IMO Net-Zero Fund: governance and disbursement

Direct answer

The IMO Net-Zero Fund would collect revenue from ships whose well-to-wake GHG fuel intensity exceeds the Required GFI under the draft MARPOL Annex VI Chapter 5 framework. Non-compliant ships pay either USD 100 per tonne CO2eq (Tier 1, between the Base and Direct Compliance targets) or USD 380 per tonne CO2eq (Tier 2, above the Base target). Revenue flows into the Fund and is disbursed across four objectives: rewarding ships using zero/near-zero emission fuels (below 19.0 gCO2eq/MJ until 2034, then 14.0 gCO2eq/MJ), funding decarbonization R&D and technology deployment, building capacity in developing countries, and mitigating disproportionate impacts on SIDS and LDCs. Specific disbursement allocation percentages and governance details are still under development and will be determined through further MEPC deliberations ahead of any formal adoption.

Background: from the 2023 IMO GHG Strategy to the Fund concept

The political genesis of the Fund

The IMO GHG Strategy, adopted as Resolution MEPC.377(80) at MEPC 80 in July 2023, set the headline 2050 net-zero target for international shipping and established indicative checkpoints for 2030 and 2040. Beyond those trajectory markers, the Strategy introduced a key architectural constraint: any mid-term economic measure must incorporate a just-and-equitable transition (JET) mechanism. SIDS and LDC delegations had been explicit since MEPC 76 that revenue from a global pricing mechanism could not simply flow to general budgets or to major shipping states. Paragraphs of the Revised Strategy committed the Organization to assessing and addressing disproportionate negative impacts on climate-vulnerable States and to channeling measure revenue toward the just transition.

The Fund concept emerged directly from that political constraint. Without a credible redistribution vehicle, SIDS and Pacific Island Forum members would not have agreed to binding checkpoints. The Fund is therefore not a peripheral feature of the Net-Zero Framework; it is the political price of consensus on the trajectory itself.

From principle to mechanism at the Intersessional Working Group

Between MEPC 80 (July 2023) and MEPC 83 (April 2025), the Intersessional Working Group on Reduction of GHG Emissions from Ships (ISWG-GHG) translated the just-transition language into a draft operational mechanism. Three architectural decisions defined the Fund’s conceptual structure. First, it would be a single global pool rather than a federation of national accounts: revenue would not return flag-state to flag-state but pool centrally and disburse on project merit and need. Second, governance would be delegated to a Board reporting to MEPC, not decided by committee plenary, because MEPC sessions cannot operationally manage a disbursement pipeline. Third, disbursement objectives would be encoded in the regulations rather than in soft-law guidelines, giving recipient States clearer expectations.

What MEPC 83 actually approved

MEPC 83, meeting 7-11 April 2025, approved draft amendments to MARPOL Annex VI in the form of a new Chapter 5 (“Measures to reduce greenhouse gas fuel intensity of international shipping”). The press briefing described this as “the first regulations in the world to combine mandatory emissions limits and GHG pricing across an entire industry sector.” MEPC 83 did not adopt these amendments: approval in draft is a preparatory step under IMO procedure. Formal adoption requires a separate vote under the tacit acceptance procedure, planned for the extraordinary session.

Adoption status: the MEPC/ES.2 adjournment

What happened in October 2025

The extraordinary second session of MEPC (MEPC/ES.2) convened 14-17 October 2025 in London specifically to adopt the draft Chapter 5 amendments. On the final day, Singapore tabled a motion to adjourn. Saudi Arabia called a vote. Member states voted 57-49 in favor of adjournment, with 21 abstentions and eight states absent. The session closed without adopting the framework.

This matters for every claim about the Fund. Nothing in the IMO Net-Zero Framework is adopted, in force, or legally binding as of mid-2026. The Fund does not exist as a legal entity. The GFI targets, pricing tiers, ZNZ thresholds, and disbursement objectives described throughout this article reflect the draft text approved at MEPC 83 and subject to change before and after any formal adoption.

Why the vote failed

Multiple fault lines surfaced at MEPC/ES.2. The United States characterized the framework as an “unsanctioned global tax regime” and opposed the Tier 2 pricing level. Saudi Arabia and Russia, as major fossil-fuel producers, objected to the pace and structure of the pricing mechanism. Some developing-country delegations raised concerns about the lack of finalized disbursement details: with Fund governance and allocation percentages still undetermined, the assurances of just-transition support remained abstract. Singapore’s adjournment motion reflected a preference for more preparation time rather than opposition to the framework in principle.

Next steps and revised timeline

The IMO Secretariat is tasked with reconvening the extraordinary session in approximately 12 months, targeting late 2026. MEPC 84 and MEPC 85, scheduled through autumn 2026, will continue intersessional work on implementation guidelines, Fund governance modalities, and disbursement rules. If adoption occurs in late 2026 and the tacit acceptance period runs its minimum ten months, entry into force falls in late 2027 at the absolute earliest, making 2028 the first realistic compliance year. This aligns with the DNV analysis that GHG requirements could take effect from 2028. A further delay at reconvened MEPC/ES.2 would push entry into force beyond 2028.

The GFI compliance mechanism: how the Fund is capitalized

The two-tier compliance structure

MARPOL Annex VI Chapter 5 establishes two GFI thresholds, measured in grams of CO2-equivalent per megajoule on a well-to-wake basis, against a 2008 reference fleet intensity of 93.3 gCO2eq/MJ.

The Direct Compliance Target is the tighter threshold. A ship meeting or exceeding this target pays nothing to the Fund. The Direct Compliance Target declines from a 16.25% reduction in 2028 to an 18.875% reduction in 2029 and 21.5% in 2030, with targets specified through 2035 and a 2040 level to be set under five-year review cycles.

The Base Target is a less stringent threshold. Ships with an attained GFI between the Base target and the Direct Compliance target fall into Tier 1 and pay USD 100 per tonne CO2eq for each unit of deficit. Ships with an attained GFI above (worse than) the Base target fall into Tier 2 and pay USD 380 per tonne CO2eq for the deficit above the Base target, in addition to the Tier 1 charge on the gap between the two thresholds.

The pricing structure in detail

The $100/$380 pricing applies from 2028 through 2030 under the current draft text. MEPC will review and re-determine pricing after that initial period. The Tier 2 price at $380 is set deliberately high relative to the current cost of most available zero-emission marine fuels, creating a strong compliance signal: a ship burning conventional HFO at the Base target or worse faces a penalty that makes zero-emission fuel alternatives economically competitive. The Tier 1 price at$100 is set to generate a predictable revenue stream from the portion of the fleet caught between the two thresholds without creating a cliff-edge incentive structure.

The GFI compliance calculator applies these thresholds to a vessel’s reported fuel mix and annual energy consumption, computing the per-ship RU obligation that would flow to the Fund. At fleet scale, aggregating the individual RU obligations across the approximately 28,000 to 32,000 ships of 5,000 GT and above on international voyages yields the gross annual Fund inflow before administration costs.

The ZNZ reward mechanism

Ships whose well-to-wake GHG fuel intensity sits at or below the ZNZ threshold earn the right to Surplus Units that can be sold to non-compliant ships, reducing those ships’ RU obligations. This secondary market creates a revenue stream for over-compliant operators on top of the avoided RU cost. The draft framework also contemplates a direct ZNZ reward from the Fund for ships using qualifying ZNZ fuels, but the reward level and distribution process are to be established in implementing guidelines. IMO has indicated these guidelines are expected in 2027, after any adoption.

The ZNZ threshold tightens in two steps. Until 31 December 2034, a fuel qualifies as ZNZ at or below 19.0 gCO2eq/MJ. From 1 January 2035, the threshold drops to 14.0 gCO2eq/MJ. This step-tightening aligns with the expected maturation of green ammonia and green methanol supply chains: 19.0 gCO2eq/MJ is achievable by several advanced biofuel and electrofuel pathways in the late 2020s, while the 14.0 gCO2eq/MJ threshold requires lifecycle intensity reductions that are more technically demanding.

Fund disbursement objectives

What Regulation 41 establishes

The draft Chapter 5 includes a regulation (designated Regulation 41 in working documents) establishing that Fund revenues must be disbursed in compliance with clearly defined objectives. Four disbursement categories appear in the draft text:

1. Rewarding zero/near-zero emission ships using qualifying ZNZ fuels as defined by the threshold above
2. Decarbonization research, development, and technology deployment, covering R&D into alternative fuels, propulsion technology, and operational efficiency measures
3. Capacity building in developing countries, covering technical assistance, training, institutional strengthening for developing-nation maritime administrations
4. Mitigating disproportionate negative impacts on SIDS, LDCs, and other vulnerable States, including food security concerns and maritime supply-chain disruption effects

These objectives are established in the draft regulation. The allocation percentages across the four categories, the eligibility rules within each category, and the governance mechanisms for disbursement decisions have not been finalized. The TESS Forum analysis published in July 2025 explicitly noted that “early clarity on how revenues will be allocated, particularly to support climate-vulnerable countries, will be essential” and that “future efforts at the IMO are expected to initially focus on the technical and administrative aspects of setting up the Net-Zero Fund.” Any specific percentage claims for Fund allocation (such as “30-40% to SIDS/LDCs”) circulating before adoption should be treated as proposals under negotiation, not settled parameters.

Why finalization matters

The gap between the high-level disbursement objectives and the operational details is politically significant. SIDS and LDC delegations at MEPC/ES.2 were among those who needed assurance that just-transition flows would be substantial and predictable before supporting adoption. The lack of finalized allocation rules contributed to the difficulty of securing consensus. Working out Fund governance, eligibility criteria, disbursement percentages, and implementing partnership arrangements is a core task for the intersessional period leading to the reconvened extraordinary session.

Projected Fund scale

Independent modelling by UMAS, the Global Maritime Forum, and the World Bank’s PROBLUE programme has placed potential Fund inflows in the range of USD 12 to 40 billion per year at steady state by the mid-2030s. The range is wide because it depends on: the pace of fleet-wide GFI improvement, the fraction of ships choosing compliance via zero-emission fuels versus RU payment, the RU prices set for the post-2030 period, and the fraction of ships achieving ZNZ status and therefore not paying into the Fund at all. At the lower bound, rapid fuel switching reduces the non-compliant fleet; at the upper bound, slow transition leaves large RU surrender obligations. These projections inform the political debate about Fund scale but are not official IMO estimates and are subject to revision as the regulatory framework crystallizes.

SIDS and LDC just-transition support

The political and regulatory centrality of SIDS/LDC support

SIDS and LDC shipping faces a structural vulnerability under any GFI-based framework: these States often depend on frequent, short-voyage inter-island or coastal shipping with older fleets that face high unit costs for fuel transition. At the same time, their absolute GHG contribution is negligible relative to major shipping nations. The just-transition support obligation addresses this asymmetry: the largest emitters pay into a Fund that flows disproportionately to the most climate-vulnerable and shipping-dependent States.

The 2023 IMO GHG Strategy (MEPC.377(80)) established the just-and-equitable transition as a binding design constraint, not an aspirational add-on. Resolution MEPC.377(80) requires that the mid-term measure basket “support just and equitable transition of the workforce, and address impacts on States, in particular developing countries, small island developing States and least developed countries.” That mandate flows directly into the Fund’s disbursement objectives.

Capacity building eligible activities

Capacity-building disbursements cover training of national maritime administrations in MARPOL Annex VI implementation, technical assistance for GFI data collection and reporting under the IMO Data Collection System, institutional strengthening of flag State and port State control authorities, and exchange programs between developing-country and developed-country administrations. The IMO’s Integrated Technical Cooperation Programme has operated in this space for decades; the Fund would scale and accelerate the program’s reach.

Port infrastructure projects eligible for just-transition support include onshore power supply (cold ironing) facilities, zero-carbon bunkering capacity, and port digitization to support fuel-consumption monitoring. These are capital-intensive, and Fund disbursements in this category would typically co-finance alongside national infrastructure budgets and multilateral development bank lending.

Training and scholarship programs for seafarers from SIDS and LDCs, handling the transition to alternative-fuel vessel operation, are also within scope. The IMO Maritime Academy scholarship program and World Maritime University in Malmö are natural implementing partners for scholarship disbursements.

The 49 SIDS and 45 LDCs

The 49 Small Island Developing States listed by the UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS) and the 45 Least Developed Countries on the UN-LDC list are the primary geographic beneficiaries. Within these groups, Pacific SIDS face the greatest maritime-connectivity dependency and the smallest domestic fuel-transition markets, making them the politically loudest voice at MEPC on Fund design. Caribbean SIDS and African coastal LDCs have similarly high maritime exposure relative to their economies.

Zero/near-zero fuel infrastructure

The infrastructure gap the Fund addresses

Green ammonia, green methanol, green hydrogen, and biofuels meeting the 19.0 gCO2eq/MJ threshold require a production, storage, and bunkering infrastructure that does not yet exist at the scale international shipping demands. A container ship burning green methanol needs bunkering availability at Singapore, Rotterdam, Shanghai, and Busan, not just at one pioneering hub. Closing this infrastructure gap on a timeline consistent with the GFI reduction trajectory 2027 to 2050 requires capital flows that the private sector alone cannot yet sustain given fuel-price uncertainty and chicken-and-egg supply-demand dynamics.

Eligible infrastructure categories

Bunkering hubs at major ports are the primary eligible category: greenfield ammonia bunkering terminals, methanol bunkering retrofits of existing chemical-tanker terminals, hydrogen liquefaction and dispensing facilities, and the safety infrastructure that ammonia and methanol require. Upstream electrolysis and fuel-synthesis facilities are also in scope where additionality is demonstrable: the renewable electricity used for electrolysis must not displace renewable supply that would otherwise have decarbonized grid consumption.

Fund disbursements for infrastructure projects are expected to operate on a co-financing basis rather than full cost coverage, leveraging private equity and multilateral development bank lending alongside Fund capital. First-loss guarantee structures, where the Fund assumes the first-loss tranche of project debt, are another modality under discussion: this de-risks private capital without requiring 100% grant financing from the Fund.

Geographic balance considerations

Priority for developing-country bunkering infrastructure addresses a risk that market forces alone would concentrate zero-emission fuel availability at the highest-volume ports in developed economies, leaving SIDS and LDC ports underserved. Any adopted disbursement rules will likely include a sub-target ensuring a material share of infrastructure grants reaches developing-country port projects.

R&D and technology deployment

The joint research call model

R&D disbursements under the proposed framework follow a competitive grant model. IMO documents envisage a joint research call issued periodically, designed by the Board of the Fund in coordination with the IMO Secretariat’s marine technology division, inviting proposals from research consortia. Research priorities include lifecycle GHG accounting refinements (improving the Marine GFS methodology and updating default emission factors under MEPC.391(81)), zero-emission propulsion technology maturation, operational efficiency tools, and socio-economic research on just-transition impacts.

Open-access output requirements

An open-access publication requirement for R&D outputs is proposed to maximize the return to developing-country administrations that cannot otherwise access commercially gated research. Datasets published under FAIR data principles and software released under permissive licenses are conditions of grant funding in the draft model, ensuring the global maritime community benefits from publicly financed research.

Fund governance: what is settled and what is not

The MEPC oversight principle

One architectural feature is settled in the draft text: MEPC retains ultimate political oversight of the Fund. MEPC sets the strategic direction, approves the multi-year disbursement framework, and retains the power to set or revise RU prices by resolution. This preserves the intergovernmental character of the mechanism and ensures that the pricing lever, the principal capitalization variable, remains in the hands of the member-state body rather than an operational secretariat.

The Board of the Fund: governance model

The draft framework proposes a Board of the Fund to handle operational disbursement decisions, reporting to MEPC. IMO documents have looked to the International Oil Pollution Compensation (IOPC) Funds as a governance model: the IOPC Funds have operated for half a century paying compensation across hundreds of incidents in over 50 States under an Assembly-Executive Committee-Director structure that the international maritime community trusts. The Net-Zero Fund’s MEPC-Board-Executive Secretary architecture mirrors that model directly, substituting MEPC for a standalone Assembly.

The Board composition rules, meeting frequency, disbursement-threshold authorities, and conflict-of-interest protocols are among the governance details under development in the intersessional period. Geographic balance requirements, ensuring representation for SIDS, LDCs, major flag States, and major bunkering hub States, are a stated design principle, but the specifics have not been finalized.

What remains undetermined

The following Fund parameters had not been finalized as of mid-2026:

• Allocation percentages across the four disbursement objectives
• Eligibility rules for each disbursement category
• Board composition and quorum rules
• Implementing partner arrangements (World Bank, regional development banks, UN agencies)
• ZNZ reward level and distribution methodology
• Per-Member-State allocation caps or floors
• Dispute and appeals mechanism
• OECD DAC scoring arrangements for ODA purposes
• Interaction with EU State Aid rules for European recipients

These are not minor technical details. They determine whether the Fund’s just-transition objectives are enforceable or aspirational, and they are core to the political bargain that adoption requires.

Comparison with existing climate finance mechanisms

The EU Innovation Fund

The EU Innovation Fund is the closest existing analog in scale and capitalization logic: it is funded from auction revenue of approximately 530 million EU ETS allowances over 2020-2030, generating roughly EUR 30 billion at realized carbon prices, with approximately 10% specifically allocated to clean shipping. Like the proposed IMO Fund, it disburses on a competitive project-pipeline basis. It differs in three decisive ways: it is a regional mechanism focused on EU and European Economic Area recipients, not a global one; it does not have an analog to a SIDS/LDC just-transition priority; and its annual shipping envelope (roughly EUR 3 billion per decade) is orders of magnitude smaller than the projected IMO Fund inflows at steady state.

The IOPC Funds governance model

The IOPC Funds (1992 Fund and Supplementary Fund) demonstrate that IMO-affiliated fund bodies can operate at scale for decades with sufficient independence to maintain technical credibility. The IOPC Funds have paid out hundreds of millions of dollars in oil pollution compensation across complex multi-party disputes. Three structural features transfer directly to the Net-Zero Fund model: the Assembly-Executive Committee-Director governance hierarchy, the claims-evaluation workflow with published criteria and reasoned decisions, and the manuals and guidance that codify how decisions are made to provide transparency and predictability.

The key difference is direction of cash flow: IOPC Funds disburse retrospectively to compensate documented pollution losses, while the Net-Zero Fund would disburse prospectively to fund decarbonization projects. Prospective disbursement demands project-management capability, milestone gating, and performance monitoring that the IOPC Funds do not need. The Net-Zero Fund Secretariat will need to develop this capability, likely drawing on multilateral development bank systems for project supervision.

Lessons from the EU Modernisation Fund

The EU Modernisation Fund, capitalizing from ETS auction revenue and disbursing to lower-income EU Member States for energy-system modernisation, offers the closest precedent for the just-transition logic of the IMO Fund’s SIDS/LDC priority. It operates at roughly EUR 25 billion over 2021-2030, administered jointly by the European Investment Bank and a Modernisation Fund Investment Committee. The lesson most applicable to the IMO Fund is that disbursement-cycle predictability is central to recipient trust: irregular calls with uncertain timelines undermine multi-year project planning by national administrations.

Shipping industry compliance strategy and the Fund

The compliance cost spectrum

A ship operator facing the GFI standard in 2028 has four principal responses, and the choice between them determines both the operator’s direct compliance cost and the Fund’s inflow.

The first response is fuel switching to a ZNZ fuel: using green methanol, green ammonia, or an advanced biofuel with a well-to-wake GFI at or below 19.0 gCO2eq/MJ. This eliminates the RU obligation entirely and may generate Surplus Units. It demands capital investment in dual-fuel or fuel-capable engines and onboard fuel storage, plus access to ZNZ bunkers. The green premium on ZNZ fuels in 2028 is expected to remain substantial: industry estimates place green methanol at two to three times the energy-equivalent cost of VLSFO in 2028 under current production cost trajectories, though this gap narrows as electrolysis scale builds and renewable electricity prices fall.

The second response is partial blending: using a lower-GFI blend (e.g., a biofuel blend below 30% sustainable content) that moves the attained GFI closer to the Direct Compliance target, reducing but not eliminating the RU obligation. This is a transitional strategy: it caps the RU bill while the operator evaluates capital investment in full zero-emission propulsion.

The third response is Surplus Unit purchase: buying Surplus Units from over-compliant ships via the secondary market and surrendering them to reduce the RU cash payment. This is a financial rather than an operational decarbonization strategy. It does not change the ship’s actual GHG intensity; it redistributes revenue from the non-compliant ship to the over-compliant one instead of to the Fund. For operators who cannot yet convert to ZNZ fuels due to supply availability, Surplus Unit purchase is a compliance bridge.

The fourth response is RU payment to the Fund: paying the Tier 1 or Tier 2 price per tonne of deficit and continuing to operate on conventional fuel. At $380 per tonne for Tier 2 deficits, this is the most expensive per-tonne outcome for the operator and the most capitalizing for the Fund. Industry analysis suggests that Tier 2 RU payment is uneconomic for most operators relative to partial fuel switching, making the high Tier 2 price effective as a behavior-change signal rather than a primary revenue source.

Implications for Fund inflow timing

The compliance strategy mix across the fleet determines when Fund inflows are largest. In the 2028-2030 period, when the GFI trajectory is still relatively close to baseline and fuel-switch costs are high, most ships are expected to operate with some RU liability: the Fund inflows are largest in this early phase. As the 2035 trajectory tightens and green fuel supply scales, more ships achieve compliance via ZNZ fuel or blending, reducing RU liability and Fund inflows. The Fund’s reserve-building phase is therefore front-loaded; the disbursement phase can draw on accumulated reserves as inflows decline in the late 2030s.

WTO and ODA legal considerations

OECD DAC scoring

Disbursements to SIDS and LDCs under the Fund’s just-transition objective would likely qualify as Official Development Assistance (ODA) under OECD Development Assistance Committee criteria, provided each disbursement is administered with the promotion of economic development and welfare as its main objective, is concessional in character, and flows to a DAC-list recipient country. ODA scoring matters because donor countries contributing to or co-implementing Fund projects can count those contributions toward their national 0.7% of GNI ODA targets. It also triggers application of the Paris Declaration principles on aid effectiveness and the OECD untying rules.

The grant character of proposed Fund disbursements (grants rather than loans) simplifies ODA scoring: a 100% grant is 100% ODA on the grant-equivalent basis, and it does not add to the sovereign debt burden of SIDS and LDCs already at elevated debt-distress risk.

WTO SCM Agreement considerations

The WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) potentially disciplines Fund disbursements that benefit producers of internationally traded goods or services. IMO documents note three legal pathways for Fund disbursements to avoid actionable-subsidy classification: the non-specificity argument (infrastructure disbursements available across qualifying projects globally rather than targeted at specific industries or firms), the public-good argument (disbursements for global climate-system stability fall within recognized general-infrastructure carve-outs), and the absence of export-contingency (disbursements are not conditioned on export performance under Article 3 of the SCM Agreement).

The principal residual WTO risk is a challenge to ship-deployment subsidy disbursements (rewarding new zero-emission vessels) by major shipbuilding nations, on grounds that such subsidies specifically benefit ship operators and downstream shipbuilders. The IMO Secretariat is aware of this risk and has sought legal analysis. Designing rewards as technology-neutral within the ZNZ definition rather than vessel-type-specific or flag-state-specific reduces but does not eliminate this exposure.

The Surplus Unit secondary market

How over-compliant ships generate tradeable credits

A ship whose attained GFI sits below the Direct Compliance target generates Surplus Units that can be sold to non-compliant ships. The buyer surrenders Surplus Units in partial satisfaction of its RU obligation, reducing the cash flow into the Fund but also reducing the compliance cost of the purchasing ship. This secondary market is an intentional design feature: it creates a revenue stream for early movers on zero-emission fuels and provides non-compliant ships a market mechanism to manage compliance cost beyond simply paying into the Fund.

The Surplus Unit market does not reduce the aggregate decarbonization signal. A Surplus Unit represents a tonne of CO2eq reduction already achieved by the selling ship; the buying ship’s obligation is reduced by that tonne, so the total systemic GHG outcome is preserved. What the market does is redistribute who pays and who receives: over-compliant ships capture revenue, under-compliant ships transfer cash to them rather than to the Fund.

Impact on Fund inflow

From the Fund’s perspective, every Surplus Unit surrendered by a buying ship is one tonne of CO2eq that does not generate a cash RU payment into the Fund. The Fund’s gross inflow is therefore the aggregate RU obligation at the Tier 1 and Tier 2 prices minus the aggregate Surplus Unit surrenders. In years of rapid ZNZ fuel adoption, Surplus Unit volumes can be large and Fund inflow growth can be moderated even as total compliance with the GFI tightens. Modelling by UMAS placed the Surplus Unit market at potentially 10-30% of total compliance transactions in the early years, a non-trivial offset to gross Fund inflow.

This dynamic has design implications for Fund revenue planning. If the Fund’s disbursement commitments are forward-projected on gross RU obligation before Surplus Unit netting, actual inflows can fall short. The draft framework addresses this through the concept of a Fund reserve, accumulated in early years when compliance is partial and RU prices are set for the 2028-2030 window, providing a buffer for years where Surplus Unit volumes are high.

Interaction with the EU ETS shipping

Parallel obligations for the same voyage

Ships operating within EU waters already face EU ETS allowance allocation for shipping obligations under the EU Emissions Trading System, which entered force for shipping in 2024. Once the IMO Net-Zero Framework takes effect (contingent on adoption), large ships will face dual GHG obligations: EU ETS allowance surrender for voyages to, from, or between EU ports, and IMO GFI compliance for their entire international voyage profile. The EU ETS EUA liability calculator covers the EU side; the GFI compliance calculator covers the draft IMO obligation.

One concern raised at MEPC/ES.2 was potential regulatory inconsistency between the EU ETS and the IMO framework. The EU’s carbon price is per tonne CO2eq on a market-clearing basis, while the IMO Tier 1/Tier 2 structure sets administratively determined prices for two deficit bands. If EU ETS prices rise above $100 per tonne, the Tier 1 IMO price provides no additional compliance pressure for EU-voyaging ships already bearing EU ETS costs. The EU has stated informally that it would consider whether and how to adjust the EU ETS scope once the IMO framework is adopted, but no formal legislative proposal was on the table as of mid-2026.

FuelEU Maritime interaction

The EU’s FuelEU Maritime regulation, entering effect from 2025, sets its own lifecycle GHG intensity limits for fuels used at EU ports and on EU voyages, using a reduction pathway referenced to a 91.16 gCO2eq/MJ baseline (the 2020 EU average). Ships operating into EU ports must therefore satisfy both FuelEU Maritime fuel-intensity limits and, on their entire voyage profile, the IMO GFI requirement. Because the EU and IMO frameworks use different baselines and slightly different lifecycle accounting boundaries, a fuel blend that satisfies FuelEU Maritime may or may not satisfy the IMO GFI standard for the same voyage. The GFI attained calculator covers the IMO well-to-wake computation; FuelEU Maritime uses a tank-to-wake denominator for the compliance check (with the well-to-wake calculation used only for the ZNZ multiplier benefit).

The just-transition bargain: why the Fund is the framework’s core

SIDS and Pacific Island States as climate creditors

Pacific Island States, Marshall Islands, Solomon Islands, Vanuatu, Tuvalu, and others, are simultaneously the States with the lowest contribution to shipping’s global GHG emissions and the most severe exposure to its climate consequences. Sea level rise, intensified cyclones, and coral bleaching already cost Pacific SIDS economies the equivalent of several percent of GDP annually. At MEPC negotiations since MEPC 76, Pacific SIDS delegations have argued this moral asymmetry from a position of principle: they will not endorse a compliance mechanism that generates no commensurate financial return to climate-frontline states.

The IMO GHG Strategy’s just-and-equitable transition language was the outcome of that negotiating position. Without it, MEPC 80 would not have achieved the consensus on 2030 and 2040 trajectory that the Revised Strategy embeds. The Fund is the institutional mechanism that makes the just-transition commitment concrete. SIDS can point to specific disbursement objectives in the regulation text; they can demand that those objectives be funded at identifiable scale; and they can seek recourse if the Fund’s Board fails to disburse against them.

LDCs and the maritime supply chain

Least Developed Countries face a different but equally pressing vulnerability. Many LDCs depend heavily on maritime trade for food imports, energy imports, and export revenues, with shipping costs representing a larger share of delivered-goods prices than in middle-income economies. A GFI-driven fuel-cost increase for VLSFO shipping, passed through to freight rates, hits LDC import bills harder in absolute welfare terms than it hits consumers in richer states.

The World Bank’s PROBLUE programme estimated in 2021 that a carbon price on shipping of USD 50 per tonne CO2 would raise shipping freight costs by approximately 4-7%, with asymmetric pass-through onto import-dependent, landlocked, or island LDCs. A Tier 2 price of USD 380 per tonne, applied to non-compliant ships operating LDC routes, could generate a substantially larger freight-rate effect on those routes specifically if compliant fuel is unavailable at nearby bunkering hubs. The Fund’s infrastructure disbursement objective, building ZNZ bunkering capacity at developing-country ports, is the supply-side response to this risk: make compliant fuel available where compliance would otherwise require fuel-switching to a fuel unavailable locally.

How the Fund changes the political arithmetic

The Fund transforms the political arithmetic for both blocs. For SIDS and LDCs, the Fund converts an abstract commitment to just transition into a quantified, regulatorily mandated disbursement obligation. For developed shipping states and flag states, the Fund provides a defense against the accusation that the IMO pricing mechanism reproduces historical North-South inequity. For major shipowners, the Fund creates a clear compliance pathway: pay into the Fund if ZNZ fuels are unavailable, with confidence that the Fund will use those proceeds to build the infrastructure that eventually enables zero-emission operation. The chicken-and-egg problem of fuel-switching, no operator switches to a ZNZ fuel without supply certainty, no supply certainty exists without demand, is partially addressed by Fund-capitalized infrastructure investment.

Limitations of this article

Three firm limits apply to any analysis of the IMO Net-Zero Fund before formal adoption.

First, the disbursement architecture is a work in progress. The allocation percentages, eligibility rules, Board governance, and implementing partner arrangements described in various analytical documents and advocacy materials reflect proposals under negotiation, not adopted text. This article describes the framework’s stated objectives and what is established in the draft regulation; it does not present proposed allocation percentages as if they were settled parameters.

Second, the entry into force timeline is genuinely uncertain. The 2028 compliance year assumes adoption at the reconvened extraordinary session in late 2026, a minimum tacit acceptance period, and no subsequent ratification difficulties. Any of these steps could be delayed. The shipping industry and fuel-infrastructure investors face genuine uncertainty about the regulatory timeline.

Third, the Fund inflow projections are modelling outputs, not official figures. The $12-40 billion per year range reflects a span of scenario assumptions and should be read as an order-of-magnitude indicator of the Fund’s potential scale rather than a committed revenue forecast.

See also

• IMO Net-Zero Framework: the encompassing regulatory framework
• IMO levy economic measure: the pricing mechanism feeding the Fund
• Marine GFS methodology: the lifecycle GHG accounting standard
• Tier 1 Required GFI standard: the Direct Compliance threshold
• Tier 2 Direct Compliance Threshold: the Base target and its compliance logic
• Reward Unit issuance and pooling: the Surplus Unit over-compliance mechanism
• IMO GHG Strategy: the 2023 political mandate (Resolution MEPC.377(80))
• MARPOL Annex VI: the parent convention
• GFI reduction trajectory 2027 to 2050: the annual target schedule
• EU ETS allowance allocation for shipping: the parallel EU obligation
• GFI compliance calculator: per-ship RU obligation under the draft framework
• GFI attained calculator: fuel-mix lifecycle intensity computation
• EU ETS EUA liability: EU comparator computation

References