IMO Net Zero Framework: Complete Guide to GFI Targets, Remedial Units, and What It Means for Ship Operators

Quick Answer: The IMO Net Zero Framework (NZF) is the regulatory package implementing the 2023 IMO GHG Strategy's net-zero-by-2050 target. Approved at MEPC 83 in April 2025, it mandates a declining GHG Fuel Intensity (GFI) standard for vessels over 5,000 GT on international voyages, backed by a two-tier remedial unit pricing mechanism. Formal adoption is targeted for MEPC 85 in October 2026, with the first reporting year anticipated as 2028.

International shipping carries roughly 90% of world trade by volume and produces approximately 2.89% of global CO₂ emissions. It is also, as of April 2025, the only major industrial sector with an agreed mandatory global net-zero target, if the IMO Net Zero Framework is ultimately adopted.

The framework's journey illustrates how difficult multilateral climate regulation actually is. The 2023 IMO GHG Strategy, revised at MEPC 80 in July 2023, set the ambition: net-zero emissions from international shipping by or around 2050. Two years of negotiation at MEPC produced the Net Zero Framework, approved in principle at MEPC 83 in April 2025. The October 2025 extraordinary MEPC session was scheduled to formally adopt it. Instead, a majority voted to adjourn for one year following intense political pressure, leaving the shipping industry with a framework it largely understands but no mandatory date to comply with it.

Work continues. MEPC 84 in April-May 2026 is advancing the implementation guidelines. MEPC 85 in October 2026 is the next expected adoption vote. The commercial reality for shipowners ordering vessels with 25-year service lives, and for cargo owners planning decarbonization supply chains, is that the regulatory direction is clear even if the precise timeline is not.

This guide covers the full framework: what it replaces, how it works mechanically, the GFI calculation and remedial unit economics, the political breakdown in October 2025, how it compares with FuelEU Maritime, what alternative fuels qualify, and what shipowners and charterers need to do now.

Who this guide is for: Shipowners, ship managers, charterers, newbuilding investors, maritime lawyers, and cargo owners planning around decarbonization regulations.

Background: Why International Shipping Needed a Net Zero Framework

The existing MARPOL Annex VI energy efficiency measures, EEDI for new ships, EEXI for existing ships, and the CII operational rating, were adopted as short-term measures and designed as such. They reduce carbon intensity relative to transport work but do not cap total emissions. A shipping industry that grows its fleet and trade volume while improving energy efficiency per tonne-mile can still increase its absolute CO₂ output. Total emissions reduction requires either a fuel standard that limits the carbon content of fuel energy, a pricing mechanism that makes carbon emissions costly, or both.

The 2018 Initial GHG Strategy set a target of reducing total shipping GHG emissions by at least 50% by 2050 compared to 2008. Scientific analysis showed this was insufficient to align shipping with the 1.5°C pathway of the Paris Agreement. The Fourth IMO GHG Study, published in 2020, projected that without additional measures, shipping's emissions could grow by 50% above 2008 levels by 2050 as trade volumes increase.

The 2023 revision at MEPC 80 changed the target to net-zero “by or around 2050”, a materially more ambitious commitment. It introduced indicative checkpoints for 2030 and 2040, and for the first time set a specific target for zero and near-zero (ZNZ) fuel uptake. The language of that revision also established that the implementing framework, the Net Zero Framework, would need to go beyond operational and technical ratings into actual fuel content regulation and financial incentives.

The 2023 IMO GHG Strategy: Targets and Checkpoints

The 2023 Strategy, adopted by MEPC Resolution MEPC.377(80) at MEPC 80 in July 2023, sets out the decarbonization architecture that the NZF is designed to implement.

The 2050 target

Net-zero GHG emissions from international shipping by or around, close to 2050. The “by or around” formulation reflects a political compromise: most member states supported 2050 as an absolute deadline; a smaller group sought flexibility. The phrase “close to” is the operative qualifier, it means 2050, or within a few years of it, not the decade of the 2050s.

2030 checkpoint

Reduce total annual GHG emissions from international shipping by at least 20%, striving for 30%, compared to 2008 levels. The distinction between “at least 20%” and “striving for 30%” is significant: the 20% is the binding floor; the 30% is aspirational. A shipping industry that achieves 20% reduction meets the checkpoint technically even if the more ambitious target is missed.

2040 checkpoint

Reduce total annual GHG emissions by at least 70%, striving for 80%, compared to 2008 levels. The gap between 2030 (20-30% reduction) and 2040 (70-80% reduction) implies the bulk of the fuel transition occurring in the 2030s, when scaled ZNZ fuel production infrastructure is expected to become commercially viable.

ZNZ fuel uptake target

Zero or near-zero GHG emission fuels, technologies, and energy sources are to represent at least 5%, striving for 10%, of the energy used by international shipping by 2030. At current fleet size, 5% of international shipping's energy represents a very large absolute quantity of ZNZ fuel. Meeting this target by 2030 requires substantial investment in green fuel production and bunkering infrastructure beginning now.

Well-to-Wake basis

The 2023 Strategy, and therefore the NZF, assesses emissions on a well-to-wake (WtW) basis, covering the full lifecycle from fuel production through to combustion. This matters enormously for alternative fuels. LNG from a fossil source has a WtW emission factor higher than VLSFO once methane slip is accounted for. Green methanol produced from electrolytic hydrogen and captured CO₂ has a WtW emission factor close to zero. The WtW accounting prevents fuel substitution that simply moves emissions from the ship to the fuel production facility.

Carbon intensity improvement

Separately, the strategy targets a reduction in carbon intensity, CO₂ emissions per transport work (gCO₂/tonne-mile), of at least 40% by 2030 compared to 2008. This measure is the conceptual predecessor to CII and EEXI, and provides the quantitative backstop for those existing measures.

Existing Short-Term Measures: EEDI, EEXI, CII, and DCS

The NZF builds on a regulatory stack that has been accumulating under MARPOL Annex VI since 2011. Understanding the existing measures clarifies what the NZF adds and why it was necessary.

EEDI (Energy Efficiency Design Index)

Mandatory for new ships since 2013, EEDI sets a minimum energy efficiency standard for vessel design expressed as grams of CO₂ per tonne-mile. Phase 0 established the baseline; subsequent phases tighten the required EEDI value. Phase 3 applies to vessels contracted from 2022, requiring efficiency improvements of 30-50% over the Phase 0 baseline depending on vessel type. EEDI applies at the design stage, it does not regulate how efficiently the vessel is operated.

EEXI (Energy Efficiency Existing Ship Index)

From January 2023, EEXI extended an efficiency rating system to the existing fleet, similar to EEDI in concept but applied to ships already in service. Vessels that do not meet the required EEXI value must implement an Engine Power Limitation (EPL), a technical modification capping maximum shaft power and therefore maximum speed. EEXI is a one-time compliance event: once verified, the vessel holds its EEXI certificate without annual recalculation.

CII (Carbon Intensity Indicator)

Also mandatory from January 2023, CII assesses a vessel's operational carbon intensity annually: grams of CO₂ emitted per capacity-tonne-mile over the calendar year. Ratings run from A (best) to E (worst). The required CII value tightens each year under the “striving for” improvement factor. A vessel rated D for two consecutive years or E in any single year must submit a corrective action plan. CII is flag-state-enforced and commercially sensitive, charterers increasingly factor CII ratings into vessel pre-fixture vetting. CII does not impose a direct financial cost for non-compliance, only a reputational and operational one.

DCS (Data Collection System)

Since 2019, vessels above 5,000 GT have been required to collect and report fuel oil consumption data annually to their flag state and to the IMO Ship Fuel Oil Consumption Database. The DCS is the data infrastructure on which NZF GFI calculation is based. Vessels already reporting under DCS have the foundational data architecture for NZF compliance.

The gap that NZF fills

EEDI, EEXI, and CII reduce carbon intensity relative to transport capacity and operational load, but they do not mandate any particular fuel choice, do not limit total absolute emissions, and do not create a financial cost for emissions. A vessel can meet CII targets by slow steaming on VLSFO. The NZF changes the calculation by targeting the carbon content of the fuel energy itself, a standard that cannot be met by slow steaming alone, and that attaches a direct financial cost to non-compliance.

The IMO Net Zero Framework: Structure and Two Pillars

The NZF as approved at MEPC 83 will sit as a new Chapter 5 of MARPOL Annex VI. MARPOL Annex VI currently has 111 parties covering roughly 97% of the world merchant shipping fleet by tonnage. Entry into force uses the tacit acceptance procedure: unless a specified threshold of parties objects within the acceptance period, the amendments are automatically adopted. The tacit acceptance procedure is the mechanism that allowed EEDI, EEXI, CII, and the DCS to enter into force without needing explicit ratification by each member state individually.

Scope

The NZF applies to all ocean-going ships of 5,000 GT and above on international voyages. This scope covers roughly 85% of CO₂ emissions from international shipping. It is the same population of vessels already covered by the DCS fuel oil consumption reporting system, meaning the data infrastructure for compliance already exists.

Vessels below 5,000 GT, vessels engaged solely in domestic trading, non-mechanically propelled vessels, and certain offshore platforms are excluded or treated separately.

The “Company” as the responsible entity

Responsibility for NZF compliance rests with the “Company” as defined in the ISM Code: the shipowner, or any organisation that has assumed operational control and accepted obligations under the ISM Code (including a ship manager or bareboat charterer). This definition mirrors the accountability structure in MARPOL and ISM. The Company is the entity that submits the annual GHG data report, manages compliance assessments, and purchases remedial units if required.

The two pillars

The NZF is built on two instruments that operate together:

The GHG Fuel Intensity (GFI) Technical Standard mandates progressive annual reductions in the carbon intensity of fuel energy used, measured on a WtW basis. This is the fuel standard pillar.

The Pricing/Reward Mechanism attaches a financial consequence to non-compliance (Remedial Units) and a financial incentive for over-compliance (Surplus Units and ZNZ fuel rewards). This is the economic pillar.

The two pillars are designed to work together. The GFI standard defines the compliance threshold. The pricing mechanism creates the financial signal that makes investment in ZNZ fuels and technologies economically rational relative to continuing to pay penalties for burning conventional fossil fuels.

GHG Fuel Intensity: How It Works

The GFI is the central technical concept in the NZF. Everything flows from calculating a vessel's attained annual GFI and comparing it against the applicable year's required target.

What GFI measures

GFI is expressed in grams of CO₂ equivalent per megajoule of energy used (gCO₂eq/MJ), calculated on a well-to-wake basis. The WtW calculation means it is not just combustion emissions (tank-to-wake) that count, it includes the upstream emissions from fuel production, processing, and transport.

The 2008 reference value

The reference baseline is 93.3 gCO₂eq/MJ, the WtW average GFI of the international shipping fleet in 2008. All NZF targets are expressed as percentage reductions below this reference value. A vessel running on conventional VLSFO (Very Low Sulphur Fuel Oil) will have an attained GFI close to the 2008 reference or slightly below it due to VLSFO's marginally lower carbon content compared to the 2008 fleet average bunker fuel mix.

Annual GFI target trajectory

The NZF sets annual GFI targets for each reporting year from 2028 to 2035, with a 2040 base target also set:

Period	Tier 1 (Base Target)	Tier 2 (Direct Compliance Target)
2028–2030	Progressive reductions from ~2025 IMO draft text	Less stringent than Tier 1
2031–2035	Steeper reductions	Less stringent than Tier 1
2040 (base)	~65% reduction from 93.3 gCO₂eq/MJ reference	—

The precise year-by-year GFI values for the 2028–2035 period were set in the draft regulations approved at MEPC 83 and are subject to review. The 2040 base target of approximately 65% reduction from the reference value, equivalent to approximately 32.7 gCO₂eq/MJ, was also agreed. Targets beyond 2035 will be decided by MEPC before the end of 2032.

Attained GFI calculation

A vessel's attained annual GFI is the weighted average of the WtW GHG emission intensity of all fuel energy consumed during the calendar year:

Attained GFI = Σ (fuel quantity × WtW emission factor) / Σ (fuel quantity × lower heating value)

Where: fuel quantity is in tonnes; WtW emission factor is in gCO₂eq/MJ per IMO default values (or approved actual values); lower heating value is in MJ/tonne.

In practical terms: the vessel's annual DCS fuel consumption report contains fuel quantities by type. The IMO publishes default WtW emission factors for each fuel type. Multiplying quantity by emission factor and dividing by total energy gives the attained GFI.

Actual value pathway

A vessel using a certified ZNZ or low-carbon fuel may use an actual WtW emission factor lower than the IMO default, if the fuel's lifecycle emissions have been verified through an approved certification scheme. This is the “actual value” pathway and is commercially significant: it allows vessels to claim a GFI benefit from genuinely low-carbon fuels that exceeds what the default calculation would show. The development of approved fuel certification schemes (ISCC, RedCert, and others under IMO review) is one of the key guideline workstreams ongoing ahead of MEPC 85.

The Pricing Mechanism: Remedial Units, Surplus Units, and the Net-Zero Fund

The pricing mechanism converts a vessel's GFI compliance position into a financial outcome. It is the element of the NZF with the most direct commercial impact on shipowners, charterers, and fuel decision-makers.

Two tiers of compliance

The NZF uses a two-tier compliance structure:

Tier 1 (Base Target) is the more demanding level. A vessel whose attained annual GFI is below the Tier 1 target is over-compliant and earns Surplus Units. A vessel whose attained GFI exceeds the Tier 1 target has a Tier 1 compliance deficit and must acquire Remedial Units priced at USD 380 per tonne CO₂eq to offset the deficit.

Tier 2 (Direct Compliance Target) is less demanding. A vessel whose attained GFI falls between the Tier 1 and Tier 2 targets has only a Tier 2 deficit. Remedial Units for the Tier 2 deficit are priced at USD 100 per tonne CO₂eq.

A vessel above the Tier 2 target pays USD 100 per tonne CO₂eq for the portion of its deficit between Tier 1 and Tier 2, plus USD 380 per tonne CO₂eq for the portion exceeding the Tier 1 target, a blended cost depending on how far above Tier 1 the vessel's attained GFI sits.

Pricing validity period

The USD 380 and USD 100 prices apply for the 2028 to 2030 reporting period. The NZF provides that MEPC will determine the pricing mechanism for reporting periods from 2031 onwards before the end of 2032. Pricing for subsequent periods may increase as the required GFI reductions deepen, or may be adjusted to reflect actual fuel market conditions.

Surplus Units (SUs)

Vessels with attained GFI below the Tier 1 target are over-compliant and earn Surplus Units. These units can be transferred (sold) to vessels with a Tier 2 compliance deficit, banked for use in future compliance years, or voluntarily cancelled (equivalent to a voluntary climate contribution). The tradeable nature of SUs creates a carbon credit market within shipping: efficient, ZNZ-fuel-using vessels can generate revenue by selling surplus compliance credits to vessels still operating on conventional fuels.

The IMO Net-Zero Fund

The RU payments from non-compliant vessels flow into the IMO Net-Zero Fund. The Fund's revenues are disbursed for three purposes:

• Rewarding ZNZ fuel use: vessels using qualifying zero or near-zero emission fuels receive financial rewards from the Fund, improving the economics of ZNZ fuel investment. The precise structure of the reward mechanism is one of the guidelines still being developed under ISWG-GHG.

• Supporting developing countries: capacity building, technology transfer, training for seafarers, and infrastructure investment in least developed countries (LDCs) and small island developing states (SIDS) to help them participate in the ZNZ fuel transition.

• Mitigating adverse impacts: compensating vulnerable states for negative economic effects of higher shipping costs or disrupted trade patterns during the transition.

Scale of the financial mechanism

At USD 380 per tonne CO₂eq, the financial incentive to move to ZNZ fuels is meaningful but not overwhelming relative to the current fuel cost differential. Green methanol and green ammonia cost 3 to 5 times more than VLSFO on an energy-equivalent basis at 2024-25 pricing. USD 380 per tonne CO₂eq represents a carbon cost roughly equivalent to a green fuel premium of USD 100-150 per tonne of fuel, reducing but not eliminating the fuel cost gap. Post-2030 pricing reviews may increase the remedial unit price as the GFI targets tighten.

The October 2025 Adjournment: What Happened and What It Means

The IMO's extraordinary MEPC session in October 2025 was scheduled to formally adopt the NZF following its approval at MEPC 83 in April. Instead, a majority voted to adjourn the decision for one year.

The political dynamics

The session opened with cautious optimism but quickly revealed divisions along political lines that are rarely as visible in the usually consensus-driven IMO. A coalition of member states challenged both the substance of the framework and the procedural legitimacy of the committee's actions. The United States, under the post-November 2024 administration, applied active pressure against adoption, reflecting a broader retreat from multilateral climate commitments. Several major flag states with significant developing-economy fleets aligned with the opposing coalition.

The SIDS (Small Island Developing States) and LDCs, which had been the most vocal advocates for an ambitious and fast framework, found themselves on the losing side of the procedural vote despite strong moral and scientific backing for their position. Marshall Islands, Solomon Islands, Tuvalu, and other climate-vulnerable states had been among the most consistent supporters of a levy mechanism and ambitious targets throughout the negotiation.

The levy that was already removed

Before October 2025, a significant concession had already been made at MEPC 83 in April: the flat per-tonne CO₂ levy that EU member states, Japan, and many SIDS had supported as a central pillar of the NZF was withdrawn from the framework in favour of the two-tier remedial unit structure. The GFI-only framework that emerged from MEPC 83 was already a compromise below what the majority of emission-reduction advocates had sought. Even this reduced framework failed formal adoption.

What “postponed” means operationally

Postponement does not mean cancelled. The technical work on NZF implementation guidelines has continued through the ISWG-GHG intersessional process. ISWG-GHG 21 in April 2026 is advancing guidelines on ZNZ fuel rewards, global fuel standard implementation, fuel pathway certification, and life cycle assessment emission factors. MEPC 84 in April-May 2026 is reviewing these guidelines.

The Global Maritime Forum's assessment, published in April 2026, notes that no alternative framework capable of generating sufficient political support exists. Countries that voted to adjourn have not collectively put forward a replacement proposal. The existing NZF remains the only realistic path to adoption.

The practical impact on shipowners

The adjournment prolongs the uncertainty that makes fuel investment decisions difficult. A shipowner ordering a vessel today for delivery in 2027 or 2028 needs to make a fuel system specification decision now, dual-fuel capability, ammonia-ready design, methanol engine, and that decision depends on knowing the regulatory environment those systems will operate in. The difference between a single-fuel VLSFO vessel and a dual-fuel methanol vessel at the newbuilding stage is USD 5-15 million. The difference in NZF compliance cost exposure over a 20-year service life at current RU prices could be many multiples of that.

Revised Adoption Timeline and Scenarios

The current expected timeline following the October 2025 adjournment:

Base case

MEPC 85 in October 2026 votes to adopt the NZF. Under the tacit acceptance procedure, the amendments enter into force 16 months after adoption, around February 2028. The first NZF reporting year is 2028 (full calendar year). First RU obligations based on 2028 performance would fall due in 2029.

Delayed case

Further political challenges at MEPC 85 lead to another adjournment or a prolonged negotiating process. First reporting year shifts to 2029 or 2030. Regulatory uncertainty extends for two to four more years.

No-deal scenario

Prolonged deadlock prevents global adoption. Regional measures, FuelEU Maritime (EU), potentially a Clean Shipping framework in other jurisdictions, fill the vacuum on a fragmented basis. Vessels trading to different regions face different standards, creating compliance complexity and competitive distortion. The Global Maritime Forum notes this as a plausible but least-preferred outcome for all stakeholders including those who opposed the October 2025 adoption.

What this means for investment decisions

Every scenario leads to some version of a GFI-based fuel standard, whether global under the NZF or regional under FuelEU and equivalents. The direction of travel, away from conventional fossil bunker fuels, is fixed regardless of adoption timing. The financial question is whether the transition cost is front-loaded (investing in fuel flexibility now, capturing first-mover advantage and ZNZ reward revenue) or back-loaded (continuing on VLSFO and paying rising RU costs as GFI targets tighten).

IMO NZF vs. FuelEU Maritime

The NZF is not the only fuel intensity regulation affecting commercial shipping. For vessels trading to EU ports, FuelEU Maritime is already in force.

FuelEU Maritime

Adopted by the European Parliament and Council, FuelEU Maritime entered into force on 1 January 2025. It applies to vessels of 5,000 GT and above on voyages arriving at or departing from EU/EEA ports, covering 100% of energy used on EU intra-port voyages and 50% of energy on voyages between EU and non-EU ports.

FuelEU uses a WtW GHG intensity structure similar to the NZF but with EU-specific annual targets. The 2025 target is a 2% reduction in GHG fuel intensity from the 2020 reference value; targets escalate to 6% by 2030, 14.5% by 2035, and progressively through to 80% by 2050.

Key differences

Feature	FuelEU Maritime	IMO NZF
Scope	EU/EEA port calls	Global, all international voyages
Status	In force from 2025	Approved; adoption vote expected Oct 2026
Voyage basis	100% intra-EU, 50% intra/extra-EU	Full annual fuel consumption
Shore power	Mandatory OPS for container/passenger ships at EU ports from 2030	Not included
Pricing mechanism	Per-tonne compliance penalty paid to administering authority	Two-tier RU to IMO Net-Zero Fund
Biofuel treatment	RFNBO and advanced biofuel multipliers	LCA certification required

How they interact

A vessel making regular EU port calls faces FuelEU obligations now and will face NZF obligations from 2028 or 2029. Both regimes apply simultaneously. The EU is working on alignment of the WtW methodology with IMO LCA guidelines to minimise double-counting and compliance fragmentation, but the two regimes remain distinct legal instruments with separate reporting and compliance mechanisms.

EU ETS (Emissions Trading System)

A third parallel instrument: shipping entered the EU ETS from January 2024, with EU ETS allowances required for 40% of verified emissions in 2024, rising to 70% in 2025 and 100% in 2026 for intra-EU voyages and 50% for extra-EU voyages. The EU ETS is a separate compliance obligation from FuelEU and the NZF, adding a third carbon cost layer for EU-trading vessels.

Alternative Fuels Under the NZF: Which Qualify?

The NZF's classification of fuels as zero, near-zero, or conventional is not based on the fuel's name but on its verified WtW GHG emission factor. The same chemical compound, ammonia, for example, can have a very different emission profile depending on whether it was produced from natural gas (grey ammonia) or from electrolytic hydrogen using renewable electricity (green ammonia).

LNG (Liquefied Natural Gas)

Fossil LNG: WtW emission factor typically 70-90 gCO₂eq/MJ depending on methane slip rates. Does not qualify as ZNZ. Fossil LNG investments made in the 2010s and early 2020s on the assumption of long-term compliance value face increasing scrutiny as the NZF's targets tighten. A dual-fuel LNG vessel running on fossil LNG will need to transition to bio-LNG or e-LNG to achieve ZNZ qualification.

Bio-LNG: produced from organic waste streams; WtW emission factor depends heavily on feedstock and supply chain. Some bio-LNG pathways qualify as near-zero; others do not. Certification is required.

e-LNG (synthetic methane): produced from electrolytic hydrogen and captured CO₂; WtW emission factor close to zero under renewable electricity production. Supply is currently negligible.

Methanol

Grey methanol: from natural gas or coal reforming, WtW emission factor higher than VLSFO. Does not qualify.

Green methanol: from electrolytic hydrogen combined with captured CO₂; WtW emission factor near zero under renewable electricity production. Qualifies as ZNZ. Currently expensive, roughly 3-5 times the energy-equivalent cost of VLSFO. Several major shipping companies (Maersk, CMA CGM) have ordered methanol dual-fuel vessels and are signing green methanol supply agreements.

Bio-methanol: from biomass feedstocks; qualification depends on feedstock and supply chain certification.

Ammonia

Green ammonia: electrolytic hydrogen combined with atmospheric nitrogen using the Haber-Bosch process; powered by renewables. WtW emission factor near zero. Qualifies as ZNZ. Safety challenges (toxicity, material compatibility) are significant and are slowing adoption timelines. No ammonia-fuelled vessels are yet in widespread commercial operation, though several are on order.

Grey/blue ammonia: from fossil natural gas with or without carbon capture. WtW emission factor depends on capture efficiency. Some blue ammonia pathways may qualify as near-zero; pure grey ammonia does not.

Hydrogen

Green hydrogen: from electrolysis using renewable electricity. WtW emission factor near zero. Current production cost is very high; distribution and storage challenges for maritime use are substantial. Limited current application in shipping beyond experimental vessels.

Grey/blue hydrogen: from natural gas reforming with or without CCS. WtW emission factor depends on capture rates.

Biofuels

WtW emission factors for biofuels range from highly negative (advanced lignocellulosic biofuels from waste streams) to close to fossil fuel levels (food-crop first-generation biofuels). Certification under ISCC, RedCert, or equivalent approved schemes is required for the actual value pathway. The NZF does not ban biofuels but requires lifecycle verification rather than accepting claims at face value.

VLSFO / HFO / MGO

Conventional marine fuels do not approach the GFI targets for 2035 or 2040, let alone 2050. They will be technically compliant in the early NZF years depending on the Tier 2 target trajectory, but will incur rising RU costs as the targets tighten. A vessel running exclusively on VLSFO from 2028 onward will face escalating remedial unit costs through the compliance trajectory.

Charter Party and Commercial Implications

The NZF creates a commercial allocation problem that charter party law has not previously encountered: the entity legally responsible for GFI compliance (the Company / shipowner / manager) is not always the entity that controls fuel purchasing decisions (the time charterer directing bunkering).

Who is legally responsible

The “Company” under the ISM Code, typically the registered shipowner or ship manager holding the Document of Compliance, bears the NZF compliance obligation. It is the Company that submits annual GFI reports, undergoes verification, and must acquire Remedial Units if the vessel is non-compliant. The time charterer is not the “Company” in most standard time charter arrangements, even though the charterer directs the vessel's routes and fuel purchases under the time charter.

The contractual tension

A time charterer directing the vessel to bunker VLSFO rather than green methanol, because VLSFO is cheaper, creates a GFI performance shortfall that the shipowner must remediate through RU purchases. The owner bears the legal cost; the charterer made the commercial decision that caused it.

This tension is already present in CII management, where some time charter parties include fuel efficiency clauses or CII-linked off-hire provisions. The NZF makes the stakes significantly higher: a large vessel running predominantly on VLSFO could face hundreds of thousands of dollars in annual RU costs.

BIMCO clause development

BIMCO, the international shipping contracts organisation, has begun developing standard NZF charter party clauses. The expected structure mirrors the approach taken in BIMCO's EU ETS clause: the time charterer is required to reimburse the owner for RU costs attributable to the charterer's fuel instructions; the owner maintains a right to use a certain fuel to achieve compliance targets; disputes over cost allocation go to the charter party's dispute resolution mechanism.

Indemnity and cooperation provisions

For NZF compliance, the emerging charter party best practice includes:

An obligation on the charterer to cooperate in providing voyage data required for GFI calculation. A right for the owner to use a higher-cost compliant fuel on specific voyages if the charterer's default instructions would produce non-compliance. An indemnity from the charterer for RU costs caused by the charterer's fuel instructions. A mechanism for sharing SU revenue when the vessel's fuel choice generates compliance surplus.

Voyage charter

Under a voyage charter, the shipowner controls fuel selection for the voyage. GFI performance is entirely within the owner's operational control. No charterer indemnity mechanism is needed, though the freight rate for voyages using more expensive ZNZ fuels will reflect the fuel cost premium.

Newbuilding specifications

Newbuilding contracts for vessels being ordered now, for delivery in 2027-2030, increasingly include NZF-related specifications: dual-fuel capability, compliance with EEXI under engine power limitation, classification society notation for alternative fuel readiness. Owners and operators who lock in single-fuel VLSFO designs now for vessels with 25-year service lives are accepting NZF compliance risk that will compound through the 2030s and 2040s as targets tighten.

What Shipowners and Managers Need to Do Now

The October 2025 adjournment does not reduce the urgency of NZF preparation. It removes a specific compliance date, not the compliance direction. The following actions are appropriate for shipowners and fleet managers under the current uncertainty.

Establish a GFI baseline

Use the fleet's existing DCS fuel consumption records to calculate each vessel's current attained GFI using IMO default WtW emission factors. This calculation is straightforward for single-fuel vessels. Multi-fuel vessels require a weighted average. The output is a fleet-level GFI profile showing which vessels are likely compliant under proposed NZF targets and which face RU cost exposure.

Model compliance gap and cost exposure

Compare each vessel's current attained GFI against the draft NZF 2028-2035 target trajectory. For vessels with GFI above the projected Tier 2 target, quantify the approximate RU cost at USD 100 and USD 380 per tonne CO₂eq pricing for varying emission levels. This creates a fleet-level financial exposure estimate under the NZF, the basis for capital allocation decisions.

Fuel strategy assessment

For each vessel class in the fleet, assess the break-even point between paying remedial units and investing in ZNZ fuel capability. This calculation involves: current and projected ZNZ fuel price differential vs. VLSFO; the RU cost avoided by switching; the capital cost of dual-fuel retrofit or newbuilding upgrade; and the expected GFI trajectory over the vessel's remaining service life.

Charter party audit

Review all existing time charter parties for NZF cost allocation provisions. Most existing charters predate NZF and contain no NZF-specific provisions. As charters come up for renewal or renegotiation, NZF clauses should be included. For long-duration existing charters, consider whether a side letter or addendum is appropriate.

FuelEU compliance: immediate action required

For vessels trading to EU ports, FuelEU is already in force. GHG intensity compliance for 2025 is a current obligation. EU ETS allowance purchases are a current cost. These are not future requirements, they are present compliance and financial obligations.

Monitor MEPC 84 and MEPC 85

MEPC 84 (April-May 2026) is finalising guidelines on LCA emission factors, ZNZ reward mechanism structure, and fuel certification. These guidelines directly affect the economics of ZNZ fuel investment, the reward rate from the Net-Zero Fund determines whether green methanol is financially competitive with VLSFO plus RUs. Attend to MEPC 84 outputs through class society and industry body updates.

MEPC 85 (October 2026) is the expected adoption vote. If adopted, the 16-month entry into force period begins. First DCS-based GFI reporting under NZF would begin for reporting year 2028.

Impact on Vessel Valuation and Maritime Investment

The NZF, even before formal adoption, is influencing vessel valuation and maritime capital allocation.

The stranded asset risk

A vessel ordered today with a conventional diesel/VLSFO propulsion system, for delivery in 2027, will be approximately 8 years old in 2035. The NZF's 2035 GFI targets are substantially below the 2028 starting point. A vessel with no fuel flexibility delivering on VLSFO at full RPM will face significant RU costs by the mid-2030s. Depending on the vessel's trading pattern and the post-2030 RU pricing, this cost exposure could reach millions of dollars annually per vessel.

The fuel flexibility premium

At the newbuilding stage, dual-fuel capability, capable of operating on LNG, methanol, or ammonia in addition to VLSFO, adds approximately USD 5-15 million to a vessel's construction cost depending on type and size. In the secondhand market, vessels with dual-fuel or fuel-flexible designs now command premiums over conventional single-fuel equivalents as buyers price in NZF compliance optionality.

Secondhand market repricing

Older single-fuel conventional vessels, particularly those with less than 10 years of economic life remaining, face a double discount in the current market: the near-term earning capacity may be adequate, but the buyer's exit value after 5 years is depressed by the knowledge that the next buyer will face NZF compliance costs. This dynamic is already visible in the secondhand dry bulk and tanker markets, where conventional 15-year-old vessels are trading at larger discounts to newbuilding equivalents than historical patterns would suggest.

Green finance and sustainable debt

The NZF provides the regulatory reference point that green bond frameworks, sustainability-linked loans, and climate-aligned maritime finance have been waiting for. Several major shipping banks, Citi, ABN AMRO, DNB, have published maritime ESG lending frameworks that reference NZF compliance targets as eligibility or pricing criteria. A vessel with a credible NZF compliance roadmap, fuel-flexible design, ZNZ fuel supply agreements, verifiable GFI reduction trajectory, has access to better financing terms than an equivalent vessel with no decarbonization plan.

Maritime asset investment under the NZF

For investors considering vessel ownership or economic exposure to a vessel-owning SPV, the NZF introduces a new due diligence dimension: NZF compliance readiness. The questions that matter are: what is this vessel's current attained GFI? what is its GFI trajectory under the proposed target schedule? what is the estimated annual RU cost exposure by 2030, 2035? does the vessel have dual-fuel or alternative fuel capability, and if so, what is the supply chain for that fuel in its trading region? how does the charter party allocate NZF compliance costs between owner and charterer?

At Shipfinex, our vessel selection and due diligence process incorporates NZF compliance readiness as a material factor in the evaluation of maritime assets for structures offering economic exposure to vessel-owning SPVs. Investors holding economic exposure through maritime asset participation need a clear view of the regulatory cost embedded in the underlying vessel's operating economics.

Frequently Asked Questions

What is the IMO Net Zero Framework?

The IMO Net Zero Framework (NZF) is the regulatory package implementing the 2023 IMO GHG Strategy's net-zero-by-2050 decarbonisation target for international shipping. It was approved at MEPC 83 in April 2025 and will, when adopted, become Chapter 5 of MARPOL Annex VI. It mandates a declining GHG Fuel Intensity (GFI) standard for vessels above 5,000 GT on international voyages, with financial consequences (Remedial Units) for non-compliance and financial rewards (Surplus Units, ZNZ rewards) for over-compliance.

What happened at the October 2025 MEPC extraordinary session?

The October 2025 extraordinary MEPC session, scheduled to formally adopt the NZF, voted instead to adjourn for one year following political pressure from a coalition of member states including the United States. The framework was approved in principle at MEPC 83 but has not been formally adopted. Technical guideline work has continued, and the next adoption vote is expected at MEPC 85 in October 2026.

What is GFI and how is it calculated?

GFI (GHG Fuel Intensity) is expressed in grams of CO₂ equivalent per megajoule of energy used (gCO₂eq/MJ), on a well-to-wake basis covering full fuel lifecycle emissions. A vessel's attained annual GFI is calculated as the weighted average of the WtW emission intensities of all fuels consumed during the year. It is compared against the year's required target to determine compliance status. The 2008 reference value is 93.3 gCO₂eq/MJ, the baseline against which all reductions are measured.

What are the remedial unit prices?

For the 2028-2030 period: USD 380 per tonne CO₂eq for GFI above the Tier 1 (base) target; USD 100 per tonne CO₂eq for GFI between the Tier 1 and Tier 2 (direct compliance) targets. These prices will be reviewed by MEPC before the end of 2032 for application from 2031 onward.

What are Surplus Units and how can they be used?

Surplus Units are earned by vessels whose attained annual GFI is below the Tier 1 target, they are over-compliant. Surplus Units can be transferred (sold) to vessels with a Tier 2 compliance deficit; banked for the vessel's own future compliance years; or voluntarily cancelled as a climate contribution. The tradeable nature of SUs creates a compliance credit market within the shipping sector.

Which vessels are covered by the NZF?

All ocean-going ships of 5,000 GT and above on international voyages. This represents approximately 85% of total CO₂ emissions from international shipping. Vessels below 5,000 GT, domestic-only trading vessels, and certain offshore platforms are excluded or covered under separate provisions.

What is the difference between the NZF and FuelEU Maritime?

FuelEU Maritime is an EU regulation already in force from January 2025, applying to vessels calling at EU ports on a WtW GHG intensity basis. It covers EU port-related voyages only. The IMO NZF is a global framework applying to all international voyages when adopted. Both use WtW GHG intensity as the metric but with different scopes, annual targets, and compliance mechanisms. A vessel trading to EU ports faces FuelEU now and will face the NZF when adopted.

Does the NZF apply to the fuel type or the vessel?

It applies to the vessel, specifically to the average GHG fuel intensity of all energy consumed by the vessel across the full reporting year. A vessel that burns primarily VLSFO but uses 20% green methanol will have a blended attained GFI reflecting the proportion of each fuel. Shifting the fuel mix toward lower-GFI fuels improves the vessel's attained GFI without requiring full conversion to a single alternative fuel.

When is the first NZF reporting year expected?

If adopted at MEPC 85 in October 2026 under the tacit acceptance procedure, the amendments would enter into force approximately 16 months later, around February 2028. The first NZF reporting year would be the full calendar year 2028. First RU obligations based on 2028 performance would be settled in 2029.

Under a time charter, who pays the remedial units?

The “Company” under the ISM Code, typically the shipowner or ship manager, bears the legal obligation to acquire Remedial Units. However, under time charters, the charterer controls fuel purchasing decisions. Emerging BIMCO charter party clauses are designed to allocate NZF compliance costs to the party who caused them: if the charterer's fuel instructions produce a GFI shortfall, the charterer indemnifies the owner for the resulting RU cost.

What is the IMO Net-Zero Fund?

The IMO Net-Zero Fund is the repository for Remedial Unit payments from non-compliant vessels. Its revenues are disbursed to: reward vessels using zero or near-zero emission fuels; support innovation, infrastructure, and technology transfer in developing countries; and mitigate adverse economic impacts on vulnerable states, particularly SIDS and LDCs.

How does the NZF affect newbuilding decisions today?

Vessels ordered now for delivery in 2027-2030 will operate under the NZF for their primary service life. Owners specifying single-fuel VLSFO propulsion for 25-year-service-life vessels are accepting significant RU cost exposure from the mid-2030s onward as GFI targets tighten. Dual-fuel or alternative fuel-ready specifications add USD 5-15 million at the newbuilding stage but reduce NZF compliance cost exposure over the vessel's life. Most major shipowners ordering large vessels today are specifying at least dual-fuel capability.

Glossary

2008 Reference Value: The WtW average GFI of the international shipping fleet in 2008: 93.3 gCO₂eq/MJ. The baseline against which all NZF GFI reduction targets are expressed.

2023 IMO GHG Strategy: The revised strategy adopted by MEPC 80 in July 2023, setting net-zero GHG emissions from international shipping by or around 2050, with indicative 2030 and 2040 checkpoints.

Carbon Intensity Indicator (CII): The annual operational carbon intensity rating (A–E) for vessels above 5,000 GT, mandatory from January 2023. A separate short-term measure from the NZF; does not impose direct financial costs.

Company: The entity responsible for NZF compliance, the shipowner or any organisation that has assumed operational control under the ISM Code.

DCS (Data Collection System): Mandatory annual fuel oil consumption reporting system for vessels above 5,000 GT, in force since 2019. Provides the data infrastructure for NZF GFI calculation.

EEDI (Energy Efficiency Design Index): Mandatory minimum energy efficiency standard for new ship designs, in force since 2013. Short-term measure under MARPOL Annex VI.

EEXI (Energy Efficiency Existing Ship Index): Energy efficiency standard for existing vessels, mandatory from January 2023. Vessels not meeting the required EEXI value must implement Engine Power Limitation.

EU ETS (Emissions Trading System): The European Union cap-and-trade scheme that has included shipping from January 2024. Separate from FuelEU Maritime and the NZF.

FuelEU Maritime: EU regulation in force from January 2025 mandating declining WtW GHG intensity for vessels calling at EU ports, covering 100% of intra-EU voyages and 50% of extra-EU voyages.

GFI (GHG Fuel Intensity): Expressed in gCO₂eq/MJ on a well-to-wake basis. The primary compliance metric under the NZF. Attained GFI is compared against year-specific targets.

Green Corridor: A shipping route between two or more ports on which zero-emission shipping is commercially viable, supported by coordinated fuel supply, port infrastructure, and shipping demand.

IMO Net-Zero Fund: The repository for Remedial Unit payments. Revenues disbursed to ZNZ fuel rewards, developing country support, and vulnerable state mitigation.

ISWG-GHG: The IMO Intersessional Working Group on the Reduction of Greenhouse Gas Emissions from Ships. Meets between formal MEPC sessions to advance technical guideline development.

Just and Equitable Transition: A principle embedded in the 2023 GHG Strategy and NZF, requiring that the decarbonisation transition not disproportionately harm developing countries, SIDS, and LDCs, and includes capacity building, technology transfer, and financial support for these states.

LCA (Life Cycle Assessment): The methodology for calculating WtW emission factors for marine fuels, including upstream production, transportation, and combustion stages. GESAMP (the Joint Group of Experts on the Scientific Aspects of Marine Environmental Protection) is reviewing LCA emission factors under the NZF guidelines process.

MARPOL Annex VI: The annex to the International Convention for the Prevention of Pollution from Ships governing air pollution from ships. The NZF will be added as Chapter 5 of Annex VI.

MEPC (Marine Environment Protection Committee): The IMO committee responsible for environmental regulations. MEPC 83 approved the NZF in April 2025. MEPC 85 (October 2026) is the next expected adoption vote.

Net Zero: A state in which GHG emissions are balanced by removals, resulting in no net addition to atmospheric GHG concentrations.

NZF (Net Zero Framework): The IMO's regulatory package for implementing the 2023 GHG Strategy, comprising the GFI Technical Standard and the Pricing/Reward Mechanism.

Remedial Unit (RU): A compliance instrument purchased by vessels whose attained annual GFI exceeds the applicable target. Priced at USD 380/tonne CO₂eq (Tier 1) and USD 100/tonne CO₂eq (Tier 2) for 2028-2030.

SIDS (Small Island Developing States): Countries uniquely vulnerable to climate change who have consistently advocated for the most ambitious and fastest decarbonisation framework in IMO negotiations.

Surplus Unit (SU): A compliance credit earned by vessels whose attained annual GFI is below the Tier 1 target. Tradeable, bankable, or cancellable.

Tacit Acceptance Procedure: The IMO amendment mechanism under which MARPOL amendments enter into force automatically unless a specified threshold of parties objects within the acceptance period. Used to adopt EEDI, EEXI, CII, DCS, and expected to be used for the NZF.

Tier 1 (Base Target): The more demanding GFI compliance level under the NZF. Non-compliance incurs RU costs at USD 380/tonne CO₂eq.

Tier 2 (Direct Compliance Target): The less demanding GFI compliance level. GFI between Tier 1 and Tier 2 incurs RU costs at USD 100/tonne CO₂eq.

Well-to-Wake (WtW): The full lifecycle basis for calculating fuel GHG emissions, from fuel production (Well) through to combustion at the engine (Wake). Contrasted with Tank-to-Wake (TtW), which covers only the combustion stage.

ZNZ (Zero or Near-Zero GHG Emission Fuel): A fuel whose WtW emission factor meets the threshold defined in the NZF guidelines as qualifying for the ZNZ reward mechanism. Green hydrogen, green ammonia, green methanol, and qualifying biofuels can qualify as ZNZ depending on verified production pathway.

References

• 2023 IMO Strategy (MEPC.377(80)): https://wwwcdn.imo.org/localresources/en/KnowledgeCentre/IndexofIMOResolutions/MEPCDocuments/MEPC.377(80).pdf Overview: https://www.imo.org/en/ourwork/environment/pages/2023-imo-strategy-on-reduction-of-ghg-emissions-from-ships.aspx

• IMO Approves Net-Zero Regulations, MEPC 83 Press Briefing: https://www.imo.org/en/mediacentre/pressbriefings/pages/imo-approves-netzero-regulations.aspx

• IMO FAQs: The IMO Net-Zero Framework: https://www.imo.org/en/mediacentre/hottopics/pages/faqs-the-imo-net-zero-framework.aspx

• Global Maritime Forum. A Guide to the IMO's Net-Zero Framework: https://globalmaritimeforum.org/news/a-guide-to-the-imos-net-zero-framework/

• Hill Dickinson. IMO's Net-Zero Framework, Adoption Adjourned: https://www.hilldickinson.com/our-view/articles/imo-s-net-zero-framework-adoption-adjourned-and-consensus-building-continues/

• DNV. Understanding the IMO Net-Zero GHG Framework: https://www.dnv.com/maritime/insights/topics/net-zero-framework/

• Blank Rome LLP. IMO Net-Zero Shipping Framework: https://www.blankrome.com/news-and-events/imo-net-zero-shipping-framework-extraordinary-imo-session-adjourned-work-continues/ (or https://www.jdsupra.com/legalnews/imo-net-zero-shipping-framework-a-3228784/)

• Zero Carbon Shipping. IMO Net-Zero Framework: https://www.zerocarbonshipping.com/imo-net-zero-framework

• European Parliament ECTI. Key Issues at Stake at MEPC 84: https://www.europarl.europa.eu/thinktank/en/document/ECTI_BRI(2026)780423 (PDF: https://www.europarl.europa.eu/RegData/etudes/BRIE/2026/780423/ECTI_BRI(2026)780423_EN.pdf)

• Vinson & Elkins. IMO Postpones Adoption: https://www.velaw.com/insights/imo-postpones-adoption-of-net-zero-framework/

• BIMCO NZF Guidance: https://www.bimco.org/contractual-affairs/ (related clauses and decarbonisation resources)

Compliance Disclaimer: Shipfinex FZCO operates under a VARA In-Principle Approval (IPA/26/01/002) issued by the Virtual Assets Regulatory Authority, Dubai. The information in this article is published for general maritime industry education and does not constitute legal advice, regulatory guidance, or a solicitation to invest in any financial product. Readers should consult qualified legal and compliance professionals for advice applicable to their specific circumstances. Nothing in this article constitutes an offer or invitation to deal in virtual assets or securities.

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Capt. Vikas Pandey

Founder & CEO of Shipfinex

Capt. Vikas Pandey is Founder and CEO of Shipfinex, the first VARA-regulated (In-principle approval) platform for tokenized maritime asset participation. A mariner turned seasoned entrepreneur, he combines direct vessel operational experience with deep maritime finance expertise to build the infrastructure for accessible ship ownership.

Linkedin: https://www.linkedin.com/in/capt-vikaspandey/ Email:[email protected]

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