Seaways Free Article: Smoke signals

Outlining the IMO’s Greenhouse Gas Reduction Measures

by Captain Chris O’Flaherty, AFNI
Dr Seyedvahid Vakili, FNI
James Spear, MNI
Marc Arpon, MNI

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Following two years of negotiations, proposed amendments to MARPOL Annex VI as part of the IMO’s Net Zero greenhouse gas (GHG) reduction strategy will include regulations for charging ships depending on their production of GHGs. The changes were approved at the April meeting of the Maritime Environment Protection Committee, and could result in bills running into millions of dollars per ship per year.

In order to be adopted, and thus become legally enforceable, they must receive acceptance from at least two-thirds of the parties to MARPOL, collectively representing no less than 50% of the world’s merchant fleet by gross tonnage. The amendments are scheduled for formal adoption during a special MEPC session in October 2025.

These new regulations will apply to ships over 5,000 gross tonnes (GT), excluding those engaged solely in domestic trade, as well as offshore platforms such as FPSOs (Floating Production Storage and Offloading units), FSUs (Floating Storage Units), drilling rigs, and semi-submersible vessels.

GHG Fuel Intensity

The central element of the IMO’s Net Zero scheme is the assessment of a ships’ GHG Fuel Intensity, known as its GFI. This figure will be compared with the projected GFI for a compatible use of fuel/energy in 2008. The difference will be measured against the IMO targets for reduction, and compliance – and charging, if any – will be based on the result.

The GFI represents the total GHG emissions of a ship in any given year. It is calculated according to the total fuel or energy used by the ship over the course of the year on a ‘well to wake’ (WtW); basis – that is, taking into account the GHGs required to produce and distribute that fuel/energy production, which will differ by source. This includes external energy sources, such as onboard batteries charged from ashore.

Registration and reporting

All ships will be required to sign up with the IMO’s GFI registry by no later than 1 October 2027. A registration fee is payable by 30 June 2028, and further registration payments will be due annually thereafter.

From January 2028, ships must record all energy usage over the course of the calendar year, then report it to the flag administration by 31 March the following year. The data is then passed to the IMO’s Data Collection System (DCS). By 31 August each year (starting in August 2029), the IMO will issue to each ship an ‘account statement’ which contains their GHG bill.

Pricing mechanism

Calculation of a ship’s GHG bill starts by calculating theoretical GHG emissions as they would typically have been in 2008 (the baseline year for the IMO’s Net Zero strategy). This is calculated by taking the ship’s reported fuel/energy consumption, and multiplying it by the 2008 average value for GHG emissions of 93.3 gCO₂eq/ MJ. This value is known as GFI₂₀₀₈. It is not specific to the type of fuel used.

A ship’s target GFI, known as GFIT, is a certain percentage below GFI₂₀₀₈ becoming increasingly stringent every year.

The IMO then takes the ship’s record of fuel used over the year and calculates GFI_attained. This calculation gives an accurate value for actual GHG emissions depending on the precise GHG emissions values for each fuel or energy type as contained in the Fuel Lifecycle Label (FLL). For example, LNG emits less GHG than HFO. Every fuel or energy type will have its own GHG emissions value. Even individual batches of the same fuel may have different GHG emissions values due to the well-to-wake differences caused by refining, transportation, storage etc. Accurate recording of all fuel and energy use is crucial.

Moving Target

The IMO sets two targets: a ‘Direct Compliance Target’ and a ‘Base Target.’ To meet the ‘Direct Compliance Target’, in 2028 a ship should have reduced its GHG emissions by 17% compared to 2008 levels. To meet the Base Target’, in 2028 a ship should have reduced its 2028 GHG emissions by 4% compared to 2008 levels. Both targets become more stringent every year.

If a ship has produced fewer GHG emissions than the Direct Compliance Target for a given year (ie it has met the target), it is credited with ‘surplus units’. These can be banked to offset future emissions, or they can be traded with other ships which have produced too much GHG.

Remedial Units

If a ship has missed its Direct Compliance Target for a given year, it will need to purchase ‘Remedial Units’ from the IMO. These are priced in two tiers, depending on the amount by which the target is missed.

Remedial units required to make up shortfalls between the Direct Compliance Target and the Base Target are priced at US$100 per tonne of CO₂ equivalent on a WtW basis. Remedial units required to make up any further shortfalls beyond the Base Target are priced at US$380 per tonne of CO₂ equivalent on a WtW basis.

Moving targets

Both the Direct Compliance and Base targets get more strict each year. By 2030, the Base target will be 8% below 2008 levels, and the Direct Compliance will be 21% below 2008 levels. To meet these targets, ships will either have to convert to lower GHG fuels, or even to Zero or Near Zero fuels (ZNZs) that incur no GHG charges, or they will have to pay an increasing amount to the IMO to purchase remedial units.

The IMO Net Zero Fund

The money received from remedial unit purchase will go into the IMO’s Net Zero Fund. This will be spent to incentivise and reward the use of ZNZ fuels, associated GHG reduction research, training and infrastructure for shipping, and also to mitigate negative impacts on states such as food insecurity.

To give an idea of scale, the Net Zero Fund is expected to receive about US$40 Billion per year from payments by ships. For a typical ship consistently using 10,000 tons of HFO per year, the bill for 2028 will be approximately US$720,000, rising to US$1.3 million by 2030 as GHG targets become ever more stringent.

A landmark in shipping

This meeting was a landmark in the shipping community’s progression towards achieving the IMO’s target of reducing Green House Gas emissions from ships to net-zero by the year 2050.

Various implementation guidelines will be written during a six month period in which Flag States can raise any final concerns. Thereafter, the proposed regulations are expected to be formally adopted at October’s extraordinary session of the committee.

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Disclaimer: This article is intended as a very short and simplified introduction to the principles of the new GHG reduction system. Full details, equations, factors, reporting requirements etc should be consulted before any legal or commercial decisions are taken.

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