New IMO medium term measures
A view from the sidelines
Image: Opening of the IMO Marine Environment Protection Committee (MEPC), 83rd Session. Credit: IMO
Author: Peter Rayers
Head of Decarbonization, Klaveness Combination Carriers ASA
14 April 2025
On the 31st of March I walked into the main hall at IMO London HQ for the start of their working group session: with the goal of finalizing the regulatory measures that will decarbonize international shipping. The tangible buzz in the room on that first morning was, looking back, maybe more of a nervous energy than I realized at the time...
Over the 11 days that followed we saw the IMO’s proposed regulation first being disparaged by many for its lack of ambition, before the US State Department pulled out of talks with the complete opposite reasoning, publicly rejecting any attempt to regulate GHG emissions from shipping and promising retaliation if US ships are ever taxed. Then, the night before the deadline, a group of countries led by Saudi Arabia took the floor to accuse the process of leaving them behind, to criticize the proposal itself, and to force a vote on the matter.
In all the time in between - Saturday and Sunday included, and deep into the evenings - delegates from all round the world were working to bridge the gap. Finally, on the 11th of April, the Member States of the IMO were able to come together and agree on a common solution to create the regulation. The proposal was in the end supported by the EU+friends, by China, Brazil, Japan, India, and by many more countries across a broad spectrum of beliefs, values, and economic and political interests. It was not supported unanimously. A lot of work and negotiation still remains to achieve formal adoption in October this year.
The regulation will impose this cost by requiring every vessel to reduce the GHG intensity of its annual fuel mix to meet set yearly targets (see Fig. 1 below). If vessels do not comply by using alternative fuels, they must purchase Remedial Units (RUs) from the IMO or Surplus Units (SUs) from other over-compliant vessels in sufficient quantity to meet the targets.
Vessels above the Base target must purchase either RUs from the IMO costing indicatively 380 USD/tCO2e or SUs from other vessels at a slightly lower cost.
Vessels above the Direct Compliance target must purchase RUs from the IMO costing indicatively 100 USD/tCO2e.
Vessels below the Direct Compliance target generate SUs which may be sold to vessels above the Base target.
This regulation will require and reward vessels to phase in alternative fuels over time. Vessels continuing to burn conventional fossil fuels will now face an effective emissions cost for the full fuel consumption starting at around 20 USD/tCO2e rising to 100 USD/tCO2e in the mid-2030s, and continuing to rise thereafter (see Fig. 2 below):
This regulation will substantially increase fuel-based costs for shipping as the large majority of vessels in the world fleet will continue to burn today’s heavy fuel and will face the added costs of buying RUs or burn substantially more expensive biofuels.
The shipping industry needs such incentives because every alternative to fossil fuels is more expensive: e-fuels require a massive scale-up of renewable electricity, and sustainable biofuel feedstock is by definition limited. The IMO's announcement will encourage further exploration of novel solutions in energy use and system efficiency that may be hard for us to imagine today.
And although we in KCC have spent years now advocating a stronger and simpler regulation than this - wanting a GHG tax that reflects the real cost of carbon and fully bridges the price gap to zero-emission alternative fuels - we believe that, in the increasingly fragmented and complex world we live in, there are many reasons to celebrate the difficult birth of this regulation. It is a right step in the process which has felt, at times, like it needed a miracle to reach consensus.
About the Author:
Peter Rayers, a British national born in 1993, has been the Head of Decarbonization in KCC since March 2024 after working for two years in Klaveness ZeroLab creating solutions to monitor and reduce cargo owners' shipping emissions. Prior to joining Klaveness he worked for retailer Ocado in the UK as a business planning analyst and network consultant. He holds a masters degree in Operational Research from the University of Edinburgh.