MEPC 83: New IMO rules squeeze LNG's compliance window

The IMO’s newly approved Net-Zero Framework tightens the net on fossil LNG as a bunker fuel right from 2028, ENGINE analysis finds.

IMAGE: LNG-powered container vessel. CMA CGM

The IMO’s Marine Environment Protection Committee (MEPC) has approved a compromise draft for Chapter 5 of the MARPOL Annex VI convention. Known as the Net-Zero Framework, the draft introduces a two-tiered greenhouse gas (GHG) fuel standard that will require ships to progressively reduce their well-to-wake GHG fuel intensity (GFI) starting in 2028.

The targets are benchmarked against 2008 levels, with the industry standard baseline set at 93.30 grams of CO2-equivalent per megajoule (gCO2e/MJ).

GFI reduction targets will tighten over time, ranging from 4–17% in 2028 to 30–43% by 2035. A further revision is planned in 2032, which could see targets raised even higher for 2036–2040. According to the draft, the base reduction factor should reach 65% by 2040.

LNG's cushion gets thinner

“The agreement sets a clear limit on the viability of Liquefied Natural Gas (LNG) as a marine fuel solution,” Tristan Smith, associate professor at UCL Energy Institute said.

That “limit” depends largely on methane emissions, which vary by engine type.

The IMO’s base and direct compliance targets for 2028, compared to 2008 levels, translate to GFI caps of 89.57 gCO2e/MJ and 77.44 gCO2e/MJ, respectively.

ENGINE’s calculations show that LNG dual-fuel vessels using Otto medium-speed (Otto MS) engines with the highest methane slip at 3.1% (91.03 gCO2e/MJ) will be non-compliant with both thresholds from day one in 2028.

We have used the LNG fuel intensity values provided by the EU under the FuelEU Maritime regulation for our calculations, as the IMO’s lifecycle assessment (LCA) guidelines do not currently offer a clear figure for LNG’s well-to-wake GHG intensity.

In contrast, LNG vessels using diesel slow-speed (diesel SS) engines with the lowest methane slip of 0.2% (76.13 gCO2e/MJ) will be compliant with both the base and direct compliance targets in 2028, but not for long.

In 2029, the direct compliance target will be 75.57 gCO2e/MJ and LNG-fuelled ships with diesel SS engines will have to pay $100/mtCO2e for the GHG emissions they supersede the target by.

In 2033, the base target will be 73.52 gCO2e/MJ and these vessels will have to pay an additional $380/mtCO2e for the GHG emissions they overshoot the target by.

Penalties start adding up

The IMO framework states that if a vessel’s GHG intensity is lower than the "base target", but higher than the "direct compliance target", the shortfall must be compensated by purchasing "remedial units" at $100/mtCO2e.

If a vessel’s GHG intensity fails to meet even the base target, it will incur two separate charges: $100/mtCO2e to cover the shortfall towards the direct compliance target and an additional $380/mtCO2e for its shortfall towards the base target.

Instead of paying the $380/mtCO2e charge, shipowners may also choose to purchase "surplus units" from vessels that are compliant with both targets, or use banked surplus units from previous compliance periods. Surplus units can be banked for two years.

This suggests that an Otto MS-powered LNG vessel will incur two penalties from 2028 for failing to meet both compliance targets. A diesel SS-powered vessel may earn surplus units in 2028. But it will face penalties for missing the direct compliance target in 2029, and as seen above, two penalties from 2033 onwards for failing to meet even the base target.

These penalties are expected to rise further as the GHG intensity caps tighten through 2034 and beyond.

Smith believes this makes LNG an increasingly unviable option for newbuilds. Existing LNG-powered vessels, he adds, may face “residual value consequences” such as risks of becoming stranded assets as regulatory targets tighten.

Case for green methane

In this scenario, green methane molecules like e-methane or bio-methane could come to the rescue of LNG-powered fleets. One supplier told ENGINE that this framework will accelerate the transition to using liquefied biomethane (LBM) in dual-fuel LNG vessels.

LBM used in Otto MS engines (30.22 gCO2e/MJ) or diesel SS engines (15.59 gCO2e/MJ) would remain compliant with IMO targets from 2028 through at least 2035, and potentially up to and beyond 2040.

For instance, if the 2040 base target reduction factor is confirmed at 65%, ships would need to cap their GHG intensity at 32.66 gCO2e/MJ. That still keeps LBM-powered vessels with even the highest methane slips within base compliance.

Still, UCL Energy Institute’s Smith cautions that while alternatives like LBM and e-methane can technically meet emissions targets, their high production costs and limited commercial availability undercut their feasibility. They are unlikely to be “competitive choices” compared to fuels like green ammonia or biofuels.

The Net-Zero Framework will be up for formal adoption at the IMO’s next MEPC meeting in October, while an IMO working group is reviewing the LCA guidelines to determine default GHG emission factors for LNG and other fuels. There is not timeline for when the LCA guidelines will be finalised.  

By Konica Bhatt

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