Key takeaways
IMO Adopts Net-Zero Framework for Shipping
Global carbon levy and GHG standards aim to drive decarbonisation.
Industry Faces Cost and Compliance Challenges
Fuel choices, infrastructure gaps, and dual regulatory regimes complicate planning.
Targets Still Fall Short of Paris Ambitions
Current measures risk missing 2030 goals without accelerated action.
As the world approaches the tenth anniversary of the Paris Agreement, signed by all 198 members of the United Nations Framework Convention on Climate Change (UNFCCC) at the 21st Conference of the Parties (COP21) in 2016, attention turns to COP30, set to take place in Brazil later this year.
This summit marks the deadline for countries to submit their updated Nationally Determined Contributions (NDCs), the climate action plans that underpin countries’ efforts to limit planet warming greenhouse gas (GHG) emissions. While only 21 countries met the February 2025 submission deadline, including the United States, which has since pulled out of the Paris Agreement, most are expected to deliver their plans ahead of the conference.
Among those countries with published NDCs is the UK, which has again positioned itself as a climate leader, pledging to cut GHG emissions by at least 81% by 2035 compared to 1990 levels. However, the UK’s NDC has a significant omission: international shipping and aviation—sectors which together account for about 7% of domestic emissions. While these emissions are included in the UK Climate Change Committee’s (CCC) carbon budget, their exclusion from the formal NDC raises concerns about accountability and ambition.
In February 2025, the CCC released the seventh carbon budget, which did include shipping and aviation (as did the sixth). The UK then released its first Maritime Decarbonisation Strategy in March 2025, setting out sector-specific targets (e.g., 30% reduction by 2030 and 80% by 2040). Given the inherently global nature of shipping, however, unilateral mandates risk being undermined. Shipping companies facing more stringent environmental standards may choose to move to jurisdictions with looser standards, diluting the impact of single-country policies.
In need of a global response: The IMO steps in
The International Maritime Organisation (IMO), the UN body governing global shipping, has taken the lead in setting sector standards. The IMO initially adopted its decarbonisation strategy in 2018, aiming to reduce the annual GHG emissions from international shipping by at least 50% by 2050 compared to 2008 levels. The strategy was then revised in 2023, when the IMO updated its targets to align more closely with the Paris Agreement, aiming to reduce emissions by: ‘at least 20%, striving for 30%’ by 2030; ‘at least 70%, striving for 80%’ by 2040; and to reach net-zero emissions by 2050.
In 2025, at its 83rd Marine Environment Protection Committee (MEPC83) meeting, the IMO convened to agree on measures to support the reduction targets, including the first global carbon tax on shipping emissions. The 2025 IMO Net-Zero Framework approved at MEPC83 will be included in Annex VI (Prevention of air pollution from ships) to the International Convention of Pollution from Ships (MARPOL), subject to formal adoption in October 2025. The IMO’s broader climate package includes net-zero targets and a phased approach to decarbonisation.
Some key outcomes of the framework include:
Adoption of a global GHG standard, aimed at progressively reducing the average GHG intensity of marine fuels, and designed to incentivise the use of zero near zero (ZNZ) fuels over time.
The introduction of a maritime GHG pricing mechanism, which combines a levy on GHG emissions with a fund-and-reward system through a tiered approach.
The establishment of the IMO Climate Fund, which will be used to collect the revenue from the GHG levy to provide finance for R&D, climate resilient infrastructure and capacity building in developing countries as well as support the deployment of ZNZ fuels and technologies such as biofuels, green ammonia, green hydrogen, battery-electric propulsion or wind-assisted propulsion.
The new framework applies to ships of 5000 gross tonnage and above, and does not apply to domestic shipping, military and state operations, or platforms and ships not propelled by mechanical means.
A new study, released on 29 May 2025 by consultancy UMAS and the UCL Energy Institute Shipping and Oceans Research Group, shows that under the parameters principally agreed within the IMO Net Zero Framework, ammonia dual-fuelled ships have a competitive advantage in the mid-term from the mid-2030s, while the near-term landscape remains less certain, with different fuel and technology choices offering similar competitiveness depending on various factors but also dependant on yet unresolved policy details.
Total cost of operation modelling undertaken in the study indicates that the strategy to only own conventionally fuelled tonnage may now be uncompetitive in both the short-term and certainly the mid-term – as well as constraining opportunities to benefit from uncertain potential upsides in surplus unit and reward revenues. The modelling indicates that LNG will initially hold a competitive advantage over alternative fuel choices during the early transition period. Yet, despite the advantage LNG may achieve in the late 2020s, its prospects become more challenging by the early 2030s given LNG’s relatively high emissions intensity.
The numbers don’t add up—yet
Despite the historical nature and multilateralism of the agreement, many in the industry and stakeholder groups pushing for ambitious decarbonisation to mitigate the worst impacts of climate change argue that the measures fall far short of the IMO’s own targets, let alone the targets set out in the Paris Agreement. Models from the UCL Energy Institute estimate the current framework will only lead to a reduction in emissions of 10%, falling short of the IMO’s target of ‘at least 20% by 2030’.
Further, the level of revenue expected through the proposed carbon levy is not likely to raise enough funds to support the innovation and adoption of ZNZ fuels or to fund the transition and infrastructure needed for more vulnerable populations. At the recent Green Transport Forum, Per Tunnell, VP of Sustainability and Business Development at Wallenius, was critical of the slow-walk towards meaningful progress, warning that shipping is dragging its feet in making the changes needed to avoid the worst impacts of warming. In contrast, Dr. Heike Deggim of the IMO defended the agreement as an important first step in a longer journey of phased transition.
Still, the challenges for the shipping industry are real. High upfront costs, limited access to sustainable fuels, and competition with other needs (like aviation and food crops) for biofuels create significant barriers. Moreover, interpreting vague government mandates and the uncertainty from a shifting regulatory landscape make long-term planning difficult for shipping companies.
Chris Stark, Head of the UK Government’s Mission Control Centre for Clean Energy, noted the need for clarity at the recent All Energy Conference when he said, “Confidence is our most valuable commodity.” Clear, consistent mandates are essential for businesses to commit long-term investment in future-proofing their fleets and avoiding stranded assets—especially as fossil fuel demand declines, shifting cargo profiles.
How this impacts our clients
Although international shipping benefits from the direction set by the IMO Net Zero Framework, it poses a number of practical challenges, not least given the crossover between that Framework and the EU’s regulatory regime brought in as part of the EU Fit for 55 package of measures, including the addition of maritime to the EU Emissions Trading Scheme and FuelEU Maritime.
Many shipping companies will need to grapple with the regulatory requirements of both frameworks in order to avoid falling foul of their obligations and becoming exposed to reputational risk, fines and the risk of prohibitions on entering ports, amongst other risks.
This will involve much more forward planning, particularly in relation to fuels and fuel mix, in particular availability of different types of fuel and sufficiency of supply.
Shipping companies will also need to consider amendments to existing contractual arrangements including charterparty and contracts of affreightment, bunkering arrangements and ship management agreements, to enable compliance and a fair division of responsibility and risk.
As regards newbuildings, buyers will need to give additional thought to engine capability, what fuels a vessel may need to be able to use in the future and ship recycling. Shipbuilders will be crucial in this process in providing and promoting solutions which assist compliance.
Conclusion
Shipping, long considered a hard to abate sector, stands at a major climate frontier as we head towards the first climate target milestone of 2030. While the new framework leaves much to be desired, as the saying goes, don’t let the perfect be the enemy of the good. The real test will be whether this is the first step of many, which lead to true systemic change – or if this is another baby step towards a hot house world.
We can assist our clients by providing clear advice as to the incoming regulations and in relation to the changes needed to their contractual arrangements. In case of any query, please contact Bethan Bradley, Alexander Freeman or your usual contact at Hill Dickinson LLP.
