MEPC 84: Japan calls for removal of payments to the IMO’s Net-Zero Fund
Japan has proposed easing GHG fuel intensity (GFI) reduction targets from 2030 and removing mandatory payments to the IMO’s Net-Zero Fund.
The IMO’s Marine Environment Protection Committee (MEPC) approved a compromise draft for Chapter 5 of the MARPOL Annex VI convention at MEPC 83 in April 2025.
The draft introduces a two-tier greenhouse gas (GHG) fuel standard requiring ships to progressively reduce well-to-wake GHG fuel intensity (GFI) from 2028 onwards.
The GFI reduction targets comprise two components, base and direct compliance, benchmarked against a 2008 baseline of 93.30 gCO2e/MJ. Both tighten progressively through 2035, with the direct target set at significantly stricter levels.
Japan has proposed easing the trajectory from 2030 onwards, while keeping the 2028-2029 targets unchanged.
Under its proposal, the base target should be relaxed slightly to 86.8 gCO2e/MJ from 85.84 gCO2e/MJ from 2030 and follow a less aggressive path to 72.9 gCO2e/MJ instead of 65.31 gCO2e/MJ in 2035.
It has proposed a similar adjustment to the direct compliance target, easing it to 74.6 gCO2e/MJ in 2030 and 60.7 gCO2e/MJ by 2035, compared with 73.71 and 53.18 gCO2e/MJ, respectively, under the current proposal.
Japan also suggested an alternative approach to keep the direct compliance target consistent at 72.9 gCO2e/MJ from 2028 to 2035.
The alternative approach will “facilitate a larger volume of reductions in the short term and assist technological innovation as well as the uptake of alternative fuels, including LNG and biofuel, with strong incentives from the early stage,” it argued.
Remove penalty on non-compliance
According to the approved draft of the Net-Zero Framework, non-compliant ships will need to balance their emissions shortfalls under a two-tier system.
Ships that fail to meet the direct compliance targets for GHG intensities must make up the shortfall through remedial units (RUs). These units can be purchased by paying into the IMO Net-Zero Fund at a fixed Tier-1 carbon price, currently set at $100/mtCO2e for 2028-2030.
Ships that miss both base and direct targets face an additional Tier 2 deficit. This can be addressed using surplus units (SUs) banked from previous years, receiving SUs from other vessels or by purchasing additional RUs at a higher Tier 2 price of $380/mtCO2e over the same period.
Pricing beyond 2030 has yet to be defined.
Japan has proposed removing the mandatory purchase of remedial units via the fund, while retaining the use of surplus units.
“If the mandatory payment were not introduced… the compliance deficit would need to be balanced only by SUs in the market. In this case, there must be sufficient SUs in the market so that all non-compliant ships can find ones to balance their deficit,” the Japanese proposal notes.
It also proposed increasing the annual supply of SUs to better balance market deficits, suggesting that SUs could be scaled up using a predefined multiplier.
But shipping expert Tristan Smith has warned against these proposed measures.
The remedial unit price acts as a “ceiling” in an uncertain surplus unit market and limits cost volatility. Without it, surplus unit prices will be uncapped. This will lead to additional uncertainty and the risk of higher transport costs, Tristan Smith, co-lead of the shipping and oceans research group at University College London said.
“Removing the RU price removes the reward mechanisms, jeopardising the initiation of transition,” Smith added.
RUs establish a penalty system for non-compliant ships while simultaneously incentivising compliant industry participants by generating revenue for the Net-Zero Fund.
“It also creates a risk that SU markets with uncapped pricing could see significant volatility, particularly for mass-market actors making short-term decisions.”
Japan has also suggested alternative measures if sufficient SUs are unavailable, including “proper donations to projects supporting the maritime industry”.
By Konica Bhatt
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