A net-zero framework for international shipping: formal vote this month

The pressure to decarbonise international shipping has reached a critical point. The upcoming extraordinary session of the International Maritime Organisation (IMO) Marine Environment Protection Committee (MEPC), scheduled for October 2025, will vote on adopting the landmark proposed Net-Zero Framework, introducing major regulatory controls for international shipping's carbon emissions.

This article explains how the upcoming IMO vote is expected to reshape the legal and commercial dynamics of maritime trade and present opportunities for clean fuel producers, particularly in light of Australia's $1.1bn Cleaner Fuels Program announced on 17 September 2025.

The IMO's net zero strategy for shipping

The IMO, a specialised agency of the United Nations, ensures the safety and security of international shipping and prevents marine and atmospheric pollution. Responding to the United Nations Sustainable Development Goals, the IMO introduced the International Convention for the Prevention of Pollution from Ships — commonly known as the MARPOL Convention.

Among other things, MARPOL sets international standards to reduce air pollution and greenhouse gas (GHG) emissions from ships (for our previous article on this topic click here).

In July 2023, the IMO adopted its updated Strategy on the Reduction of GHG Emissions from Ships. The strategy outlines a pathway to net-zero emissions by or around 2050. In April 2025, members approved draft regulatory measures to implement the strategy (Net-Zero Framework), which include a new global fuel standard and an international carbon pricing mechanism for shipping.

What would the IMO vote approve?

The vote, now scheduled for 14-17 October, seeks to formally adopt the Net-Zero Framework. If adopted, the proposed amendments to MARPOL Annex VI will be circulated to all IMO Member States, initiating the next implementation phase. The following timeline is expected:

• October 2025 (MEPC/ES.2): formal adoption of the amendments during an extraordinary session of the MEPC.

• Spring 2026 (MEPC 84): approval of detailed implementation guidelines.

• 2027: enforcement begins, in line with the MARPOL procedure requiring a 16-month lead time from adoption.

Core features of the Net-Zero Framework

The Net-Zero Framework would apply to large ocean-going ships over 5,000 gross tonnage, which account for approximately 85% of international shipping's total carbon dioxide emissions. Its key goals include:

• Improving energy efficiency in new ships and reducing carbon dioxide emissions per transport work by at least 40% by 2030, compared to 2008 levels. The benchmark used is 93.3g CO₂ equivalent per megajoule, which represents the average fuel intensity of a ship in 2008.

• Ensuring that by 2030, at least 5% of energy used by ships comes from fuels with near-zero or zero GHG emissions.

• Reaching peak emissions as soon as practicable and achieving net-zero by 2050.

• Cutting total annual GHG emissions by 20-30% by 2030, and by 70-80% by 2040.

To support these targets, the MEPC has introduced progressive GHG reduction requirements for vessels starting in 2028.

• Ships will be required to calculate their annual GHG fuel intensity over a 12-month period from 1 January to 31 December each year, using a "well-to-wake" methodology that accounts for emissions from fuel production through to its use.

• This calculation is based on data collected in accordance with the relevant regulations and guidelines, must be reported after the end of each calendar year.

Tiered fuel intensity targets

The regulatory design introduces a two-tier target system for well-to-wake fuel emissions:

• The Base Target (BT) reflects the minimum expected performance.

• The Direct Compliance Target (DCT) sets a higher benchmark for full compliance.

Ships that meet the DCT are deemed fully compliant. Ships that only meet the BT fall into a Tier 1 compliance deficit, while ships that fall short of both targets are in a Tier 2 compliance deficit.

Vessels in deficit must purchase remedial units from the IMO Net-Zero Fund. During the initial compliance period (2028–2030), the price of a Tier 1 unit is set at US$100 per tonne of excess emissions, while Tier 2 units will cost US$380 per tonne. These prices may be revised after the first compliance period.

Below is the draft annual GHG emission reduction percentage per year for both BT and DCT.

Compliance tools

To enhance flexibility, the framework includes several tools to manage compliance.

Surplus units: Ships that exceed the DCT may generate surplus units. These units can be banked for future use or sold to other vessels.

Deficit rectification: Ships in Tier 1 or Tier 2 deficit may:

• use their own banked surplus units;

• purchase surplus units from other ships; or

• acquire remedial units through contributions to the IMO Net-Zero Fund.

Incentives for zero and near-zero carbon fuels

The proposed amendments introduce financial incentives for ships using low-carbon or zero-carbon fuels, with specific emissions thresholds set well below the broader fuel intensity targets outlined in the IMO Net-Zero Framework. These thresholds are:

• Until 31 December 2034, the qualifying threshold is 19g CO₂ eq / MJ.

• From 1 January 2035, the threshold lowers to 14g CO₂ eq / MJ.

To put this in context, the IMO's emissions reduction targets are based on a 2008 baseline of 93g CO₂ eq / MJ. For example:

• By 2030, a ship meeting the more stringent DCT of a 21% reduction would still emit approximately 74g CO₂ eq / MJ.

• By comparison, the 19g CO₂ eq / MJ threshold for incentives represents a ~74% reduction from the DCT for that year.

This highlights the significant advantage offered to ships adopting zero or near-zero carbon fuels.

The IMO will finalise the rules for these incentives by March 2027, and review them every five years.

IMO Net-Zero Fund

A central plank of the framework is the creation of the IMO Net-Zero Fund. This fund will collect contributions from ships with compliance deficits and redistribute funds for:

• reward high-performing, low-emission vessels;

• support innovation, research, and decarbonisation infrastructure in developing countries;

• provide funding for training, technology transfer, and capacity building aligned with the IMO GHG Strategy; and

• mitigate negative impacts on vulnerable states, including Small Island Developing States and Least Developed Countries.

In effect, the new regime combines regulatory pressure with financial incentives – a carrot-and-stick approach – to drive meaningful decarbonisation in global shipping.

Enforcement regimes and key actors

The IMO creates and adopts regulations, but enforcement is carried out by Flag States, often in cooperation with regional groups, to ensure compliance and maintain fair competition. The enforcement regime for the Near-Zero Framework regulations includes:

• Flag States: The country where a ship is registered (Flag State) is the primary enforcer. While they can delegate technical verification to recognised organisations (ROs), the Flag State remains ultimately responsible for ensuring compliance with the Near-Zero Framework. Enforcement actions such as criminal prosecution, fines, or sanctions against crew or ship management, will depend on how individual member states implement and enforce the Near-Zero Framework.

• Port State Control: When ships visit international ports, Port State Control authorities conduct checks to verify compliance with Near-Zero Framework regulations. These authorities may take enforcement actions against non-compliant vessels and their crew, potentially imposing additional charges or even detaining vessels if Statements of Compliance are not provided or regulatory penalties remain outstanding.

• Member State Audits: The IMO audits countries to ensure they have the capacity and systems in place to enforce regulations.

• Industry Pressure: Industry practices, such as charterparty clauses, vetting programs, and insurance requirements, also encourage compliance.

Fuel transition within Australia – commercial and legal implications

The IMO's proposed emissions scheme is both designed and expected to boost demand for low or zero-carbon fuels like ammonia and methanol, which the Australian Government's Net Zero Roadmap and Action Plan acknowledges as a key to decarbonising long-distance shipping, as well as other hard to abate sectors such as heavy freight, mining and aviation.

Following the legislative entry into force of the Hydrogen Production Tax Incentive (HPTI) as part of the Future Made in Australia framework) in April 2025, as well as the Sustainable Aviation Fuel Funding Initiative, on 17 September 2025 the Australian Government announced a further production incentive for low carbon liquid fuels (LCLF). While the design of the program is subject to a consultation process, consultation is to be completed this financial year, with eligibility criteria and program design to be completed to support a competitive public grants process.

In this context, the Australian Government should ensure that the Australian Guarantee of Origin (GO) scheme aligns with international standards and meets the maritime sector's requirements, as part of ensuring that Australia's HPTI and LCLF initiatives are aligned with international market requirements.

It also emphasises the need for the coordinated policy development in relation to fuel products that strikes an effective balance between agriculture, fuel security and climate outcomes. As the LCLF announcement notes, "Australia already exports nearly $4 billion of suitable feedstocks like canola and tallow" that could be used in LCLF production, with the Clean Energy Finance Corporation (CEFC) estimating that an Australian low carbon liquid fuel industry could be worth $36 billion by 2050.