The framework was approved was a draft legal text at the Marine Environment Protection Committee (MEPC) 83 session in April 2025, with its formal adoption scheduled to take place in October 2025. However, at the MEPC’s extraordinary session in October, a number of countries unexpectedly voted to delay its adoption for 12 months, meaning the framework remains non-binding until a consensus for adoption is reached.

How does the IMO NZF work in practice? 

The NZF functions through two measures:

1. The global fuel standard (GFS) mandates that ships progressively reduce their GHG fuel intensity (GFI) – that is, how much GHG is emitted for each unit of energy used. This amount is calculated by looking at all the pollution created during the fuel’s entire life-cycle from its source until its end-use
2. The global economic measure creates financial incentives to reduce fuel intensity faster than the targets by rewarding overperformers through transferable surplus units and punishing underperformers to surrender or acquire surplus units.

The enforcement of all IMO regulations happens at member state level.

How carbon removal fits into the IMO NZF

 CDR is currently excluded from the compliance options and negotiations in the IMO NZF. Regardless of whether the NZF is adopted, many stakeholders argue that CDR’s eventual inclusion would be essential for addressing long-term residual emissions in the shipping sector.

Possible avenues for the inclusion of CDR in the IMO NZF could be the use of carbon removal to compensate for residual emissions to balance the remaining GHG after maximum abatement efforts. The IMO NZF could also be linked to CDR by dedicating revenue to procuring and scaling durable carbon removal technologies. Additionally, CDR activities could be recognised to reduce the net emissions of ships against the GFI baseline, allowing verified removals to be subtracted form a ship’s annual emissions in order to meet GFI targets and avoid penalties.

• • The motion to delay was proposed by Singapore and called to a vote by Saudi Arabia. It passed with a vote of:
    • 57 countries in favour of the delay
    • 49 countries against the delay
    • 21 countries abstentions
  • External political pressure from the US Trump administration and Saudi-Arabia led a high-pressure campaign against the Framework’s immediate adoption. The US reportedly threatened developing and climate-vulnerable states with retaliatory tariffs and sanctions if they supported the Framework.
• 20^th– 24^th October 2025: The Intersessional Working Group on the Reduction on Greenhouse Gas Emissions (ISWG-GHG) from Ships, will go ahead to continue work on the guidelines for implementing the Net Zero Framework. The technical guidelines which determine the frameworks effectiveness are developed at ISWG-GHG meetings.
• October 2025 – October 2026: Member States will continue to work towards consensus.
• October 2026: The Extraordinary MEPC session will reconvene to consider the formal adoption of the IMO NZF amendments.

MARPOL is implemented through six technical Annexes, which detail specific regulations for different pollution categories: Annex I (Oil), Annex II (Noxious Liquid Substances in Bulk), Annex III (Harmful Substances Carried by Sea in Packaged Form), Annex IV (Sewage), Annex V (Garbage), and Annex VI (Prevention of Air Pollution from Ships).

Annex VI controls all forms of air pollution from ships and requires ships to improve their energy efficiency to reduce GHG emissions. The IMO NZF, containing new binding targets for decarbonisation, was submitted in April 2025 to be included as Chapter 5 of MARPOL Annex VI.

The IMO Net-Zero Fund

The Fund is the central financial pillar of the IMO NZF and is designed to collect monetary contributions made by ships purchasing remedial units (RUs) – financial penalties to cover emissions deficits. It is estimated to earn revenues of $10 billion per year until 2035.

It serves two purposes – firstly, to reward low-emission ships by providing financial incentives for the uptake of zero and near-zero fuels and technologies, helping to close the current price gap with conventional fuels. Secondly, it supports a just and equitable transition by channelling funds towards developing countries for capacity building, transferring technology, and mitigating negative impacts resulting from the decarbonisation of the shipping industry.

While the fund’s objectives are fixed, the details around its implementation are still being determined. The final structure such as the distribution mechanism for grants, subsides, rebates, or auctions have yet to be to be finalised. A dedicated governing board will be established to oversee the Fund’s operations and will report its activities directly to the Marine Environment Protection Committee.

The functioning of the global economic measure in the IMO NZF

The IMO NZF includes two reduction targets set against a 2008 baseline: the less stringent base target (BT) and the stricter direct compliance target (DCT). The economic mechanism is structured around the BT and the DCT, which define three distinct compliance zones. This tiered system directly determines the penalties (remedial units) or rewards (surplus units) for every ship.

Surplus units (SUs) are transferable credits generated by those ships that achieve emissions below the DCT. Unlike RUs which form the core revenue of the IMO Net-Zero Fund, the SUs can be banked or sold as a tradeable commodity to cover the deficits of other ships.

• Tier 2 deficit zone: When the ship fails to meet the minimum mandatory reduction trajectory. The ship must cover this deficit by purchasing RUs from the IMO Net-Zero Fund, or by purchasing SUs from ships in the direct compliance zone.
• Tier 1 deficit zone: When a ship meets the minimum BT but falls short of the DCT. The ship must cover this deficit by purchasing remedial units from the IMO Net-Zero Fund.
• Direct compliance zone: When ships over comply with CO₂ targets, they generate tradable credits, or surplus units which can be banked for future years or to ships in the Tier 2 deficit zone.

Tier 1 RUs ensure a guaranteed, lower-cost revenue stream for the IMO Net-Zero Fund, while the higher priced Tier 2 penalty acts as the primary financial deterrent while simultaneously establishing the necessary high market value for SUs.

Source: Carbon Market Watch

Challenges facing the global shipping industry in decarbonising:

The global shipping industry faces fundamental challenges in reaching net-zero. Many stakeholders challenge the effectiveness of the IMO NZF in driving the decarbonisation required for the shipping sector. These include an ambition gap in the IMO climate strategy, where the targets lie far below what is needed to align with the Paris Agreement’s 1.5°C goal.

There is also concern that the projected revenue generated by the IMO NZF will be insufficient to adequately finance the required global uptake of zero- and near-zero GHG fuels and support a just and equitable transition. Furthermore, the price disparity between fossil fuels and the new zero or near-zero electrofuels creates a challenge in making net-zero shipping commercially competitive, even when factoring in the IMO penalties.

Although CDR does not currently play a role in the IMO NZF, its potential integration could offer shipowners a flexible alternative for compliance. This approach can be seen in other global sectors such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) framework. CORSIA allows international airlines to meet their offsetting requirements by acquiring CORSIA eligible emissions unit, which are ICAO-approved carbon credits from reduction or removal projects. Some assessments also suggest that integrating permanent CDR offers a potential cost-effective solution for balancing residual emissions in the shipping sector, particularly where e-fuels and other direct abatement solutions are not yet technologically scalable.