By ShipCalculators.com · Published 8 May 2026

IMO levy and economic measure under the Net-Zero Framework

The IMO levy and economic measure is the pricing instrument of the IMO Net-Zero Framework approved at MEPC 83 in April 2025 and scheduled for entry into force on 1 January 2027. The instrument is layered on top of the technical element of the framework, the GHG Fuel Standard implemented through the GFI methodology, and operates by requiring ships whose attained GFI exceeds the year’s Required GFI to purchase Remediation Units (RUs) from the IMO, with a tighter pricing band between the Required GFI and the Direct Compliance Threshold and a higher band above it. Proceeds flow into the IMO Net-Zero Fund, the disbursement vehicle established under the same MARPOL Annex VI Chapter 4 ter to finance a just-and-equitable transition for Small Island Developing States (SIDS), Least Developed Countries (LDCs) and other states disproportionately affected by climate change or by the transition itself. The economic measure is the outcome of more than four years of negotiation, beginning with the Marshall Islands and Solomon Islands proposal of USD 100 per tonne of CO₂ at MEPC 76 in 2021 and ending in a hybrid feebate architecture chosen at MEPC 83 over four alternative options. The mechanism is legally a mandatory contribution under MARPOL Annex VI rather than a tax, sits alongside the EU ETS for shipping and FuelEU Maritime regional measures, and scales per tonne of CO₂-equivalent rather than per tonne of fuel. The GFI compliance calculator on ShipCalculators.com computes the per-voyage and per-year RU obligation in tonnes of CO₂eq and converts that obligation into a USD figure at the IMO posted RU price.

Contents

Background: market-based measures in the IMO 2010-2025

The idea of a market-based measure (MBM) for international shipping is not new. The IMO’s first formal review of MBMs ran from 2010 to 2013, when MEPC 60 received ten distinct proposals ranging from a flat bunker levy through emissions trading to ship efficiency credit trading. The Expert Group on Market-Based Measures, convened under the chairmanship of Mr Andreas Chrysostomou, ranked these proposals against nine evaluation criteria including environmental effectiveness, cost effectiveness, contribution to GHG abatement, potential for revenue generation and disbursement, the relationship with relevant UN conventions and international law, and feasibility and implementation. The Expert Group concluded in 2010 that several proposals were technically viable but reached no consensus on a preferred option.

Between 2011 and 2013 the political climate at the IMO turned against MBMs. Several states cited concerns about the principle of common but differentiated responsibilities and respective capabilities (CBDR-RC) under the UNFCCC, about whether an IMO instrument could distinguish between developed and developing flag states, and about whether revenue raised from international shipping could legitimately be hypothecated to climate finance under the UNFCCC’s accountability rules. MEPC 65 in May 2013 effectively suspended substantive work on MBMs, agreeing to focus instead on technical and operational efficiency measures. The result of that policy turn was the Energy Efficiency Design Index for new ships, the Ship Energy Efficiency Management Plan, and ultimately the EEXI and CII regulations of 2021.

The 2018 Initial IMO Strategy on Reduction of GHG Emissions from Ships, adopted by Resolution MEPC.304(72), reopened the door to MBMs by explicitly listing them in the basket of mid-term measures. The Strategy contemplated mid-term measures comprising a technical element and an economic element, to be developed and finalised between 2023 and 2030. The 2021 EEXI/CII package was the short-term contribution; the GHG Fuel Standard and the economic measure were the mid-term contribution. The 2023 Revised IMO GHG Strategy, adopted by Resolution MEPC.377(80), reaffirmed the mid-term basket and added the political vision of net-zero by or around 2050, the 2030 and 2040 indicative checkpoints, and the 5 percent (striving for 10 percent) zero or near-zero fuel uptake target for 2030.

The intervening years between MEPC 76 in June 2021 and MEPC 83 in April 2025 saw an unprecedented density of negotiation. The Intersessional Working Group on GHG Emissions from Ships (ISWG-GHG) met fourteen times in that period, the longest sustained negotiating effort on a single instrument in IMO history. The output of that effort is the IMO Net-Zero Framework, of which the economic measure is the second pillar.

The Marshall Islands and Pacific levy proposals (MEPC 76 onwards)

The Republic of the Marshall Islands and Solomon Islands tabled the first concrete economic-instrument proposal at MEPC 76 in June 2021. Document MEPC 76/7/12 proposed a mandatory contribution of USD 100 per tonne of CO₂ on bunker fuel consumed by ships of 5,000 GT and above on international voyages, with the proceeds flowing into a new IMO climate fund earmarked primarily for SIDS and LDCs and for research and development of zero-carbon fuels and technologies. The Marshall Islands argued that USD 100 per tonne CO₂ was the floor at which the price signal would be sufficient to begin closing the cost gap between fossil bunker fuel and zero-carbon alternatives such as green hydrogen-derived ammonia and methanol, that a flat contribution was administratively the simplest and most transparent approach, and that hypothecation to climate finance was both the principled and the politically necessary feature.

The Pacific Islands Forum endorsed the Marshall Islands proposal as a regional position in 2021 and renewed that endorsement in successive Forum communiques through 2024. The endorsement extended beyond the Forum’s island members to its associated metropolitan members, giving the proposal a broader coalition than its origin in two SIDS would suggest. The Pacific position was rooted in three propositions: the existential climate vulnerability of the region, the structural dependence of Pacific economies on shipping for trade and connectivity, and the corresponding need for any climate measure on shipping to redistribute revenue back to the most vulnerable states rather than disappear into general flag-state revenues.

The proposal was opposed at the outset by a number of major emerging economies, including Brazil, China, India and South Africa, on grounds that a flat contribution would impose disproportionate burdens on developing-country trade, would conflict with the CBDR-RC principle, and would represent an extra-jurisdictional tax with no clear legal basis under MARPOL. The proposal was supported, with varying enthusiasm, by the European Union, the United Kingdom, Canada, Japan, the Republic of Korea, Norway, several SIDS and LDCs in addition to the Marshall Islands and Solomon Islands, and a substantial coalition of industry bodies including the International Chamber of Shipping, BIMCO and the World Shipping Council. The cleavage that opened at MEPC 76 over the Marshall Islands proposal defined the structure of the negotiation for the next four years.

A revised version of the proposal, document MEPC 79/7/4 in 2022, refined the rate to a USD 100 starting price escalating to USD 300 per tonne CO₂ by 2030 and clarified the disbursement priorities. A further iteration at MEPC 80 in July 2023 introduced the concept of a tiered contribution rather than a flat one, with the first tier paid by all ships and a second tier paid only by ships exceeding a defined intensity threshold. The Marshall Islands proposal evolved through the negotiation rather than dying at it, and the eventual MEPC 83 architecture preserves several of its features: the per-tonne CO₂eq metric, the hypothecation of revenue to a dedicated fund, and the priority disbursement to SIDS and LDCs.

Five architecture options debated 2021-2025

By the time of MEPC 81 in March 2024, the Intersessional Working Group had consolidated the field of proposals into five principal architecture options. These options were not all formally tabled as separate documents; rather they were the analytical framework against which delegations and the Secretariat compared variants.

Option A, sometimes called the technical-only option, would have implemented the GHG Fuel Standard with no economic measure. Compliance would be enforced by flag-state administrations through prescriptive penalties for ships exceeding the Required GFI, and there would be no centrally administered price signal. Option A was supported by a small number of delegations on grounds of simplicity and minimal administrative cost, but it was widely judged to provide an insufficient incentive for early movers and to lack a financing mechanism for SIDS and LDCs.

Option B was the Marshall Islands per-tonne CO₂ contribution, layered on top of the GHG Fuel Standard. All bunker fuel consumed by in-scope ships would attract a flat contribution per tonne of CO₂eq emitted on a well-to-wake basis, with the rate set initially at USD 100 and escalating on a defined trajectory. Option B was the simplest revenue-raising option and the most generous to a fund-style disbursement.

Option C was a global cap-and-trade scheme. The IMO would set a global emissions cap declining on a trajectory consistent with the 2023 Strategy, allocate or auction allowances to ships, and operate a secondary market in those allowances. Option C drew on the experience of the EU ETS and the various national emissions trading systems but was opposed by many delegations on grounds of administrative complexity, the difficulty of allocating allowances fairly across a global fleet of multiple flags and beneficial ownerships, and the political resistance to creating a tradable financial instrument under IMO authority.

Option D, the so-called feebate option, combined the GHG Fuel Standard with a price for non-compliance and a credit for over-compliance. Ships exceeding the Required GFI would pay into the system at a defined RU price; ships at or below a tighter threshold would earn Surplus Units that could be banked or traded. Option D preserved the price signal of Option B while introducing a positive incentive for early adopters and an internal flexibility mechanism that reduced the total cost of compliance for the fleet. Option D was the option that ultimately prevailed at MEPC 83, in a refined two-tier form combining the Required GFI and the Direct Compliance Threshold.

Option E would have replaced the GHG Fuel Standard with a pure cap-and-trade scheme covering the same gases and fuels. Option E had few advocates by MEPC 81 because it lost the technological transparency of the GFI approach and conflated the carbon-pricing function with the trajectory function in a single instrument.

Between MEPC 81 and MEPC 83 the negotiating space narrowed to Option B and Option D. The decisive intersessional was ISWG-GHG 17 in February 2025, where a chair’s text combining elements of Option B and Option D produced sufficient convergence to bring a draft text to MEPC 83 plenary. The text adopted at MEPC 83 by majority vote on 11 April 2025 is essentially Option D with two material concessions to Option B: the Net-Zero Fund hypothecation, which is structurally similar to the Marshall Islands fund proposal, and the disbursement priority for SIDS and LDCs.

The chosen architecture at MEPC 83: RU/SU + IMO Net-Zero Fund

The architecture approved at MEPC 83 has three interacting components: the Required GFI, the Direct Compliance Threshold, and the Remediation Unit and Surplus Unit price/credit pair. The economic measure proper is the RU/SU mechanism plus the IMO Net-Zero Fund into which RU revenue flows.

A ship’s compliance position is determined annually by comparing its attained GFI against the year’s Required GFI and Direct Compliance Threshold. If the attained GFI is at or below the DCT, the ship is fully compliant for that year and earns Surplus Units proportional to the gap between the DCT and the attained GFI. If the attained GFI lies between the DCT and the Required GFI, the ship pays a Tier 2 RU price on the gap between the attained GFI and the DCT, calculated as tonnes of CO₂eq. If the attained GFI exceeds the Required GFI, the ship pays the Tier 2 RU price on the full gap from attained GFI down to the DCT, and a higher Tier 1 RU price on the gap from the Required GFI down to the attained GFI. The two-tier pricing structure is the principal innovation of the MEPC 83 architecture relative to a flat per-tonne contribution.

The arithmetic of the obligation is straightforward. The shortfall in tonnes of CO₂eq is the product of total energy consumed in megajoules and the gap between attained GFI and the relevant threshold in grams CO₂eq per megajoule, divided by 10⁶ to convert grams to tonnes. The total RU cost is the sum across the two pricing tiers, and the total Net-Zero Fund inflow is the fleet-wide aggregate.

Surplus Units earned by ships at or below the DCT have three permitted uses: they may be banked for use in subsequent compliance years subject to a defined banking horizon, they may be transferred to other ships in the same fleet under a pooling arrangement, or they may be sold on a registry-mediated market. The price of Surplus Units in the secondary market is not fixed by the IMO but is expected to settle below the Tier 2 RU price, since a buyer would otherwise prefer to purchase RUs directly from the IMO. The SU mechanism is the internal flexibility instrument of the framework and is the feature that distinguishes Option D from a pure Option B.

The IMO Net-Zero Fund is the legal entity that receives RU revenue. It is established under MARPOL Annex VI Chapter 4 ter and administered by the IMO Secretariat with oversight from a Steering Committee on which SIDS, LDCs and other parties are represented. The Fund is ring-fenced from the IMO’s general budget, may not be used to finance the IMO’s own operating costs beyond the administrative cost of the Fund itself, and is subject to an external audit and annual reporting cycle.

Remediation Unit price discovery and revision

The RU price is set by the IMO and revised on a defined cadence rather than discovered on a market. The choice of an administered price rather than a market-cleared price was deliberate: a market price would have introduced volatility into shipowners’ compliance budgets and would have shifted the price-discovery function from the IMO to a derivatives market that the IMO does not regulate. The administered approach also makes the price legally compatible with the contribution-not-tax characterisation discussed in the legal-status section below.

The price discovery process draws on three sources. The first is a periodic study of the marginal abatement cost curve for international shipping, commissioned by the IMO Secretariat from independent academic and consultancy providers. The MAC curve answers the question: at a given carbon price, how much abatement does the fleet undertake? The price level is then chosen to deliver the GFI reduction trajectory consistent with the GFI reduction trajectory 2027-2050. The second source is the price gap between fossil bunker fuel and the leading zero-carbon alternatives, principally green hydrogen-derived ammonia, green methanol and biomethane. The Tier 1 RU price is calibrated to close that gap on a per-megajoule energy-equivalent basis once net of any Surplus Unit revenue. The third source is the political review undertaken by MEPC at five-yearly intervals, which can adjust the price upward or downward against the analytical recommendation.

The price is published in advance of each compliance year. The MEPC 83 architecture specifies a Tier 1 price in the range of USD 380 to USD 480 per tonne CO₂eq for the first compliance year of 2028, and a Tier 2 price in the range of USD 100 to USD 150 per tonne CO₂eq. The exact values for 2028 are to be confirmed at MEPC 84 in October 2025 alongside the formal adoption of the framework. The first scheduled price review is in 2031, with effect from the 2032 compliance year, and quinquennial reviews thereafter. Between scheduled reviews the price is fixed in nominal USD terms and not indexed to inflation; the political review is the mechanism by which real-terms drift is corrected.

The cadence of revision was negotiated heavily. Several developing-country delegations argued for shorter review cycles to allow downward revision in the event of unexpected fuel-cost convergence, while several developed-country delegations and several SIDS argued for longer cycles to provide investment certainty. The five-year compromise mirrors the cadence of the IMO Strategy itself, which is also reviewed every five years.

IMO Net-Zero Fund: scope, capitalisation, disbursement priorities

The IMO Net-Zero Fund is the most innovative institutional feature of the framework. No previous IMO instrument has hypothecated revenue raised from regulated entities to a dedicated disbursement fund of comparable scale. The closest analogue is the International Oil Pollution Compensation Funds under the Civil Liability Convention and Fund Convention, but those instruments compensate identifiable victims of identified casualties rather than disburse climate finance to a politically defined beneficiary class.

The Fund’s scope is defined by Chapter 4 ter as the receipt of RU revenue and the disbursement of that revenue to four priority categories. The first category is just-and-equitable transition support for SIDS, LDCs and other states disproportionately affected by climate change or by the transition itself, including support for fleet renewal, port infrastructure, crew training and bunker-supply diversification. The second category is research, development and deployment (RD&D) of zero or near-zero GHG technologies, fuels and energy sources, with a particular focus on technologies relevant to the developing-country fleet. The third category is capacity building and technical assistance to support implementation of the framework in maritime administrations with limited resources. The fourth category is administrative cost recovery for the Fund itself and for the framework’s verification and enforcement infrastructure.

The disbursement priorities between the four categories are set by the Steering Committee on the recommendation of the IMO Secretariat, with the proviso that the just-and-equitable transition category receives priority in the early years of the framework. The MEPC 83 text specifies a target of at least 50 percent of disbursement to the just-and-equitable transition category in compliance years 2028 through 2032, with the proportion subject to review at the 2031 quinquennial.

Capitalisation of the Fund depends on the fleet-wide RU obligation, which in turn depends on the trajectory of fleet decarbonisation against the Required GFI trajectory. The IMO Secretariat’s central scenario, published in the MEPC 83 supporting documentation, projects Fund inflows of approximately USD 8 billion in 2028, rising to approximately USD 22 billion by 2035 and declining thereafter as the fleet decarbonises and the gap between attained GFI and the Required GFI narrows. The decline in inflows is the intended outcome of the framework: the Fund is a transitional finance mechanism, not a permanent revenue stream.

The Fund’s disbursement modalities are designed to avoid duplicating existing climate finance institutions such as the Green Climate Fund and the Adaptation Fund. The Steering Committee may channel disbursements through those existing institutions as implementing partners, may award grants directly to recipient states, or may co-finance projects with multilateral development banks and the relevant UN regional commissions. The disbursement modalities are reviewed at the quinquennial alongside the price review.

Just-and-equitable transition for SIDS and LDCs

The just-and-equitable transition concept entered the IMO vocabulary through the 2023 Revised Strategy, which committed parties to “ensure a just and equitable transition” and to take into account “the impact on States, in particular on developing countries, especially Small Island Developing States and Least Developed Countries.” The MEPC 83 framework operationalises that commitment through the Fund’s disbursement priorities and through a parallel set of provisions in Chapter 4 ter.

The just-and-equitable transition has two analytical dimensions. The first is disproportionate impact on the climate vulnerable, principally the Pacific, Caribbean and Indian Ocean SIDS, whose physical existence is threatened by sea-level rise and whose economies are disproportionately exposed to maritime trade costs. The second is disproportionate impact from the transition itself, principally the LDCs and the bunker-supply economies whose ports and shipyards face stranded-asset risk as the global fleet shifts away from fossil bunker fuel. The Fund is intended to address both dimensions, with the disbursement priorities reflecting the relative scale of impact rather than treating the two dimensions identically.

The eligibility criteria for just-and-equitable transition disbursement are defined by reference to the UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS) lists of LDCs and SIDS, supplemented by a residual category of “other states disproportionately affected” determined by the Steering Committee on a case-by-case basis. The case-by-case category was a negotiating compromise to address the concerns of states such as several Caribbean economies that fall outside the formal SIDS list but share many of the same characteristics, and several African coastal states that fall outside the formal LDC list but face similar transition risks.

Disbursement instruments include capital grants for low-carbon port infrastructure, concessional finance for fleet-renewal projects, technical-assistance grants for maritime administrations, training grants for seafarers transitioning to new fuel systems, and project-finance support for green hydrogen and ammonia bunker-supply chains in developing countries. The Steering Committee publishes an annual disbursement plan and an end-of-year disbursement report, both of which are publicly available on the IMO website.

The just-and-equitable transition provisions are the principal political achievement of the SIDS and LDC coalitions in the MEPC 83 negotiation. The coalitions secured both a hypothecated revenue stream and a defined disbursement priority, and they secured those provisions in a binding MARPOL Annex VI amendment rather than in a non-binding resolution. The provisions are accordingly subject to the same enforcement mechanisms as the rest of MARPOL Annex VI, including port-state control inspection and the Sub-Committee on Implementation of IMO Instruments review cycle.

Interaction with EU ETS and FuelEU

The framework operates in a regulatory landscape that already includes two regional instruments imposing economic obligations on ships calling at EU ports. The EU Emissions Trading System for shipping, introduced by Regulation (EU) 2023/957 with phased entry into force from 1 January 2024, requires ships of 5,000 GT and above to surrender EU Allowances (EUAs) for 50 percent of CO₂ emissions from voyages between EU ports and non-EU ports, and for 100 percent of CO₂ emissions from voyages within the EU and from time at berth. FuelEU Maritime, introduced by Regulation (EU) 2023/1805 with effect from 1 January 2025, sets a declining limit on the well-to-wake greenhouse gas intensity of energy used on board ships calling at EU ports, with penalties for non-compliance.

The interaction between the IMO economic measure and the two EU regional measures is the subject of ongoing political negotiation between the European Commission and the IMO Secretariat. Three principal questions arise.

The first question is double pricing. A voyage between an EU port and a non-EU port that crosses the IMO Net-Zero Framework’s threshold is in principle subject to both the EU ETS surrender obligation and the IMO RU obligation on the same emissions. The European Commission has indicated that it will examine the IMO measure for an “equivalent stringency” determination once the framework enters into force, and that an equivalent finding would trigger a phase-down of the EU ETS scope to avoid double pricing on the international portion of voyages. The phase-down mechanism is provided for in Article 3gb of Regulation (EU) 2023/957.

The second question is double accounting of fuel intensity. FuelEU Maritime and the IMO GFI methodology both compute a well-to-wake fuel intensity, and both apply against an annual limit. The metrics are not identical: FuelEU Maritime expresses the limit as a percentage reduction from a 2020 baseline of 91.16 g CO₂eq/MJ, while the IMO Required GFI is expressed in absolute g CO₂eq/MJ on a different reference year and trajectory. The two trajectories converge by the late 2030s but diverge in the early years of the IMO framework, and the European Commission has signalled that an equivalent-stringency review of FuelEU is also on its agenda.

The third question is revenue allocation. EU ETS revenue from the maritime portion of the scheme is partially earmarked to the EU Innovation Fund and partially returned to member states; IMO RU revenue is hypothecated to the IMO Net-Zero Fund. The two revenue streams are accordingly disbursed under different governance regimes and with different priority categories. The political question is whether the EU might agree to channel a portion of its maritime ETS revenue into the IMO Net-Zero Fund as a contribution to the just-and-equitable transition priority. The European Commission’s 2024 communication on the international dimension of the EU climate package contemplates this possibility but reaches no conclusion.

The practical consequence for shipowners and operators is that, until the equivalent-stringency review is complete and any phase-down adopted, voyages to and from EU ports will be subject to both regimes. Compliance budgets prepared for 2028 onwards must accordingly include both an EU ETS surrender cost and an IMO RU cost, with double counting of the underlying emissions. The EU ETS EUA liability calculator and the GFI compliance calculator are designed to be run side-by-side for voyages that fall within both scopes.

Legal status: contribution vs tax under WTO and trade law

The legal status of the IMO economic measure is a contribution under MARPOL Annex VI rather than a tax. The distinction matters for three reasons: it determines whether the measure is compatible with WTO disciplines, whether it requires unanimous support of IMO parties or can be adopted by majority vote under the tacit acceptance procedure, and whether it can be ring-fenced for the IMO Net-Zero Fund or must flow into general state revenues.

The WTO question turns on whether the measure is a “border measure” within the meaning of Articles I and III of the GATT 1994 and Article 2 of the Agreement on Technical Barriers to Trade. A measure that imposes a financial obligation on ships engaged in international voyages is a measure on services rather than goods in the strict sense, and the General Agreement on Trade in Services (GATS) is the relevant primary text. The IMO Secretariat’s legal advice, summarised in the MEPC 83 supporting documentation, takes the view that the measure is a regulatory instrument under the IMO’s specialised competence rather than a fiscal measure within the ordinary meaning of WTO law, and that it is accordingly compatible with both GATT and GATS subject to the non-discrimination disciplines of those agreements. The non-discrimination test is satisfied by the fact that the RU obligation applies uniformly to ships of all flags and beneficial ownerships, with no ship-of-origin or country-of-bunkering exemption.

The tacit acceptance question arises under Article 16 of MARPOL, which allows amendments to the Annexes to enter into force by tacit acceptance after a defined notification period unless objected to by a defined fraction of parties. The MARPOL practice has historically distinguished between regulatory amendments, which are routinely adopted by tacit acceptance, and fiscal amendments, which arguably require explicit consent. The MEPC 83 architecture is structured as a regulatory amendment imposing an obligation to surrender Remediation Units rather than as a tax, and the supporting documentation argues that the architecture accordingly falls within the established tacit-acceptance practice. Several developing-country delegations have indicated that they may file objections under Article 16, and the political significance of the objection process in the period to 1 January 2027 entry into force is considerable.

The hypothecation question turns on whether revenue raised through a regulatory contribution can be ring-fenced from general state revenues. Domestic constitutional law in many jurisdictions requires that fiscal revenue flow through the consolidated fund of the state, with Parliament or Congress determining the disposition. A regulatory contribution paid into a multilateral fund administered by an international organisation falls outside that domestic-fiscal framework: the revenue is paid by the regulated ship to the IMO directly, not to the flag state, and is accordingly not subject to flag-state appropriation rules. The structure mirrors that of the International Oil Pollution Compensation Funds and is well established in international maritime law.

The legal status of the framework as a contribution rather than a tax is therefore both a deliberate drafting choice and a substantive feature of the architecture. It is the choice that allows the framework to be adopted by majority vote at MEPC, to enter into force by tacit acceptance, and to be hypothecated to the IMO Net-Zero Fund. A flat per-tonne CO₂ contribution along the original Marshall Islands lines would have been more vulnerable to a tax characterisation; the two-tier RU/SU structure is comparatively less so because it operates as a tradable compliance instrument rather than a flat fiscal levy.

Formula, assumptions, and limits

Formula

The total annual cost to a ship of complying with the economic measure is the sum of the Tier 1 and Tier 2 RU costs less the value of any Surplus Units earned. For a ship whose attained GFI in compliance year $y$ exceeds the Required GFI, the obligation is

N_{\text{RU,Tier1}}(y) = \frac{E(y) \cdot \left( \text{GFI}_{\text{att}}(y) - \text{GFI}_{\text{req}}(y) \right)}{10^6}

N_{\text{RU,Tier2}}(y) = \frac{E(y) \cdot \left( \text{GFI}_{\text{req}}(y) - \text{DCT}(y) \right)}{10^6}

where $E(y)$ is total well-to-wake energy consumed in megajoules, $\text{GFI}_{\text{att}}(y)$ is the attained GFI in g CO₂eq/MJ, $\text{GFI}_{\text{req}}(y)$ is the Required GFI in g CO₂eq/MJ, $\text{DCT}(y)$ is the Direct Compliance Threshold in g CO₂eq/MJ, and the divisor of $10^6$ converts grams to tonnes. The total RU cost is

\text{Cost}_{\text{RU}} = N_{\text{RU,Tier1}} \cdot p_{\text{RU,Tier1}} + N_{\text{RU,Tier2}} \cdot p_{\text{RU,Tier2}}

where $p_{\text{RU,Tier1}}$ and $p_{\text{RU,Tier2}}$ are the Tier 1 and Tier 2 RU prices in USD per tonne CO₂eq published by the IMO for compliance year $y$ . For a fleet-wide perspective, the IMO Net-Zero Fund inflow in year $y$ is

\text{Inflow}(y) = \sum_s \left[ N_{\text{RU,Tier1},s}(y) \cdot p_{\text{RU,Tier1}}(y) + N_{\text{RU,Tier2},s}(y) \cdot p_{\text{RU,Tier2}}(y) \right]

summed across all in-scope ships $s$ .

Derivation

The derivation begins from the per-megajoule intensity gap and converts to a per-tonne CO₂eq tonnage by multiplying by total energy and dividing by 10⁶. The intensity gap in g CO₂eq/MJ multiplied by megajoules yields grams CO₂eq; dividing by 10⁶ yields tonnes. The choice of MJ as the energy unit follows the marine GFS methodology and the IMO LCA Guidelines (Resolution MEPC.391(82)). The two-tier structure derives from the Option D feebate architecture: the Tier 1 price applies to the gap above the Required GFI, the Tier 2 price applies to the gap between the Required GFI and the DCT, and Surplus Units are earned for the gap below the DCT.

Assumptions

The formulas above assume that the ship’s reporting is complete, that the fuel mix is correctly characterised against the IMO LCA Guidelines, that the well-to-wake intensity values applied are the default values of MEPC.391(82) or the certified actual values where the ship operator has elected for actual reporting, and that the Required GFI and DCT for the year are those published by the IMO Secretariat in the calendar year preceding the compliance year. The formulas also assume that the RU prices are those published by the IMO and are not subject to mid-year revision; the price-discovery cadence is quinquennial and prices are nominally fixed between reviews.

Worked example

A medium-sized container ship of 8,000 TEU consumes 25,000 tonnes of VLSFO and 1,000 tonnes of biomethane in compliance year 2028. The energy content is 25,000 × 40.0 + 1,000 × 50.0 = 1,050,000 GJ = 1.05 × 10⁹ MJ. The well-to-wake GFI of VLSFO under MEPC.391(82) defaults is approximately 91.6 g CO₂eq/MJ; biomethane is approximately 11.0 g CO₂eq/MJ when produced from waste streams and combusted in a four-stroke engine. The energy-weighted attained GFI is

\text{GFI}_{\text{att}} = \frac{1{,}000{,}000 \cdot 91.6 + 50{,}000 \cdot 11.0}{1{,}050{,}000} \approx 87.8 \text{ g CO}_2\text{eq/MJ}

For 2028, assume Required GFI = 89.6 g CO₂eq/MJ and DCT = 87.4 g CO₂eq/MJ. The attained GFI of 87.8 lies between the DCT and the Required GFI, so only the Tier 2 obligation applies. The Tier 2 obligation is

N_{\text{RU,Tier2}} = \frac{1.05 \times 10^9 \cdot (87.8 - 87.4)}{10^6} = 420 \text{ tonnes CO}_2\text{eq}

At a Tier 2 price of USD 100 per tonne CO₂eq, the ship’s total RU cost is USD 42,000 for the year. Under the Marshall Islands flat USD 100 per tonne CO₂ proposal, the same ship would have paid 25,000 × 3.114 + 1,000 × 0.55 ≈ 78,400 tonnes CO₂eq × USD 100 = USD 7.84 million. The MEPC 83 architecture imposes a much smaller obligation on a ship with an attained GFI close to the DCT and a much larger obligation on a ship whose attained GFI exceeds the Required GFI, demonstrating the targeting effect of the two-tier structure relative to a flat contribution.

Edge cases and limits

The framework treats four edge cases distinctively. The first is the ship that bunkers but does not consume in a compliance year, for example a ship that is laid up. Such a ship has no RU obligation because there is no energy consumption against the GFI methodology. The second is the ship that switches flag during a compliance year. The MARPOL Annex VI regulation provides for pro-rata reporting at the date of flag change and a single RU obligation that follows the ship rather than splitting between flags. The third is the ship that bunkers a fuel for which no IMO LCA Guidelines default value exists. Such a fuel must be characterised through a project-specific certification under MEPC.391(82) before the energy can be counted in the attained GFI; in the absence of certification the fuel is treated as fossil HFO for compliance purposes. The fourth is the ship operating in a year of the framework’s quinquennial price review, where the published price for the next compliance year may not be available until late in the preceding year. The Secretariat’s practice is to publish a provisional price 24 months in advance and a final price 12 months in advance.

The principal limit of the framework is that it applies only to ships of 5,000 GT and above engaged on international voyages, mirroring the scope of the existing IMO DCS and the EEXI/CII regulations. Ships below 5,000 GT, ships engaged exclusively on domestic voyages, ships engaged in offshore exploration and production, and warships remain outside the framework. The framework is also limited to CO₂, methane and nitrous oxide on a CO₂-equivalent basis using the GWP-100 metric of the IPCC AR5; black carbon, refrigerant releases and other non-Annex-A gases are not included.

Regulatory basis

The regulatory basis is MARPOL Annex VI Chapter 4 ter as adopted at MEPC 83 by majority vote on 11 April 2025, expected to be formally adopted at MEPC 84 in October 2025, and to enter into force by tacit acceptance on 1 January 2027 for application from compliance year 2028. The supporting instruments include Resolution MEPC.391(82) (2024 LCA Guidelines), Resolution MEPC.376(80) (2023 LCA framework), and the implementing MEPC resolutions to be adopted at MEPC 84 covering the price-setting procedure, the Steering Committee terms of reference and the Surplus Unit registry rules. The flag-state and port-state implementation guidance is to be issued by MEPC 85 in 2026.

Common errors

The five most common errors in computing the RU obligation are: applying the divisor of 10³ instead of 10⁶ when converting from grams to tonnes; applying the Required GFI as the threshold for Tier 2 instead of the DCT; mixing well-to-tank and tank-to-wake intensity values where well-to-wake is required; neglecting the two-tier structure and applying a single price; and double-counting biofuel sustainability deductions where the LCA Guidelines already include them in the default value. The GFI compliance calculator implements the MEPC 83 architecture in full and avoids each of these errors by construction.

Implementation timeline and review cycle

The framework’s implementation timeline is set out in Chapter 4 ter and in the MEPC 83 Final Report. The headline dates are: 11 April 2025, MEPC 83 approval; 17 October 2025, MEPC 84 formal adoption; 1 January 2027, entry into force; 2028, first compliance year; 2029, first RU surrender; 2031, first quinquennial review of price and disbursement priorities; 2032, application of revised parameters; and quinquennial reviews thereafter aligned with the IMO Strategy review cycle.

The first compliance year of 2028 is the year in which fuel consumption is reported and against which the attained GFI is computed; the surrender of RUs takes place in the following calendar year, 2029, on a schedule analogous to the EU ETS surrender deadline of 30 September. The arrangement allows time for the year’s data collection to complete, for verification by the Recognised Organisation acting on behalf of the flag state, and for the IMO Secretariat to issue the year’s compliance position to each ship.

The first quinquennial review in 2031 will consider the price level, the GFI reduction trajectory against the IMO Strategy, the Fund’s disbursement performance, and any changes to the just-and-equitable transition priority categories. The review will be conducted by MEPC with input from the Steering Committee, the Secretariat and the ISWG-GHG. Any revisions adopted at the 2031 MEPC session will apply from compliance year 2032.

The framework is intended to operate to 2050 and beyond, with declining Fund inflows as the fleet decarbonises and a transition to a residual maintenance regime once the GFI reduction trajectory approaches zero. The 2031 review and the subsequent quinquennials are the principal mechanisms by which the framework adapts to changing fuel-cost dynamics, changing climate science and changing political consensus on the just-and-equitable transition.