TWO sectors, namely international aviation and international shipping, each representing around 3 per cent of global greenhouse gas emissions, have remained outside the purview of international negotiations and treaties such as the Kyoto Protocol and Paris Agreement under the UN Framework Convention on Climate Change (UNFCCC). The UNFCCC, as well as negotiations and emissions control regimes under it, regulate actions by government parties as the only entities that can be held accountable under international treaties. Since international aviation and shipping on the high seas take place mostly outside national jurisdiction, emissions from these sectors have been left to the industry to self-regulate in some manner, aided to the extent possible by scientific inputs by relevant UN bodies.

Deliberations and agreements on international aviation have therefore been taking place under the aegis of the International Civil Aviation Organisation (ICAO), a body that itself brings together industry representatives and governments. Similarly, emissions from international shipping have been discussed under the aegis of the International Maritime Organisation (IMO), a United Nations body that brings industry and governments. ICAO has already agreed an “aspirational” target of net-zero emissions by 2050. We have discussed these in a much earlier article in these columns and will return to them later. Our focus in this article is on emissions from global shipping.

Efforts have been made to try and bring these industry-wide and multi-country processes together or at least align their targets such that endeavours to control emissions are as much in lock-step as possible, while recognising all the differences between industry self-regulation and overarching inter-government treaties. Discussions on emissions from international aviation and shipping therefore regularly take place on the sidelines of the annual climate COPs and feed into the operational arena at ICAO and IMO with the understanding that decisions can only be taken in the latter fora.

Recently on April 11, 2025, the IMO’s Environment Protection Committee meeting in London agreed upon the world’s first ever binding agreement in global shipping, providing for compulsory emissions limits along with a price on greenhouse gas emissions or a carbon tax. If the Agreement is approved by the full IMO Meeting in October 2025, it will come into force in 2027 and take effect in 2028. The Net-Zero Framework will be included in a new Chapter 5 of Annex VI (Prevention of air pollution from ships) to the International Convention for the Prevention of Pollution from Ships or MARPOL.  

There are of course many ifs and buts, much small print and messages concealed between the lines, and many chances of slips between the cup and the lip till formal approval by IMO later this year. Despite all these qualifiers, an “IMO Net-Zero Framework by 2050,” the first ever mandatory industry-wide international emissions reduction regime, has been agreed upon. And that’s a big deal.

THE PROVISIONS               

 In simple terms, the present agreement sets a standard for greenhouse gas intensity (GHG intensity) of fuels, i.e., the GHG emissions per unit of fuel used by vessels in global shipping, these standards or GHG emissions progressively reducing till they reach levels to achieve net-zero in 2050. IMO had agreed in 2023 to an emissions reduction strategy that required reduction in emissions by 20 per cent by 2030 compared to 2008 levels, and by 70 per cent by 2040, urging “striving” goals of 30 per cent and 80 per cent for these respective timelines.  Mathematical models representing well-to-wake (WTW) emissions, that is accounting for all emissions from extraction to the final use of the fuel in ships, are used that will specify the GHG intensity required to be achieved by ships starting from 2028 till 2050. As with other internal combustion engines on automobiles or airplanes, improvements in GHG intensity would be achieved through improvements or changes in the fuel used; or technological improvements in engines enabling better efficiency, reduced fuel consumption and lower pollution; or shifts from currently used fuels to greener fuels.

The agreement sets two sets of targets for GHG Intensity, a lower easier-to-achieve target of reducing GHGI by 4 per cent by 2028 rising to 30 per cent in 2035, and a stricter target of 17 per cent in 2028 rising to 43 per cent in 2035. Ships that fail to achieve the lower target would be required to pay a “fine” of $380/tonne emissions above the threshold, and $100/tonne CO2 for the remaining more-difficult-to-achieve emission reduction target.  This provision applies to large ocean-going ships of gross tonnage more than 5000 tonnes, estimated to account for around 85 per cent of total CO2 (carbon dioxide) emissions from international shipping. 

The agreement, in another first, also sets up a Net Zero Fund into which the above penalties will be deposited. It is estimated that the Fund will bring in $11 billion to $13 billion annually. The fund would be utilised to incentivise ships with near-zero emissions, but mostly for investment in improved fuels or technologies, and for assisting developing countries that will be affected by the new fuel and emission standards.

Ships failing to meet emission standards can pay the penalties into the Fund, or transfer surplus units from other ships in their fleet or draw from such surplus units that have been banked earlier.

The creation of the Net Zero Fund has been welcomed by many since it is based on actual measurements of emissions and keeps the carbon trading within the sector itself avoiding the notoriously spurious offsets of “ghost forests,” “hot air” and “phantom energy or emissions savings” in the broader  carbon trading mechanisms of the Paris Agreement.

CONCERNS              

Like other such agreements, the best case scenario is that the penalties and incentives will push ship operators to move to less polluting fuels and more efficient engines, eventually towards near-zero emissions fuels. However, shipping has a huge problem.

Ships use the dirtiest possible diesel. The petroleum refining process progressively refines and takes out the cleanest aviation kerosene, then high-octane petrol and high-performance automobile diesel, and leaves the dregs for shipping, furnace oil and so on. Shifting fuels to significantly less polluting ones will require major modifications to engines or, for “green” fuels, new engines altogether. The supposedly “cleanest” fuels, such as green hydrogen, e-kerosene or ammonia produced by separating hydrogen from water by electrolysis are highly energy intensive, hence very expensive, and will call for major investments not merely in engines but also in ships and infrastructure.  Industry sources estimate that such “green” fuels would be 3-4 times as expensive as conventional fuels. (Note: “green” and “clean” are written within inverted commas since, although made using solar energy, the significant environmental footprint and related emissions associated with mining and refining of raw materials and manufacture of solar cells etc., are often not taken into account when comparing with fossil-fuels.)     

Most small shipping companies and independent operators will find it extremely difficult to make, major shifts towards low-emissions fuels and related engines till their production is scaled up and prices drop. A major concern voiced by critics of the IMO deal is that the incentives and especially the penalties in the scheme are inadequate to facilitate this transition.

Ship owners may therefore be driven to either simply accept the penalties as a “price to pollute,” or take lowest-cost options towards less polluting fuels. And here lie the big worries.

The easiest lower-emission fuel to adopt is likely to be bio-diesel. Since these fuels are plant based, and release CO2 which they absorb from the atmosphere in a renewable cycle, their emissions are mainly related to their manufacturing processes and combustion products, and are thus calculated as less than fossil fuels. However, most bio-fuels likely to be available will probably come from crops such as oil palm cultivated on cleared forest lands, as is already happening in South-East Asia, South America and Africa. The resultant deforestation will then likely offset any emissions reduction from shifting from fossil-diesel to bio-diesel in ships.

The second most likely option is a shift to Liquefied Natural Gas (LNG), currently flavor-of-the-month in much international climate discourse, especially championed by developed countries, petro-states and the fossil-fuel industry, since it is an extension of the petroleum industry, widely available and requires the least technological modifications to adopt. Although natural gas is cleaner than petroleum and its refined products, it is still a non-renewable fossil fuel and is definitely not a substitute for the latter. It is often touted as a “transitional fuel,” but the concern is that the “transition” will be very prolonged and would effectively give a fresh lease of life to the fossil fuel industry.

RESISTANCE AND  SLOW ADOPTION 

It is significant that the IMO Committee Meeting in London saw strong opposition from countries with otherwise divergent positions.

It was no surprise that Saudi Arabia, Russia, several others with interests in petroleum and the US opposed the scheme tabled at the meeting. In another first for a UN body in which decisions are usually taken by consensus, these countries demanded a vote which was conducted and the proposal was passed. The US specifically objected to the idea of the Net-Zero Fund, a shift from its pre-Trump position, and sent a letter to all countries at the meeting threatening “reciprocal” measures if this provision was passed! Few country delegations and shipping industry representatives seemed bothered since, besides other things, only 178 cargo ships accounting for 0.57 per cent of commercial shipping tonnage fly the US flag.   

The Small Island Developing States (SIDS) especially the Pacific islands, Least Developed Countries (LDC) and environmental groups called for a flat carbon tax and stringent measures to ensure adherence to a 1.5C pathway towards net-zero and rapid adoption of clean fuels. Unsurprisingly, this was not supported by most countries and industry groups who saw the costs involved as prohibitive and anticipated huge increase in shipping costs impacting trade volumes and consumer prices. Countries with large maritime trade volumes such as China and Brazil, along with India, supported the proposed scheme, as did the EU and most countries present as a “pragmatic” way forward.

The shipping industry meanwhile is reconciled to carbon taxes in one form or another. Different categories in the industry, such as independent operators, charter vessels, contract vessels, cargo fleets etc., are weighing costs, timelines and returns associated with each of the fuel-engine options available and the transitions involved. While weighing up the options, shipping companies have started adopting measures such as route optimisation, mainly investing in software and, most popular with the least investment required, “slow steaming” i.e., operating at low speeds and engine capacity, saving fuel and emissions. It is to be hoped that this does not become a metaphor for progress towards net-zero maritime emissions.