The International Maritime Organization (IMO) has decided to delay the adoption of its Net Zero Framework (NZF) for another year — a move that adds uncertainty but also provides an opportunity for deeper review and refinement of the proposed mechanisms.
Ahead of the Marine Environment Protection Committee (MEPC) meeting, a comprehensive study by Rystad Energy’s maritime decarbonization experts revealed major gaps in the current framework that must be addressed to ensure a fair and sustainable energy transition for the global shipping sector.
The postponement gives member states additional time to refine ambiguous or contentious elements of the framework and produce a more robust and actionable plan.
The study highlighted a substantial gap between projected clean fuel supply and targeted demand, worsened by infrastructure limitations, raising doubts about the feasibility of the proposed transition timeline.
It also identified ongoing imbalances in the carbon trading mechanism, forecasting that demand for Tier II offset units will exceed available surplus units until 2035 — a structural deficit likely to push trading prices toward the Tier II penalty ceiling.
The report stressed the need for careful design of the reward mechanism to avoid turning it into a mere fine collection system. While cost gaps are expected to narrow as technology matures and economies of scale improve, an effective incentive structure remains essential to encourage sustainable practices. By addressing these key issues, the IMO can develop a more efficient and equitable framework to support a low-carbon future for the maritime sector.
Rystad Energy noted that decarbonizing shipping is a complex challenge that extends beyond the industry itself, being closely tied to the global shift from fossil fuels to renewable energy. The findings suggest that progress will likely be slower than IMO’s current projections due to infrastructure constraints, technological readiness, and the interconnected nature of energy systems.
While the industry has shown strong commitment, practical limitations call for a pragmatic approach. The IMO is expected to use the extra year to develop a more realistic and balanced framework.
Junlin Yu, Vice President of Supply Chain Research at Rystad Energy, said, “The IMO should use this additional year to craft a framework that is both practical and fair.”
The company recently published a detailed report on the financial structure of maritime decarbonization under the Net Zero Framework, available on its official website.
The analysis was based on an extensive database covering conventional fuels, hydrogen derivatives, and biofuels, alongside a global review of alternative-fuel fleets, port infrastructure, and shipyard capabilities.
Under the NZF, vessels that meet emissions targets generate Surplus Units (SUs), while non-compliant vessels generate Rectification Units (RUs), classified into:
Tier I (RU1s): for vessels meeting minimum targets.
Tier II (RU2s): for vessels failing to meet required targets.
Non-compliant vessels can offset Tier II rectification units by purchasing surplus units from compliant ones.
Rystad’s projections show a complex interaction between surplus and rectification units. Surplus units are expected to start at 40 million tonnes of CO₂ equivalent in 2028, rising to 53 million by 2035, while RU2s could soar from 47 million to 234 million tonnes annually by 2035.
This imbalance will dictate market pricing, with Rystad forecasting that RU2 demand will remain above available surplus supply until 2035 — likely pushing trading prices toward the Tier II penalty cap.
According to the company’s analysis, surplus unit prices will be driven more by market dynamics than by biofuel price differentials.
Given the limited supply of advanced biofuels for shipping, surplus unit prices are projected to approach the penalty ceiling of $380 per tonne of CO₂ equivalent after transaction costs.
Yu added, “While surplus units will offset much of the Tier II penalties until 2030, this may also limit financial incentives for early adopters of zero-emission technologies.”
A structural shift is expected in 2031, as surplus units decline and compliance requirements tighten, increasing emission deficits among shipping companies. This will result in higher penalty revenues, strengthening the NZF Fund’s ability to finance industry-wide decarbonization efforts.
The study also highlighted design challenges in the framework — notably the two-year holding limit on surplus units, intended to prevent dilution of future emission-reduction efforts. However, this restriction could discourage early adoption of clean technologies, unlike the EU’s FuelEU Maritime regulation, which allows permanent storage of units.
Financial forecasts show that the IMO’s Net Zero Fund could grow significantly, with Tier I and Tier II penalties expected to generate around $13 billion in 2028 and nearly $79 billion by 2035.
Still, the analysis questions whether the framework will effectively support the shift to zero-emission vessels, particularly in its initial stages.
Rystad estimates that the required reward levels to achieve cost parity between e-fuels and conventional fuels will initially be prohibitively high, leading to a financial shortfall until 2030 — even if the fund’s full resources are allocated to incentives.
Over time, however, technological advances and production scaling are expected to narrow this gap, ultimately producing a substantial fund surplus after 2030.
