Navigating New Rules: A Deep Dive into the Policies Affecting Low-Carbon Shipping Fuel with Late-Breaking Updates

April 09, 2026

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by Timothy J. Urban (Bracewell LLP Energy Legal Blog/National Law Review) Recent federal, state, and international policy developments have introduced regulatory uncertainty in the low-carbon maritime fuels sector, complicating investment in both fuel production and supporting energy infrastructure. Stakeholders across the maritime shipping industry are grappling with the nuances of evolving tax incentives, eligibility criteria, and implementation rules. The ability to interpret this regulatory landscape is paramount as producers, shippers, and investors alike navigate this next phase in maritime decarbonization.

The stakes are considerable. The global shipping industry, which currently accounts for roughly 3 percent of global greenhouse gas (GHG) emissions and is projected to rise to as much as 17 percent by 2050, consumes over 300 million tons of fossil-based “bunker fuel” each year. Although low-carbon fuels have become a mainstay in highway transportation, their use in maritime shipping is still in its nascent stages. Shippers are increasingly investigating the various benefits associated with use of biodiesel, ethanol, clean methanol, renewable diesel, and renewable natural gas (RNG). Shipping giant Maersk, for example, has targeted 15 to 20 percent green fuel or renewable fuel use by 2030, having already invested in 18 dual-fueled methanol container vessels.

At the same time, as electrification accelerates in the automotive sector, uncertainty surrounding long‑term demand has prompted biofuel producers to turn toward maritime applications of their products. The adoption of low-carbon maritime fuels offers both an opportunity for emissions reductions and an avenue of growth for the mature, U.S.-dominated biofuels industry. The sector is also closely tied to industrial power, logistics energy use, and port infrastructure, areas in which the United States has significant competitive advantages. Both state and federal policy will be critical in determining the United States’ ability to leverage these advantages.

Fuel producers, ship builders, and shipping companies are taking notice.

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Several new maritime fuels umbrella groups have joined the fray, including the Maritime Innovation Coalition and the American Biofuels Maritime Initiative.

Stakeholder enthusiasm notwithstanding, the policy landscape continues to evolve in ways that directly impact low-carbon maritime fuel adoption. The following section untangles this landscape and breaks down the most relevant policy decisions.

Federal Tax Incentives: Understanding 45Z

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The 2022 Inflation Reduction Act (IRA) created new tax code section 45Z, a performance-based and technology-neutral clean fuel production tax credit intended to lower the cost and drive adoption of low-carbon transportation fuels, including maritime fuels.

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Critical to the maritime use of low‑carbon fuels, the regulations clarify that while a transportation fuel must be “suitable for use” in a highway vehicle or aircraft, the fuel’s actual use in a highway vehicle or aircraft is not required to qualify for the tax credit. As such, fuel that has “practical and commercial fitness” for use in highway vehicles or aircraft but is ultimately used as marine fuel still qualifies. Additionally, the guidelines clarify that “suitable for use” includes fuels that may be “blended into a fuel mixture” fit for highway or aircraft use.

These broad eligibility requirements allow established fuels like biodiesel, renewable diesel, and RNG—which are approved for use in trucks—to be used in maritime fuel and still qualify for 45Z credits. Other promising fuel candidates for maritime use like ethanol (denatured and undenatured) and clean methanol—which are approved for blending with gasoline—also qualify. Importantly, these fuels must also meet additional emissions standards, eligibility criteria for producers and facilities, and be sold to an “unrelated person” to generate the credit.

Late-Breaking Update: The comment period for the proposed regulations closed on April 6, with many taxpayers taking an opportunity to provide feedback. Taxpayers will also testify at a public hearing on the proposed regulations, which will be hosted on May 28. Following the hearing, Treasury and the IRS will issue final regulations, enabling eligible low-carbon fuel producers and maritime shippers to move forward with confidence as they claim 45Z credits.

Federal Credits: The Renewable Fuel Standard

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The program requires refiners and importers of fuel to blend increasing volumes of biofuel into the nation’s transportation fuel supply each year. These “obligated parties” prove they have complied with the blending requirements by submitting to the EPA Renewable Identification Numbers (RINs), numerical credits assigned to every gallon of biofuel produced in the U.S. These credits can also be traded among obligated parties and therefore have monetary value.

Unfortunately for maritime shippers, under current RFS regulations, RINs associated with biofuel used in ocean-going vessels (defined as ships powered by Category 3 engines) must be retired with no value in the program. If the law were changed to integrate maritime fuel into the RFS, fuel producers and blenders could generate and sell RINs to obligated parties, subsidizing the higher production cost of biofuels. This would allow them to offer competitive pricing to maritime shippers, increasing demand and incentivizing low-carbon maritime fuel production.

Such changes may be on the horizon:

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State-Level Developments

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Many potential low-carbon maritime fuels, including biodiesel, renewable diesel, RNG, ethanol, and methanol, are effectively “pre-approved” to earn LCFS credits provided they meet CI criteria.

While fuels used in ocean-going vessels (OGVs) are currently exempt from the LCFS program and do not generate deficits, low-carbon maritime fuel producers can still opt-in to earn credits. Additionally, under other CARB regulations, OGVs are subject to restrictions on particulate matter, nitrogen oxide, and sulfur oxide emissions, limiting the use of traditional, high sulfur “bunker fuel.” Taken together, these incentives create a generally favorable environment for clean shipping fuel adoption in the state.

It is important to note, however, that amendments to LCFS approved in mid-2025 will soon enforce a 20% “crop cap” on LCFS credits for biofuels produced from virgin crop oils.

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In the Pacific Northwest, Oregon and Washington have established similar programs to California’s LCFS. As in California, the maritime sector is exempt from generating deficits in both states, but low-carbon maritime fuel producers are encouraged to opt-in.

As the first non-coastal state to launch a full, market-based program, New Mexico’s Clean Transportation Fuel program will enter effect on April 1, 2026. While the state has no ports, the program features flexible “book-and-claim” provisions that allow producers to claim credits for fuels intended for transportation use elsewhere, including maritime use.

The rapid development of state-level incentives for low-carbon fuel production may indicate growing support across the United States for low-carbon fuel production. In the maritime sector, close monitoring of state-level developments may allow stakeholders to stack both federal and state incentives. However, as state policies evolve, it may become increasingly necessary to assess how federal and state incentives conflict.

Late-Breaking Update: On the East Coast, New York Senate Bill S.1343B, which would establish New York’s own Clean Fuel Standard, is awaiting action by the Senate Environmental Conservation Committee. The bill aims to reduce GHG emissions from “on-road” transportation by 20% by 2034.

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At the same time, New York Governor Kathy Hochul proposed a plan on March 20 that would push the state’s 40% emissions reduction target from 2030 to 2040 and alter the way GHG emissions are counted, citing affordability concerns.

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Regional and Local Initiatives

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The Detroit/Wayne County Port Authority announced its Decarbonization and Air Quality Improvement Plan in 2024, which sets the ambitious goal of transitioning vessels and shoreside equipment to biodiesel, battery-electric, or hydrogen by 2040. Similarly, a coalition including the ports of Seattle, Tacoma, Vancouver Fraser, and British Columbia as well as the Northwest Seaport Alliance adopted the Northwest Ports Clean Air Strategy in 2020. The initiative aims to completely phase out maritime carbon emissions by 2050.

To reach the coalition’s goals, the Port of Seattle has set forth its own implementation strategy, the Port of Seattle’s Maritime Climate and Air Action Plan (MCAAP).

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The Port of Seattle is also a partner in the Pacific Northwest to Alaska Green Corridor (PNW2AK) project, which seeks to establish a low-carbon cruise-line route between participating Northwest and Alaskan ports.

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Late-Breaking Update: A new study by UC Berkeley published on March 19 highlights Japan’s leadership in port-level decarbonization.

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International Uncertainty: The International Maritime Organization

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In April 2025, the United Nations’ International Maritime Organization (IMO) approved its Net-Zero Framework, a set of international regulations intended to accelerate the shift toward lower-carbon, and eventually, zero-emission shipping fuels. Central to the framework are a Global Fuel Standard (FGS) and a GHG pricing mechanism, the first globally binding regulations to reduce GHG emissions from any industrial sector. The framework sets ambitious targets, requiring maritime suppliers to reduce CO2 emissions by at least 40 percent by 2030 and 70 percent by 2050, relative to 2008 levels.

However, at an extraordinary session of the Marine Environment Protection Committee (MEPC) in October 2025, IMO voted 57 to 9 to delay formal adoption of the Net-Zero Framework into MARPOL, the International Convention for the Prevention of Pollution from Ships, by one year. The delay followed extensive disagreement over fuel standards and emissions pricing as well as muscular lobbying against the new provisions by the United States. In advance of the vote, President Donald Trump personally assailed the Net-Zero Framework, labeling it a “Global Green New Scam Tax on Shipping” in a Truth Social post.

In addition to the delay itself, the U.S.’s resistance to international regulation on low-carbon shipping fuels creates uncertainty for maritime fuel suppliers, particularly those within the United States. While federal-level incentives like the 45Z tax credit encourage low-carbon fuel production for maritime use, this opposition on the international stage projects political hostility toward fuel adoption. So long as these conflicting signals persist, it may be difficult for the low-carbon maritime fuel sector to develop in the United States.

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Late-Breaking Update: In advance of the MEPC’s 84th session to be held from April 27 through May 1, the United States submitted comments this month that call on the IMO to cancel the October 2026 vote. The comments argue that the Net-Zero Framework would “have dire economic consequences for the shipping industry, energy producers and global consumers” and confirmed the U.S.’s opposition to any provisions that would enforce a carbon tax or economic penalties. If the United States is successful in its continued lobbying against the IMO’s adoption of the Net-Zero Framework, it would mark a major setback in the adoption of low-carbon shipping fuels.

International Uncertainty: European Standards

Further complicating the international policy landscape for clean maritime fuels, the European Union (EU) formally implemented its FuelEU Maritime Regulation in January 2025. The program sets a limit on the GHG intensity of energy used onboard all ships of 5,000 gross tonnage (GT) or above that call into the European Union or European Economic Area, including those from abroad. The regulation examines the entire lifecycle of fuels used aboard ships, from production to combustion or a “well-to-wake” approach. For ships coming into or out of the EU, the GHG intensity requirement only applies to half of the energy used during the voyage. Ships that fail to comply face a sizeable economic penalty.

While the program is designed to disincentivize traditional fossil fuels and accelerate the adoption of low-carbon maritime fuels, the FuelEU Maritime Regulation prohibits the use of crop-based biofuels.

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Aside from its FuelEU regulation, maritime carbon emissions in Europe are also regulated under the European Union Emissions Trading System (EU ETS), a “cap-and-trade” regulatory initiative that sets an annually reducing limit on total carbon emissions across the power, aviation, manufacturing, and as of 2024, maritime shipping. The regulation requires firms in these sectors to purchase or receive emission allowances for every ton of carbon emitted. Like FuelEU, the regulation is “flag-neutral” and applies to all cargo and passenger ships of 5,000 GT or above entering EU ports, including 100% of emissions for inter-EU voyages and 50% for intra-EU voyages.

Unlike FuelEU’s lifecycle emissions criteria, the EU ETS uses the “tank-to-wake” approach for maritime vessels, only evaluating emissions from on-board activities like fuel combustion. Additionally, though previously focused only on carbon dioxide emissions, the EU ETS began regulating methane and nitrous oxide emissions for maritime shipping in January 2026.

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Late-breaking update: In the United Kingdom, a new amendment to the UK Emissions Trading Scheme (ETS), the UK’s “cap-and-trade” regulation, will expand restrictions on GHG emissions to the maritime sector beginning July 1.

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Future Policy Directions

As the IRS and Treasury work to finalize federal fuel tax guidance, it should be noted that liberalizing RFS standards would substantially strengthen U.S. supply-side incentives for low-carbon maritime fuels. Additionally, harmonization between federal, state, and port-level initiatives would reduce regulatory uncertainty and strengthen the clean fuels sector. On an international scale, developments at the IMO will be critical to the future of low-carbon maritime fuels. With individual countries and blocs pursuing their own regulations, consistency across emissions criteria and calculations will ease the burden of uncertainty. Continuing to monitor policy developments in these areas is essential to streamlining low-carbon fuel adoption and ensuring that emerging projects can operate with confidence. READ MORE

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