On April 11, 2025, the International Maritime Organization (IMO) Marine Environment Protection Committee (MEPC) approved a draft Net-Zero Framework aimed at achieving net-zero greenhouse gas (GHG) emissions in the shipping industry by or around 2050. If formally adopted by the IMO in October 2025, the new rules will come into force by 2027 and be included in Annex VI of the International Convention for the Prevention of Pollution from Ships.
The Net-Zero Framework sets mandatory GHG fuel intensity (GFI) reduction targets for large ships over 5,000 gross tonnage engaged in international shipping (i.e., beyond the jurisdiction of the flag state), which account for 85% of total emissions from international shipping. The GFI refers to how much GHG is emitted per unit of energy used. The GFI reduction targets are calculated on a well-to-wake basis (i.e., covering full lifecycle emissions) and applied against a 2008 baseline of 93.3 gCO2eq/MJ. The targets do not exclude or limit the use of any type of fuel.
>> In Other News: NSTA Issues Second Permit for HyNet Carbon Storage Project
An in-scope ship will be required to meet two annual GFI reduction targets:
The “direct compliance target” (DC target) requires a 17% GFI reduction by 2028, increasing annually to 43% by 2035.
Until 2030, a ship that fails to meet the DC target must purchase remedial units (Tier 1 RUs) at a cost of 100 USD per ton of CO2eq to the extent its GFI is below this target (the price of post-2030 Tier 1 RUs will be defined at a later stage).
Conversely, a ship with GFI that performs better than the DC target can earn surplus units (SUs), which can be used to meet the base target (below), thereby garnering rewards for its GFI performance beyond the target. These SUs can be (i) banked to achieve future base target compliance by the same ship, (ii) transferred or sold to another ship to help it to comply with the base target, or (iii) canceled voluntarily as mitigation contributions to the IMO Net-Zero Fund. An SU may be used only once for one of these purposes, and it is valid for only two years.
The “base target” is less stringent and mandates a 4% GFI reduction by 2028, increasing each year thereafter to 30% by 2035.
Until 2030, a ship with GFI that fails to meet the base target must purchase remedial units (Tier 2 RUs) at a cost of 380 USD per ton of CO2eq to the extent its GFI is below the target (the price of post-2030 Tier RUs will be defined at a later stage). Alternatively, to comply with the base target, a ship could purchase surplus units (SUs) from another ship that exceeds the direct compliance target (above) or use its own SUs banked from previous years.
An IMO Net-Zero Fund will be established, financed by GHG emission pricing contributions from ships, that is by the Tier 1 RUs and Tier 2 RUs. The revenue will be disbursed for these purposes:
If adopted, the IMO Net-Zero Framework will define a new era for international shipping, setting mandatory GFI targets, with financial repercussions for ships that cannot meet these markets and financial transfers toward clean technologies and developing countries. The framework, thereby, aims to stimulate investments in cleaner fuels and technologies and reduce the carbon footprint of international shipping.
Attorney Advertising—Sidley Austin LLP is a global law firm. Our addresses and contact information can be found at www.sidley.com/en/locations/offices.
Sidley provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships as explained at www.sidley.com/disclaimer.
Follow the money flow of climate, technology, and energy investments to uncover new opportunities and jobs.
Inside This Issue 🏭 Baker Hughes to Acquire Chart Industries, Accelerating Energy & Industrial Technology Strategy ⛽ Next Hydrogen Launches Ontario’s Largest Onsite Clean Hydrogen Refuelling S...
Inside This Issue 💰 Gevo Sells Carbon Credits from North Dakota Asset ⚡ US Companies CPS Energy, Modern Hydrogen Agree to Work on Clean Power Generation Project ✈️ ESAF Takes Flight: Power-to-Liqu...
Inside This Issue 💰 Gevo Transforms Carbon Waste Into Market Gold 🛫 CADO and 4AIR Harmonize SAF Registries for Commercial and Business Aviation 🌊 Vortex Energy Receives Government Approval for Amb...
Montreal, Quebec--(Newsfile Corp. - July 30, 2025) -- Quebec Innovative Materials Corp. (CSE: QIMC) (OTCQB: QIMCF) (FSE: 7FJ) ("QIMC" or the "Company"), a leading innovator in clean natural hydroge...
BPC Instruments Receives Order From Cornell University of 1 MSEK
LUND, Sweden, July 21, 2025 /PRNewswire/ -- BPC Instruments AB (publ) has received an order from Cornell University in the United States valued at approximately SEK 1 million. The order includes tw...
Baker Hughes to Acquire Chart Industries, Accelerating Energy & Industrial Technology Strategy
Significant step high-grades the portfolio and adds value accretive customer offerings, transforms Baker Hughes’ Industrial & Energy Technology segment Chart Industries brings differentiated c...
Next Hydrogen Launches Ontario’s Largest Onsite Clean Hydrogen Refuelling Station
Next Hydrogen launches the largest onsite clean hydrogen production and distribution station in Ontario, capable of supplying up to 650 kg per day for powering fuel cell forklifts. Next Hydrogen S...
Follow the money flow of climate, technology, and energy investments to uncover new opportunities and jobs.