The International Maritime Organisation’s (IMO) recent decision to postpone the adoption of its proposed Net Zero Framework has caused significant upheaval in the shipping sector. This delay threatens to alter the industry’s decarbonisation trajectory and has raised concerns among analysts regarding future investments in greener fleets.
Analyst Omar Nokta from Jefferies highlighted the potential consequences of this indecision, stating that it may lead to a resurgence of conventional fuel engines for new vessel orders. He noted that many ships currently on order could also be affected, steering the industry away from its climate commitments.
The IMO’s ambitious goals include a 40 per cent reduction in greenhouse gas emissions by 2030 and achieving net zero by 2050, benchmarked against 2008 levels. However, these targets are now at risk due to the uncertainty surrounding viable fuel alternatives and the ongoing negotiations regarding a carbon pricing mechanism.
Investments in dual-fuel or alternatively fuelled vessels are particularly vulnerable, as these vessels are significantly more expensive. Jefferies estimates that dual-fuel capable ships cost an additional $10–15 million compared to conventional vessels. Currently, 41 per cent of the global orderbook comprises dual-fuel or alternative propulsion vessels, yet only 16 per cent are ready to use alternative fuels upon delivery.
This financial burden has prompted a trend where shipbuilders convert “capable” orders into “ready” configurations, especially for vessels scheduled for delivery post-2027 when engine modifications remain feasible. The shift towards LNG dual-fuel systems has become apparent, especially after major shipping companies opted for LNG over methanol due to concerns about methanol availability and ammonia safety.
The postponed Net Zero Framework aimed to introduce the first binding global carbon pricing mechanism, which would have required ships engaged in international trade to adhere to annual emissions-intensity limits. Non-compliant operators would have had to purchase “remedial units” at fixed prices, creating a financial incentive for transitioning to low-emission fuels such as green methanol and ammonia. This mechanism was expected to generate $11–13 billion annually for a Net-Zero Fund dedicated to supporting fuel transitions and climate adaptation projects.
However, the delay in adopting this framework poses a serious risk to timely investment decisions, particularly exacerbating the disparities between large and small shipping operators. Analysts at Columbia University’s Center on Global Energy Policy, Evelyne Williams and Trevor Sutton, pointed out that larger firms are better positioned to absorb the additional costs associated with compliance, while smaller operators may struggle significantly.
In competitive markets, larger carriers might absorb some compliance costs to maintain market share, while those on less competitive routes could shift these costs directly onto consumers. The original framework also proposed mechanisms to support vulnerable states and smaller carriers, yet the challenges of implementing such a system within two years are immense.
Experts warn that the compliance burden could disproportionately affect small island developing states and thin-margin carriers long before any financial assistance is available. This could lead to reduced service frequency, higher shipping costs, or slower speeds as operators seek to conserve fuel.
Moreover, the fixed carbon pricing structure could inadvertently anchor transitional fuels like LNG just below penalty thresholds, potentially stifling innovation. Without regular updates and coordinated investments in necessary infrastructure, the shipping sector risks becoming trapped in a cycle of compliance without achieving genuine decarbonisation.
Verification remains a critical issue, as the proposed monitoring and reporting rely heavily on self-reporting and national port authorities, raising concerns about inconsistencies and enforcement gaps. While major maritime hubs like Rotterdam and Singapore are expected to lead compliance efforts, there is a risk that older, higher-emission vessels may be confined to ports that do not participate in the scheme.
The ongoing debate surrounding the IMO’s Net Zero Framework highlights the intricate relationship between fuel technology, financial equity, infrastructure readiness, and regulatory credibility in the quest for a sustainable shipping future. As the market navigates these uncertainties, the long-term success of the industry’s decarbonisation efforts hangs in the balance.
