Countdown: Questions Facing the IMO before MEPC 85

October 01, 2026

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(Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping) On 1-4 September, IMO Member States met in London for the 22nd Intersessional Working Group on Reduction of Greenhouse Gas Emissions from Ships (ISWG-GHG 22). The working group’s mandate covered proposals on draft MARPOL Annex VI amendments (the IMO Net-Zero Framework, or NZF), as well as the supporting guidelines on implementation of the draft amendments and on the IMO’s LCA framework.

The working group focused mainly on the proposed amendments, with further development of technical guidelines to be picked up at ISWG-GHG 23 in November. The discussions were structured around five elements of the IMO NZF: the GHG Fuel Intensity (GFI) metric, GFI reduction pathway, compliance approaches, a Net-Zero Fund or Facility, and rewards for zero and near-zero emission (ZNZ) fuels and energy sources.

In this edition of Countdown, you’ll find reflections on the intersessional from members of our team who were on the ground at the IMO. We also share a brief run-down of the key remaining questions to be answered before MEPC 85 in November-December this year.

Reflections from our team on the ground at the IMO

This was an important meeting. The mood was constructive, and it felt like there was good engagement and discussion of some key issues. While little was definitively settled, there is definitely forward momentum.

— Fiona McIlwham, Head of Public Affairs & Strategic Communication

For the first time, the Center has attended an IMO meeting as an accredited NGO with consultative status. This status will allow us to further deepen our engagement and support Member States with the Center’s expert technical insights. At the recent intersessional, I was proud to be there with the team, presenting the Center’s recent analysis of Member State proposals for amendments for MARPOL Annex VI and taking part in the discussions.

— Daniel Barcarolo, Head of Regulatory Affairs

No decisions, but clearer questions

The discussion at the working group was structured around core policy design topics to address remaining concerns with the IMO NZF in line with the 2023 IMO GHG Strategy. Here's an overview of the key points of alignment and the remaining open questions before IMO Member States, which we’ll explore further in the rest of this edition of Countdown.

Figure 1: Summary of areas of alignment and open questions based on discussions at ISWG-GHG 22, along with dependencies shown with arrows.

Target-setting

Open question: Drive a market or follow it?

The five proposals discussed at ISWG-GHG 22 included two distinct approaches to setting annual emissions reduction targets. The draft IMO NZF as approved at MEPC 83 sets targets ex-ante to drive a transition to low-emissions alternatives. Liberia's proposal (CL.5213) instead sets targets from fuels that are already commercially viable, and Japan proposes a mix, with fixed targets from 2028 through 2035 and later targets left to a review of commercial viability.

The proposal from Liberia defines commercial viability through six criteria, including a price threshold at twice that of conventional bunker fuel, at least a 4% share of the marine fuel market, and availability at “sufficient” ports globally. These criteria are difficult to assess due to ambiguities or practical challenges, such as the requirement for bunkering locations no more than 2,500 nautical miles apart. Discussions pointed to the logic of assessing affordability, availability, and scalability for five-year reviews, without endorsing Liberia's specific criteria.

Open question: Where to set targets?

Member States also considered the stringency of GHG fuel intensity (GFI) targets. Brazil and Japan both proposed adjusting the IMO NZF for a softer start through 2035/2036.

Brazil's targets then bend down more steeply, building to a 70% base target reduction in 2041. For comparison, the draft IMO NZF specifies a target of 65% in 2040.

A submission from Japan set out a rationale for revised targets (MEPC 85/7/2, registration required). Using data on age distribution, historical replacement rates, and the dual-fuel share of the orderbook, and assuming energy efficiency improves by 45% by 2030 and 70% by 2050 compared to 2008, the submission estimates an "achievable" set of targets which it describes as "almost aligned" with the 2023 IMO GHG Strategy's indicative checkpoints.

Figure 2: Two proposals from Brazil and Japan revise the targets from the draft IMO NZF as approved at MEPC 83. The Brazil proposal targets start in 2029, with Tier 1 targets delayed to 2031.

Open question: A long-term target?

Member States also considered whether to include a long-term target beyond 2035/2036. Some argue that it is premature to set targets beyond 2035, while others emphasize the need for long-term targets to provide certainty for planning and investments.

The draft IMO NZF, along with proposals from Brazil and Tuvalu, proposes a long-term target for 2040/2041. By contrast, the submission from Japan proposes to leave this target to what is considered commercially viable in the 2032 review.

The Center’s first intervention: Long-term targets provide needed certainty

ISWG-GHG 22 was the first IMO meeting where the Center was present as an NGO with consultative status. In addition to a presentation of our analysis of proposals, the Center intervened during the discussions, calling on Member States to adopt long-term targets that can create the certainty needed to plan investments. We noted that long-term targets set a fixed direction and pace of change that can drive industry-led innovation.

Compliance options

Alignment: Acceptance of reducing and trading emissions

All Member States agreed that the primary compliance option for a ship should be the reduction of emissions. Nearly all accepted that trading emissions credits between ships was an acceptable alternative. This included broad support for using surplus units to comply with both Tier 1 and Tier 2 targets, which was included in both Brazil and Japan’s proposals.

Open question: Compliance through a contribution to a fund or facility?

Under the draft IMO NZF, ships that fail to reduce their emissions below the annual GFI targets can comply by buying two types of remedial units. The remedial units corresponding to the Tier 2 targets are set at an initial price of 380 USD/tCO2eq, designed to drive fuel switching while avoiding price spikes. The Tier 1 remedial unit, set at 100 USD/tCO2eq, was designed to collect revenues to support a just and equitable transition and ZNZs.

While contributions from both types of remedial unit were initially designed to go to a Net-Zero Fund, Member States are now considering two separate design questions:

Whether remedial units should remain an available compliance option providing flexibility for ships in Tier 2
Whether remedial units should be used through Tier 1 for revenue collection (see upcoming sections on ‘Just and equitable transition’ and ‘Zero and near-zero emission fuels, technologies, or energy sources’)

Some argued that remedial units, or equivalent flexible compliance mechanisms for Tier 2, undermine the incentive to reduce emissions, while others noted that they are a necessary safety valve in case of surplus unit shortages. Whether or not remedial units are included as a compliance option may influence the target-setting. Without flexibility, Member States may opt for less stringent targets.

Just and equitable transition

Alignment: Reaffirmed support for a just and equitable transition

Member States remain aligned on the aim of a just and equitable transition, as set out in the 2023 IMO GHG Strategy. However, given the challenges in finding alignment on the revenue collection mechanism in the draft IMO NZF, there has been discussion of whether this agreed objective could be met through other means.

Open question: How to achieve a just and equitable transition?

The governance and administrative costs of any fund, as well as the IMO’s institutional mandate, have been at the center of concerns raised. Some states argued that an IMO-administered fund would go beyond the organization’s authority, or were unconvinced that a fund could collect and disburse revenues from a global fleet effectively. Liberia and Panama (ISWG-GHG 22/2/9) proposed removing all revenue generation, arguing that voluntary support can assist developing states while avoiding the challenges of a fund.

Delegations supporting an IMO-managed fund argued that predictable revenue is the most effective way to deliver reliable support for developing states while bridging the price gap between fossil fuels and ZNZs (see also next section). From this perspective, a fund’s role would be essential in ensuring equitable, accountable, and predictable revenues. Brazil and Japan have proposed alternative designs that aim to address concerns regarding an IMO-administered fund, while Canada referred to an older proposal (see box).

Three options without an IMO-managed fund

Several options for achieving just and equitable transition in the absence of an IMO-managed Net-Zero Fund were considered. They differ in governance and who selects the recipient of financial contributions.

Brazil's Facility (ISWG-GHG 22/2/12): Under Brazil’s proposed “facility” model, a separate governing board could retain authority over strategy and operations, while an international financial institution such as the World Bank could host and administer the facility as trustee. Brazil also proposes a sunset clause for the facility and the option of voluntary donations.

Japan's Direct Voluntary Contribution scheme (MEPC 85/7/1 and 85/7/3): Shipping companies choose projects themselves, rather than the Fund deciding how revenue is distributed. The IMO evaluates and approves eligible projects, limited to the same purposes set out for Fund disbursement in regulation 41 of the draft amendment.

Canada's roster of eligible funds (ISWG-GHG 16/2/16): Originally proposed in 2024 and discussed again at this meeting, MEPC would set eligibility criteria, an expert group would assess candidate funds, and ships would pay directly to approved funds. The proposed criteria include climate integrity, value for investment, internationality, non-discrimination with dedicated channels for least developed countries (LDCs) and low- and middle-income small island developing states (SIDS), transparency and accountability, and a demonstrated track record.

Zero and near-zero emission fuels, technologies, or energy sources

Alignment: Support for a dedicated incentive for ZNZs

Like the just and equitable transition, support for ZNZs is linked with the decision on a fund and revenue collection through Tier 1. There was broad support for retaining a dedicated ZNZ incentive, with the final design decisions left to guidelines. However, Member States will need to resolve whether the reward comes from financial contributions, through a calculation-based incentive, or a combination of the two.

Open question: How to reward ZNZs?

China proposed methods for a fixed monetary reward (ISWG-GHG 22/3/2) or a calculation-based incentive using a multiplier (ISWG-GHG 22/3/1) (see box). These concepts were discussed by the working group, with particular interest in the multiplier concept. Supportive Member States saw the multiplier either as a useful supplement to monetary rewards or as a replacement for them. However, some Member States noted the complexity of adding a multiplier and the distortions it could potentially create, or argued a reward was unnecessary.

China's ZNZ incentive multiplier

In China's proposal (ISWG-GHG 22/3/1), a factor is applied to ZNZ energy in the denominator of the attained GFI calculation, while the numerator continues to reflect the actual well-to-wake emissions of all fuels used. The ship is credited as though it had used more energy than it did, thereby increasing the ship’s compliance surplus.

China's indicative values for the multiplier, which are designed to cover the cost gap between conventional marine fuels and ZNZs, decline from approximately 1.95 in 2029 to 1.10 in 2035 as this cost gap narrows.

In our recent paper on incentivizing low-emissions fuels, we argue that multipliers are a second-best substitute if no funds are available. We also outline the trade-offs of a multiplier mechanism.

Market certainty: The incentive is automatically applied through the GFI calculation and does not face challenges of a limited budget or time delay from revenue collection and distribution.
SU market dilution: The multiplier increases the supply of surplus units, with potential impacts on their market price.
Supports ZNZ use up to a point: As set out in China's submission, a multiplier incentivizes ZNZ uptake up to a certain share of the ship’s fuel mix. Each additional unit of ZNZ delivers a smaller reduction in adjusted GFI, while the additional cost from adding more ZNZs continues to rise.

What’s coming up next?

Member States will meet again to discuss remaining questions in another ISWG-GHG starting 23 November 2026. Negotiations will continue into the following week during MEPC 85 (30 November-4 December). At this point, Member States can decide to approve a revised draft amendment or further postpone the decision.

If Member States agree that the draft amendments have met the six-month circulation practice, the process could move into adoption of the amendments. For this, Member States have set aside Friday 4 December as a possible resumption of the extraordinary session from October 2025. Otherwise, a decision on adoption could be made at MEPC 86 (expected October 2027).

Regardless of what happens, an extraordinary period for maritime decarbonization is certain to continue through the rest of this year.