IMO faces existential threat from Net Zero Framework vote
A significant vote against the Net Zero Framework at upcoming International Maritime Organization meetings could have far-reaching consequences, potentially leading to the breakdown of the UN body, according to an observer. The framework is set to be voted on again at the 85th session of the Marine Environment Protection Committee, with the resumption of extraordinary session 2. If 20 member states oppose the framework in a 70-20 vote, it may result in regional regulations, with minimal returns of collected carbon penalties to the industry, the source warns.
IMO Could Face Existential Threats
If the International Maritime Organization (IMO) approves the Net Zero Framework (NZF) despite strong opposition from key member states, the organization could lose its authority and become merely a technical advisory group. Alternatively, powerful nations like the US could abandon the IMO entirely, fundamentally altering—or even dismantling—the body, according to an attendee of IMO discussions.
Funding the transition
Regional regulation will likely ensue: the EU may be the best of the regulators, but it has just passed a rule where 50 percent of the carbon costs will be returned to the industry. However, other regional regulators will not be as generous, warned a senior industry figure. Shipping as an industry is not short of cash to meet the proposed transition costs.
At last month’s Capital Link conference in London, Martin Stopford, formerly of Clarksons, estimated that shipowners had accumulated $3.1 trillion in profits since 2020—enough to fund the $1.7 trillion needed by 2050 for full decarbonization, as calculated by UMAS. Yet, following last year’s failed MEPC Extraordinary Session, the regulatory outcome remains uncertain, influenced not only by financial concerns but also by resistance from groups with vested interests.
Much of the challenge for the MEPC is political and ideological as US delegates reportedly went from desk-to-desk last year threatening member states with economic sanctions if they voted for the NZF. As we approach MEPC85 at the end of next month and the re-run of ES.2 in early December, the industry is facing an impasse as petrostates, including Saudi Arabia and the UAE, and major flag states backed by the US threaten to derail the process again.
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The US has consistently opposed the IMO’s role as a fund manager, viewing carbon penalties as a form of taxation. The proposed fund is essential for two reasons: it would increase the cost of fossil fuels, making cleaner alternatives more viable, and it would direct significant portions toward helping small island and least developed nations decarbonize and cope with climate impacts, countries that did not contribute to the problem. This was a central feature of the NZF, designed to ensure a fair and equitable transition for vulnerable states.
Critics Call Japan’s New Proposal ‘Disastrous’
Some nations are proposing alternatives to win over NZF opponents while still advancing meaningful regulations. Japan’s August submission has been widely discussed, but Tristan Smith, a professor of energy and transport at University College London, calls it ‘disastrous.’ The plan would replace the Net Zero Fund with a system of surplus emissions units and voluntary payments to approved IMO projects. Smith argues that this approach would allow shipowners to dictate how funds are spent, merely reporting payments to the IMO, a move that would collapse the surplus unit market.
The environmental group Opportunity Green notes that Japan’s initial proposal was later expanded in submissions to the Intersessional Working Group on Greenhouse Gases, but the changes do not alter its fundamental flaws. The revised version still raises four major concerns, primarily by eliminating the Net Zero Fund and shifting financial control to private entities.
Japan’s latest proposal fails to guarantee that revenues will support a fair transition for developing nations. Under this system, larger fleet operators could funnel compliance payments back into their own operations instead of addressing broader climate needs.
By weakening the connection between overcompliance, surplus unit demand, and the value of emissions reductions, the proposal risks creating a ‘pay-to-pollute’ scheme, undermining the NZF’s core goal of cutting greenhouse gases. Additionally, removing the Net Zero Fund would eliminate incentives for using low-emission fuels and strip away a key funding source for developing cleaner energy solutions.
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Most industry observers Seatrade Maritime News spoke to can see that a compromise deal on the greenhouse gas fuel intensity (GFI) is likely to be achieved. However, the Net Zero Fund is seen as a challenge too far. While some industry observers believe that the GFI may be weakened, the feeling is that the GFI “Will be close to what we already have”.
Japanese Plan Offers Path to Compromise
The key impasse, as recognised by some member states who are looking for ways around the gridlock, is the Net Zero Fund. As such, the Japanese proposal to have a fund administered by a third party could provide what one senior industry source described as “an outline for a landing space for a compromise”.
Concerns over Japan’s Revised Proposal
However, the Net Zero Fund is seen as a significant challenge. The Japanese plan removes the Net Zero Fund and transfers financial control to private actors.
This outcome could create a pay-to-pollute mechanism that undermines the Net Zero Fund’s objectives. Additionally, the removal of the fund eliminates rewards for operating on low-emission fuels, which are essential sources of funding for the development of such fuels.
Instead, they suggest that a global development bank would be a more appropriate depository. However, it is unclear whether the United States and other member states would accept such a solution.
