What MEPC 84 outcomes mean for shipping decarbonization timelines and compliance costs for different vessel types

Written  by Dr. John Kokarakis

Technical Director Bureau Veritas

1. Decarbonization timelines and compliance costs by ship type

Timelines: what MEPC 84 can and cannot change

• The 2023 IMO GHG Strategy sets a net‑zero “by or around 2050” goal and interim checkpoints, and mandates a “basket” of mid‑term measures: a goal‑based fuel‑intensity standard plus an economic element (pricing).
• MEPC 83 approved in principle the NZF amendments to MARPOL VI (GFI standard + pricing via remedial units and a Net‑Zero Fund), with adoption deferred to an Extraordinary Session (MEPC/ES.2), which then adjourned without adopting, creating a one‑year gap.
• Several submissions (Mexico/Solomon Islands, Brazil, Pacific SIDS) push to adopt the NZF essentially as drafted, with updated dates so it enters into force in 2028 and applies from 1 January 2029.
• Others (Algeria et al., Argentina–Liberia–Panama, United States, Japan) want significant revision or replacement, or to abandon the NZF entirely and design new measures.

In practice, this yields three timeline scenarios:

1. Fast‑track NZF adoption (minimal changes): NZF adopted late‑2026 (resumed ES.2 / MEPC 85), entry into force 2028, obligations from 2029.
2. Re‑engineered framework (Argentina–Liberia–Panama‑type GFI with no fund): still requires MARPOL amendments; realistically pushes entry into force to 2029–2030, application early 2030s.
3. Abandon NZF, no global mid‑term measure in time: shipping relies on strengthened short‑term measures (EEXI/CII) plus regional regimes (EU ETS, FuelEU Maritime, etc.), with IMO mid‑term regime sliding well into the 2030s.

Compliance costs: how different vessel types are exposed

Two layers matter: (a) NZF‑type global cost of CO₂e via GFI and remedial units; (b) regional carbon regimes (EU ETS, FuelEU) that are moving regardless of MEPC 84.

1. a) Under an NZF‑style framework (if adopted broadly as drafted)

• NZF essentially functions as a global fuel‑intensity standard with an embedded carbon price: ships with GFI above a “direct compliance” target buy remedial units (RUs), with prices increasing over time, while over‑compliers can generate surplus units (SUs).
• External analyses estimate NZF could add 15–20% to fuel costs for a conventional mid‑size carrier by 2035, with fuel‑plus‑compliance costs nearly tripling under some assumptions if the ship stays on fossil VLSFO.

By ship type:

• LNG carriers:
  • INTERTANKO’s paper shows extreme sensitivity to the choice of LNG WtT factor under the LCA Guidelines; using operational data from 139 LNG carriers, it finds direct compliance shares and deficits swing drastically between proposed WtT values of ~14–33 gCO₂e/MJ.
  • At mid‑range WtT (~17.5 gCO₂e/MJ), ~22% of the sample is directly compliant in 2028, falling to zero by 2030; aggregate deficits rise from ~USD 175m in 2028 to ~USD 1.8bn in 2035, with per‑ship deficits averaging USD 1–13m/year as targets tighten.
  • At high WtT (33 gCO₂e/MJ), no ships achieve direct compliance in any year, and annual fleet‑level deficits exceed USD 3bn by 2035, with per‑ship deficits reaching ~USD 22m/year.
  • Result: LNG carriers, especially those without full Reliquefaction systems, face disproportionately high compliance exposure unless WtT factors are set towards the lower end and/or they can access crediting for advanced upstream mitigation (CCS at gas production, methane reduction).
• Bulkers, tankers, containerships (conventional fuel):
  • For fuel‑oil‑based fleets, NZF effectively creates a global carbon cost overlay on top of the base fuel bill unless they invest in GFI‑reducing measures—higher efficiency, slow steaming, alternative fuels, or technologies (wind, OCCS).
  • A Columbia analysis of a “typical carrier” under NZF suggests additional annual NZF compliance costs of ~USD 1.5m by 2035 (17–20% of fuel costs) if the ship stays on VLSFO and only buys credits, rising proportionally with fuel consumption.
  • Deep‑sea tramp segments and SMEs are flagged as particularly exposed: they have fewer hedging options, more variable voyages, and less bargaining power in fuel and credit markets.
• Ferries/short‑sea/ro‑ro:
  • Short‑sea segments have better access to shore‑side infrastructure and may adopt biofuels, methanol, battery‑hybrids earlier; NZF then becomes an upside (SU revenue) rather than pure cost, provided capital is available.
• High‑end newbuilds and early adopters (e‑methanol, e‑ammonia, OCCS, wind):
  • These vessels benefit from the “ZNZ reward” and can generate SUs, monetizing over‑compliance and lowering effective fuel‑plus‑compliance costs versus laggards, particularly in early years when SU prices are high.

1. b) Under alternative proposals (no fund / dynamic GFI / no economic element)

• Argentina–Liberia–Panama proposal: maintains a GFI trajectory but links it explicitly to fuels that pass affordability, availability, and scalability tests, with no central fund or carbon price; compliance is via SUs generated and traded, with bank/borrow rules.
  • This would likely flatten early‑year cost escalation for conventional ships and transitional fuels (e.g. LNG, biofuels), because targets can only tighten as low‑carbon fuels become clearly available at ≤15% cost premium and ≥5% market share.
  • OC/innovation technologies (OCCS, wind) still generate value via SUs, but there is less guaranteed revenue for a central fund and weaker redistributive capacity.
• Japan’s bridging options: keep NZF structure but (i) allow Tier 1 deficits to be offset with SUs, removing mandatory Tier‑1 payments to the Fund, (ii) soften or plateau near‑term targets, and (iii) use updated 2024 transport data and an assumption of +15% efficiency improvement post‑2031 to re‑align trajectories with 2023 Strategy milestones.
  • This would preserve global pricing signals but reduce the perception of a global tax and give more breathing room to LNG and other transition fuels, especially if default LCA values are made more technology‑reflective.
• Algeria et al. and U.S. positions: strongly resist any centrally set carbon price or global fund, pushing for a technology‑neutral, non‑punitive, “energy‑all” approach with emphasis on affordability and security, and in the U.S. case explicitly no economic element at all.
  • Under such a regime, global compliance costs are lower and more diffuse; decarbonization is likely driven by regional schemes (EU ETS/FuelEU, maybe a future Asian or North American regime) rather than a global price, increasing geographic unevenness and risk of a patchwork.

1. c) Interaction with regional measures

• EU ETS: in 2026 operators must surrender allowances for 70% of 2025 emissions; this rises to 100% from 2027, creating a de facto regional carbon price exposure before IMO’s mid‑term measures bite.
• Studies now published around MEPC 84 emphasize that some form of GHG pricing at IMO level markedly lowers the global system‑wide cost of decarbonization versus purely command‑and‑control approaches, but these clash with U.S. and hydrocarbon‑exporter red lines.

2. The 57 documents under agenda item 7 (GHG reductions)

Main clusters:

1. Core NZF texts & Secretariat papers
   • Draft revised MARPOL Annex VI text integrating NZF, NE Atlantic ECA, NOx/engine protocols, and DCS tweaks, originally prepared for MEPC/ES.2
   • Secretariat notes on procedures, timelines for adoption, and implications of the ES.2 adjournment.
2. Advocacy to adopt NZF as‑is (with date shifts)
   • Fiji et al. (MEPC 84/7/28): adopt NZF without reopening; emphasize climate urgency, just/ equitable transition, and strengthening short‑term measures (CII) while waiting.
   • Mexico & Solomon Islands (MEPC 84/7/34): resume ES.2 with MEPC 85 and adopt NZF as a “carefully balanced” compromise, shifting entry‑into‑force to 2028/2029.
   • Brazil (MEPC 84/7/37): build a package for consensus around the already‑approved framework plus priority guidelines and explanatory notes.
3. Calls to revise or replace NZF
   • Algeria et al. (MEPC 84/7/30): lay down “guiding principles” for an alternative, consensus‑based, equity‑focused, technology‑neutral framework without arbitrary quantitative elements or centrally set carbon prices.
   • Argentina–Liberia–Panama (MEPC 84/7/38): propose a full replacement—GFI trajectory tied to commercially viable low‑carbon fuels, no revenue‑collecting fund, strong market‑linked criteria for affordability/availability/scalability.
   • Japan (MEPC 84/7/49): technical options to remove the appearance of a global tax (allow SUs for Tier 1) and adjust targets/values to make the NZF more palatable while preserving core architecture.
4. Opposition to NZF and alternative “principles”
   • United States (MEPC 84/7/41): urge IMO to end consideration of NZF, not resume ES.2, and in any future measure exclude carbon taxes/funds, avoid fuel discrimination, require scrapping regional regimes (EU ETS), and use explicit acceptance.
   • Other papers (not in your set) likely include China, India, Gulf states, etc., reinforcing objections around sovereignty, equity, cost, and acceptance procedures.
5. Technical papers on LCA, LNG, and default values
   • INTERTANKO (MEPC 84/7/27): LNG carriers’ sensitivity to alternative LNG WtT factors in the LCA Guidelines.
   • Several submissions proposing different default WtT values for fossil LNG (Norway, France, Japan, Denmark, Norway/ROK) that underpin INTERTANKO’s test cases.
6. Short‑term measures & CII strengthening
   • Fiji et al. and others advocate using the Phase 2 review of EEXI/CII to raise ambition and cover the delay in NZF adoption.
7. Guidelines and implementation workplans
   • Draft guidelines on GFI calculation, verification, ZNZ rewards, sustainable fuel certification, LCA methodologies, and Net‑Zero Fund governance, referenced in pro‑NZF submissions.

3. Key country and bloc positions on the Net‑Zero Framework

Strong pro‑NZF (adopt “as is”, only adjust dates)

• Pacific SIDS (Fiji, Kiribati, Nauru, Palau, Solomon Islands, Tuvalu, Vanuatu):
  • See NZF as a minimum, “fragile compromise”, already less than 1.5°C aligned, but the only politically viable option consistent with 2023 Strategy timelines.
  • Oppose any reopening of text; insist that residual issues be handled via guidelines and review clauses.
  • If text is reopened, they reserve the right to revert to a pure levy proposal.
• Mexico & Solomon Islands (joint paper):
  • Emphasize NZF as carefully balanced, supported by a broad coalition (developed, LDCs, SIDS, industry, NGOs) and the only credible tool to avoid a patchwork of regional measures.
  • Push to adjust dates for 2028/2029 entry into force and to resume ES.2 alongside MEPC 85 to complete adoption.
• Brazil (in substance, though more nuanced):
  • Defends NZF’s architecture and warns against reopening negotiations, arguing alternative packages are unlikely to be better and that delay entrenches regional regimes.
  • Advocates coupling adoption with prioritized guidelines for GFI, ZNZ rewards, fund governance, and fuel certification.

“Adopt but adjust” (softening & clarification rather than replacement)

• Japan:
  • Accepts NZF compromise but wants to defuse “global carbon tax” criticism and adjust targets to accommodate realistic fuel availability, especially transitional fuels including LNG.
  • Proposes allowing SUs to cover Tier‑1 deficits (removing mandatory payments to the Fund) and revising base/direct targets using updated demand and efficiency assumptions.
• Some EU and like‑minded states
  • Broadly support NZF, but may be open to technical fine‑tuning, particularly around LCA defaults, LNG treatment, and detailed fund governance, to broaden buy‑in.

“Revise fundamentally” / “Alternative framework”

• Algeria, Bahrain, Iraq, Kuwait, Russia, Saudi Arabia, Somalia, UAE:
  • Argue current NZF lacks consensus, is premature, and could undermine trade, energy, and food security.
  • Call for a new, consensus‑based, technology‑neutral and equity‑focused framework without centrally determined carbon prices or arbitrary quantitative elements; strongly emphasize CBDR‑RC and national circumstances.
• Argentina, Liberia, Panama:
  • Accept the need for a single global measure but propose to replace NZF with a pragmatic GFI mechanism tied to real‑world fuel markets, no fund, and stringent market‑based criteria.
  • Aim to address concerns that NZF imposes huge penalties, discriminates against transitional fuels, and creates uncertainty around fund governance.

Explicitly anti‑NZF / “Drop and restart”

• United States:
  • Wants IMO to stop considering the NZF altogether and not resume ES.2, arguing the framework has severe economic downsides and transforms IMO into a “global climate bank.”
  • Sets red lines: no global economic element (tax/levy/fund), no fuel‑type limits, phase‑out of regional schemes including EU ETS as part of any global solution, and explicit acceptance procedure.
  • Others Some hydrocarbon exporters and large economies (China, India, some Gulf states) also express strong reservations, particularly around sovereignty, equity, and fuel availability, though their exact MEPC 84 documents are not all publicly summarized yet.

4. Expected outcomes for MARPOL Annex VI amendments

There are effectively two tracks for MARPOL VI at MEPC 84: NZF‑related amendments, and “hostage” or parallel amendments (ECA, NOx protocols, DCS tweaks).

1. NZF‑related Annex VI amendments (Net‑Zero Framework chapter):
   • At MEPC 84 itself, full adoption is highly unlikely; what you can realistically expect is a political decision on whether to:

(a) pursue adoption of NZF with limited technical modifications,

(b) substantially reopen/replace it along the lines of the Algeria or Argentina/Liberia/Panama proposals, or

(c) terminate the NZF track (U.S. preference) and start afresh later.

• Any of these choices entails instructing the Secretariat on how to recast the Annex VI draft for a future adoption session (ES.2 resumed or MEPC 85/86).

2. Other Annex VI amendments “bundled” with NZF: NE Atlantic ECA, NOx protocols, DCS adjustments
   • BIMCO and others expect MEPC 84 to decouple these from the NZF package and circulate/adopt them separately, so they are not held hostage to GHG politics.
   • These include: designation of the North‑East Atlantic ECA for SOx/PM/NOx, updates to multi‑engine NOx compliance protocols, and some DCS schedule changes.
   • They’re considered technically mature and relatively uncontroversial, so adoption at MEPC 84 (with standard MARPOL timelines) is quite plausible.
3. Short‑term measures review and LCA‑driven Annex VI refinements
   • MEPC 84 will also kick off Phase 2 of the EEXI/CII review and discuss LCA‑related Annex VI guidelines (e.g. default WtT factors, data handling), but fundamental Annex VI text changes on these are more likely to crystallize at MEPC 85/86 after working groups report back.

5. How MEPC 84 advances (or risks) the 2023 IMO GHG Strategy

Potential advances

• Locking in a path to NZF‑type mid‑term measures:
• If MEPC 84 coalesces around “adopt NZF with adjustments and updated dates,” and agrees a clear workplan (ISWG‑GHG meetings, resumed ES.2/MEPC 85 schedule), the Strategy retains credibility: a global mid‑term regime from ~2029, delivering GFI trajectories and pricing signals aligned (though imperfectly) with the Strategy’s checkpoints.
• Strengthening short‑term measures:
  • Fiji et al. and others push to use Phase 2 of EEXI/CII review to tighten the CII trajectory, making real absolute reductions this decade and lowering the eventual cost and intensity of mid‑term measures.
  • If MEPC 84 endorses a reasonably ambitious direction of travel here, it compensates somewhat for NZF delays and helps keep the Strategy’s 2030 emission‑reduction objective alive.
• Clarifying LCA rules and LNG default factors:
  • Decisions on default WtT/WtW factors and the process for using certified actual values will affect the perceived fairness and feasibility of NZF‑style measures, especially for LNG carriers and other “transitional” fuels; good decisions here could unlock broader support for any GFI regime.

Risks and downside scenarios

• Political fracture and loss of a global mid‑term regime:
  • If MEPC 84 signals that the NZF is effectively dead (as the U.S. advocates) without a clear alternative, IMO risks being sidelined by regional schemes; the 2023 Strategy’s global‑solutions narrative weakens sharply.
  • A prolonged deadlock between levy‑supporters (SIDS, some EU, climate‑forward states) and economic‑element opponents (U.S., parts of the Middle East, others) could mean no credible global price signal until the mid‑2030s.
• Drift towards patchwork and higher overall system costs:
  • Without an IMO mid‑term global measure, EU ETS, FuelEU Maritime, and potential Asian/North American schemes become the de facto drivers; the Strategy’s goal of avoiding a patchwork is undermined.
  • Modelling generally shows that fragmented regimes raise total system‑wide abatement costs and complicate investment decisions, especially for globally trading fleets.
• Credibility gap vs 1.5°C pathways:

Even with NZF, SIDS already argue the Strategy falls short of 1.5‑alignment; further delay or dilution widens that gap

proposal summaries

mepc 84 proposals