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
Related articles
- US proposes ethanol-bunker friendly change to IMO biofuel rules (Ship and Bunker)
- MEPC 84: US flags ILUC blind spot in IMO’s biofuel assessment (Hellenic Shipping News)
- MEPC 84: NZF needs support from major economies to drive green fuel shift – MMMCZCS (Engine)
- Conservation groups urge governments to reject biofuels in shipping decarbonization plans (American Journal of Transportation)
- Why shipping’s cheapest alternative fuel could become its most expensive mistake (International Council on Clean Transportation/Lloyd's List)
Excerpt from Ship and Bunker: The United States is proposing a change to IMO biofuel rules that aims to tackle unintended deforestation from fuel crops, while at the same time giving a boost to U.S. ethanol production. Specifically, Washington has challenged the IMO's approach to assessing the land use change risks of crop-based marine fuels - a category dominated by ethanol - arguing that the current methodology contains a flaw that could allow fuels sourced from high-deforestation regions to qualify as sustainable under IMO rules. In a submission to the 21st session of the Intersessional Working Group on GHG Emissions from Ships (ISWG-GHG 21/3/21), the US argues that the 2024 LCA Guidelines assess indirect land use change (ILUC) risk only within the boundaries of individual biofuel projects - which, since ILUC by definition occurs outside those boundaries, renders the assessment largely meaningless. READ MORE
Excerpt from Engine: Shipowners could become more hesitant on green fuel investments if an IMO Net-Zero Framework is adopted without the backing of major economies, says Daniel Barcarolo.
Barcarolo is the head of regulatory affairs at the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping and will attend IMO meetings over the next two weeks. He spoke to ENGINE’s Konica Bhatt about the uncertainty around the Net-Zero Framework (NZF).
The IMO's Intersessional Working Group on Reduction of GHG Emissions from Ships (ISWG-GHG 21) is meeting in London this week to discuss member state submissions on the framework’s fate ahead of MEPC 84 next week.
The US and several petrostates have strongly opposed any economic element in the framework. Even if a version of the NZF is approved without US backing, that opposition carries commercial weight, Barcarolo said.
"While there is strong interest in alternative fuels, uncertainty around the final shape, timing and stringency of global regulation makes it harder to take final investment decisions, especially for assets with lifetimes of 20 to 30 years," he told ENGINE.
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What is the greater risk to shipping's green fuel transition at this stage – delayed adoption of the IMO’s Net-Zero Framework or a watered-down framework?
Both would be problematic for the decarbonisation mission. There is a lot happening in the world right now, but it is precisely in times of geopolitical tension, energy crises and price volatility that we need to keep the focus on the long‑term transition. Recent developments — from conflicts in energy‑producing regions to renewed market volatility — only reinforce the case for moving towards more resilient energy systems based on renewables and sustainable fuels.
We need to leverage the overwhelming support seen across the industry for global regulation, and the shared vision embedded in the IMO’s GHG Strategy adopted in 2023 and secure agreement for an ambitious, global regulation.
We remain optimistic. Not only because optimism is part of our DNA, but because there is clear alignment beneath the surface. Countries may be motivated by different priorities: some driven primarily by climate ambition, others by opportunities linked to energy security, industrial development and next‑generation fuels — from LNG and biofuels to nuclear and e‑fuels.
What the industry needs most right now is not perfection, but a clear and robust framework that creates confidence that investments made today will still make sense tomorrow.
Have you seen shipowners delay or reconsider alternative fuel investments due to uncertainty around IMO regulations?
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The US has opposed any economic element in the Net-Zero Framework. Even if a version is approved without US backing, could the US influence companies to hold back investments in low- and zero-emission fuel technologies?
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In a submission to the IMO, Japan proposes trimming GFI reduction targets from 2030 toward 2035. What could these lower targets mean for the business case for green fuels in the near term?
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Japan also proposes mandatory remedial unit purchases through an IMO fund, while retaining surplus units. Will that be enough to generate sufficient funding for the transition?
This is not quite capturing their proposal, which attempts to maintain the core elements of the IMO NZF without the NZ Fund.
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How critical is the IMO net-zero fund to the green fuel transition and what is at stake if it gets significantly weakened at MEPC 84?
The IMO Net- Zero Fund aims to do two things: 1) provide rewards to support the lowest-emission fuels, and 2) leave no one behind through just and equitable transition funding for developing countries with support for a variety of measures.
On the first goal, we find that it may be hard to fully close the cost gap between the most advanced alternatives and fuel oil with the fuel standard alone. For those fuels, some additional support will likely be required. This could come in a range of forms including a ZNZ [zero- and net-zero] reward, national subsidies and voluntary support.
It will likely take multiple forms of support which is a potential outcome as more countries turn towards alternatives for energy security purposes. The net-zero fund is one mechanism, but there are others.
On the second goal – just and equitable transition funding, eliminating a fund will eliminate an important source of revenue for this purpose and would require significant effort and creativity to find an alternative. READ MORE
Excerpt from American Journal of Transportation: As delegates convene at the International Maritime Organization (IMO) headquarters for the 21st session of the Intersessional Working Group on Greenhouse Gases (ISWG-GHG-21), a number of conservation and environmental justice organizations – lead by Biofuelwatch and Global Forest Coalition – are issuing a call to member states to not allow biofuels to be counted as a green solution to shipping's climate problem.
The group, representing organizations working across Latin America, Southeast Asia, Africa and Europe, warns that endorsing biofuels within the IMO's decarbonization pathway would accelerate deforestation, drive land grabs, threaten biodiversity and deepen food insecurity in some of the world's most vulnerable regions.
“Biofuels are being promoted as a climate solution for shipping, but the reality on the ground tells a very different story,” said Xavier León, Member of the Latin America Program at Grain. “From Indonesia to Latin America, expanding biofuel production at the scale required by global shipping would have devastating consequences.”
The evidence from regions already affected by industrial biofuel production is extensive:
- Deforestation and biodiversity loss: In countries such as Indonesia, the expansion of palm oil plantations has been a major driver of tropical deforestation, threatening critical habitats for endangered species and accelerating climate change through carbon-rich peatland destruction.
- Land-use change and emissions: In Latin America, increased cultivation of crops like soy for biofuels has contributed to land-use change, often displacing forests and lands that act as vital carbon sinks. These indirect emissions can negate or even exceed the purported climate benefits of biofuels.
- Impacts on local communities: Biofuel expansion has been associated with land grabbing, displacement of Indigenous peoples, and heightened social conflict, particularly in rural areas where governance protections are weak.
- Food security risks: Diverting agricultural land to fuel production places additional pressure on global food systems, contributing to price volatility and reduced access to staple crops in vulnerable regions.
"As the demand for biofuels for shipping rises, the pressure on ecosystems and indigenous communities intensifies. In Indonesia, palm oil concessions overlapping with indigenous territories cover 2.26 million hectares – an area larger than the island of Bali. Biofuels are far more than a matter of energy, they are a struggle for social and ecological justice”, said Respati Bayu, Researcher at Forest Watch Indonesia.
The IMO is under mounting pressure to finalize its decarbonization framework for international shipping, a sector responsible for nearly 3% of global greenhouse gas emissions. While the group strongly supports the sector's urgent decarbonization, it warns that biofuels offer an accounting fiction rather than a genuine emissions reduction.
"We have watched our forests disappear to fuel cars in Europe," said Eko Yunanda, Director of WALHI Riau. "We cannot now stand by while the same logic is extended to fuel the ships crossing our oceans."
“Governments have a responsibility to ensure that the transition to zero-emission shipping does not come at the expense of forests, communities, and food systems,” said Pax Butchart, Biofuelwatch campaigner. “Excluding biofuels from the decarbonization pathway is a necessary step toward a truly sustainable future.”
The NGOs warn that classifying biofuels as “green” shipping fuels risks locking the sector into a pathway that fails to deliver genuine emissions reductions. Instead, the group urges IMO member states to prioritize truly zero-emission solutions, such as speed reduction and wind propulsion. READ MORE
Excerpt from International Council on Clean Transportation/Lloyd's List: Any IMO green framework needs adequate safeguards against crop-based biofuels; Demand from shipping could drive up the price of vegetable oils, with costs falling on the poorest; Investment in crop-based biofuels delays transition to greener fuels, research group argues
Cheap biofuels are an illusion: someone, somewhere is paying the price through higher food prices, deforested lands and disruptive climate impacts, writes Bryan Comer READ MORE
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