Supply Chain Scanner - Week of April 21, 2025
Weekly blog by Emily Atkins
Shipping rides the wave toward zero emissions
The International Maritime Organization (IMO) has approved a new fuel standard for ships and a global pricing mechanism for emissions after nearly 10 years of negotiations. The initiative is part of the organization’s objective of achieving net-zero emissions for ships by 2050.
The IMO is the United Nations agency responsible for measures to improve the safety and security of international shipping and to prevent pollution from ships. Its new Net-zero Framework combines mandatory emissions limits and GHG pricing, which means the shipping sector is now the first industry with internationally mandated targets to reduce emissions.
The IMO’s 176 Member states – including Canada, which joined in 1948 – agreed to a package of technical and economic elements, including a global fuel standard that sets GHG intensity reduction targets for each year through 2035. They also agreed on the penalties for failing to meet the targets.
The United States did not participate, and the Trump administration rejected efforts to impose penalties on carriers based on fuel choice. And, although Saudi Arabia, which requested the vote, and a dozen other oil-producing nations did not support the deal, they are bound to abide by it.
Large vessels will face a penalty of US$380 per tonne of CO2 emissions. Revenues generated by the penalties – expected to be in the range of US$11 to 13 billion – will be used to fund a reward mechanism for zero- and near-zero emission fuels. The measures also establish a credit trading scheme through which vessels with lower emissions can generate credits to sell to owners of higher-polluting vessels.
Estimates from Ship and Bunker.com suggest the industry will pay an additional US$75 per metric tonne in compliance costs for every tonne of very low-sulfur fuel (VLSFO) consumed in 2028. That will climb to $469/mt by 2035.
Alternatives to traditional Very Low Sulfur Fuel Oil are significantly more costly: 31 percent more expensive for Liquid Natural Gas, (LNG), 53 percent for grey methanol, 111 percent for bio-LNG, and 274 percent for green ammonia according to Platts’ global bunker fuel cost calculator in January 2025 for Rotterdam.
The new rules, set to be formally adopted in October 2025 before entry into force in 2027, will become mandatory for large ocean-going ships over 5,000 gross tonnage, which emit 85 percent of the total CO2 emissions from international shipping. Shipping as a whole accounts for two to three percent of GHG emissions. There are nearly 200 renewable fuel-capable liner ships on the water today, and an additional 700 to be delivered by 2030.
The shipping industry welcomed the new measures. “This is a major milestone for climate policy and a turning point for shipping. Our industry has long been labelled as ‘hard to abate,’ but record industry investment and a new global measure can turn the tide on that,” said World Shipping Council (WSC) president and CEO Joe Kramek.
“Liner shipping has already moved to kick-start decarbonization, with nearly 1,000 renewable-capable ships set to be on the water by 2030. However, a global regulation is necessary to deliver renewable fuels at a commercially viable price. Outcomes from the IMO today mean global regulations can now begin to leverage the record industry investment to meet decarbonization targets.”
The Global Maritime Forum, which is a Denmark-based, independent not-for-profit organization dedicated to decarbonizing the maritime industry and improving life at sea, says the IMO measures are insufficient to prompt the desired reduction in emissions.
According to the Forum, the IMO’s GHG intensity targets create uncertainty as to whether the strategy’s emissions reduction checkpoints for 2030 and 2040 will be met. As currently designed, measures are unlikely to be sufficient to incentivize the rapid development of e-fuels such as e-ammonia or e-methanol, which will be needed in the long run due to their scalability and emission reduction potential. A failure to begin investing in these fuels now would put the target of at least five percent zero- and near-zero emission fuel use by 2030 and the industry’s entire 2050 net-zero goal at risk, the Forum said.
“While the targets are a step forward, they will need to be improved if they are to drive the rapid fuel shift that will enable the maritime sector to reach net zero by 2050,” said Jesse Fahnestock, director of decarbonization at the Global Maritime Forum.
“While we applaud the progress made, meeting the targets will require immediate and decisive investments in green fuel technology and infrastructure. The IMO will have opportunities to make these regulations more impactful over time, and national and regional policies also need to prioritize scalable e-fuels and the infrastructure needed for long-term decarbonization.”
The Global Maritime Forum calls on national governments, regional institutions, and collaborative industry initiatives to increase focus on zero-emission shipping, for example by finding ways to bridge the cost difference between fossil and e-fuels, supporting the development of required infrastructure and fuel production, and ensuring that more is done to promote the transition in the Global South.
The IMO, Global Maritime Forum and WSC all agree that there is work to be done. “The regulations also provide a mechanism that encourages the use of cleaner zero and near-zero fuels and energy sources,” said Bryan Wood-Thomas, WSC’s vice-president and lead IMO representative. “The production of clean fuels and energy sources will create economic opportunities across the globe and have environmental benefits that will last for generations. However, there is considerable work remaining to ensure we have the rules and guidance necessary to use the fuels that will power the world’s fleet in future years.”
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Emily Atkins
President
Emily Atkins Group
Emily Atkins is president of Emily Atkins Group and was editor of Inside Logistics from 2002 to 2024. She has lived and worked around the world as a journalist and writer for hire, with experience in several sectors besides supply chain, including automotive, insurance and waste management. Based in Southern Ontario, when she’s not researching or writing a story she can be found on her bike, in a kayak, singing in the band or at the wheel of her race car. LinkedIn: https://www.linkedin.com/in/emilyatkinsgroup/