized agency of the United Nations consisting of 176 member states developing the regulatory framework for shipping. The IMO’s MEPC convened in London on April 11, 2025 for its 83rd session (“MEPC 83”), a milestone session following years of negotiation for approving measures as set by the 2023 IMO strategy on reduction of GHG emissions from ships (“2023 Strategy”). The 2023 Strategy set ambitious goals, including (i) to reduce CO2 emissions by at least 40% by 2030, compared to 2008 emissions levels and (ii) to reach net-zero greenhouse gas (“GHG”) emissions close to 2050.
The most notable development at MEPC 83 was the approval of the IMO Net-Zero Framework, a draft international regulation aiming at (i) reducing GHG emissions, (ii) effectively promoting the energy transition of shipping and (iii) providing the world fleet with a needed incentive to decarbonize, while contributing to a level playing field and a just and equitable transition.
The NZF was developed as a first of its kind effort to pair mandatory limits of emissions and a greenhouse gas pricing mechanism for the entire shipping industry. The proposed scheme was designed as a set of proposed amendments to Annex VI of the International Convention for the Prevention of Pollution from Ships (“MARPOL Annex VI”), an international treaty to which states housing 97% of the world’s merchant shipping fleet are a party, and was intended to be adopted by member states at the MEPC session which took place in October 2025.
How does the emissions reduction mechanism work?
If a vessel meets the direct compliance target, it may earn credits which can be sold once, used later (valid for two years) or cancelled voluntarily. If a vessel fails to meet the targets, the owners will need to offset their excess emissions either by purchasing additional offset units (from other vessels or a central registry), use stored credit or buy them from other vessels, ensuring they purchase the applicable tier 1 and/or tier 2 remedial offset units.
An IMO Net-Zero Fund, established to collect, manage and disburse collected revenue from GHG pricing contributions, would have been used to (i) reward low-emission ships; (ii) support innovation, research, infrastructure and transition initiatives in developing countries; (iii) help companies upgrade their vessels and move to lower carbon fuels, and pay for modifications to ports; (iv) fund training, technology transfer and capacity building to support the 2023 Strategy; and (v) mitigate negative impacts on vulnerable member states (small islands and the least developed countries).
Where are we now?
The MEPC met for an extraordinary session from October 14 through 17, 2025, to adopt the draft legal text which, after a decade of negotiations, had been approved by member states at MEPC 83. It was believed that the adoption of the measures would be a formality but the session ended in a year-long adjournment, placing the plans for an emissions pricing mechanism on hold, while committing to continued work on NZF implementation guidelines and further consensus-building among member states.
Nevertheless, the session concluded without adoption after a motion to adjourn for a year passed with a narrow tally of 57 countries voting in favor of delay, 49 countries voting against delaying, and 21 abstentions.[1] Several countries that had previously supported the new measures changed their votes. The EU had reiterated its support and urged adoption, but Greece and Cyprus, member states with major shipping fleets, abstained. China switched positions from supporting the measure at MEPC 83 to voting for the delay, similar to other major shipping nations; such as Singapore and Liberia, who also objected. The United States continues to reaffirm its strong opposition to the NZF.
The decision to adjourn stemmed from a consensus that the NZF contained uncertainties and concerns regarding the type of fuels that could be used to reach net-zero emissions, fuel availability, the infrastructure for new fuels, and port modernization required to achieve the NZF goals. Further, the decision made clear that clarification and additional detail were necessary to understand how the IMO Net-Zero Fund would operate and disburse funds.
The NZF’s challenges
Member states raised three principal areas of criticism of the NZF:
Efficacy: Analysis from Transport & Environment shows that the current goals of the 2023 strategy are not achievable, while also being incompatible with the 1.5ºC temperature goal of the Paris Agreement. Even though the NZF is estimated to be able to generate revenues of approximately $10 billion per year until 2035, analysis shows that the projected revenues may be insufficient to support the goals of the NZF. Unless additional incentives are introduced, the estimated revenues are not sufficient to scale low carbon fuels to meet demand.
Alternatives: There is a lack of sufficient supply for fuels which would meet the GFI targets. Cooking-oil derived fuels could meet the framework’s targets but supply is not projected to meet demand – noting competition from other transition industries for supplies – with shipowners assuming that there is an increased risk of financial penalties. Unless the cost of producing low carbon fuels is reduced member states are faced with compliance challenges.
Equitability: Credit trading systems predominantly favour established shipping and trading companies in developed economies. Owners and regions with higher access to capital will benefit from increased cash flows, making it easier for them to comply compared to owners with older and underperforming (i.e, higher emitting) vessels, while a trading system as a means of encouraging compliance could also be seen as a way of moving money away from them.
The relevant groups (including the Intersessional Working Group on the Reduction on Greenhouse Gas Emissions (the “Working Group”), which met from October 20 through 24, 2025, to advance NZF guidelines) continue working on developing and refining technical and implementation details and guidelines for NZF which may be presented for approval at MEPC in April 2026.
The Working Group’s ongoing work is set to refine critical elements of the NZF’s implementation guidance, including lifecycle assessment methodologies, fuel certification protocols, data verification processes, and the design of reward and pricing mechanisms. Member states will focus on acknowledging the geopolitical and technical complexities at play and building consensus, likely influenced by efforts of the United States to shape negotiations through trade, port, visa, and sanctions policy, until the session reconvenes in October 2026. If adopted, it’s not certain when the NZF may become enforceable, but industry expects that 2028 would be the first reporting year.
IMO adoption of the NZF would have triggered reviews and adjustments to EU measures governing maritime GHGs, including the Emissions Trading System and FuelEU Maritime regulations. With the NZF deferred, EU decarbonization regulations remain in force, and regional frameworks continue to evolve in the absence of unified IMO action. The delay may be advantageous for building consensus but it may also increase uncertainty for the industry, with more time for pressure from nations to abandon the scheme to build and increased risk of other regional regulations being introduced. With the path toward a unified global maritime decarbonization framework preserved, stakeholders should continue monitoring any relevant developments during this period of adjournment while considering the implications of having to comply with a future IMO mechanism.
[1] In April 2025, the NZF had been approved with the support of 63 member states, 16 countries against, and 24 countries abstaining. However, due to the complex rules of the IMO, that vote had to be reaffirmed at the October 2025 meeting.
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