Payments are made by purchasing the Remedial Units, with fees going into an IMO-administered Net-Zero GHG fund. Ships can also receive Surplus Units for reductions exceeding the Tier 2 reduction targets, with these Surplus Units being banked, traded, or transferred to other ships to cancel Remedial Units.
Impact on Shipping and GHG Emissions
Only time will tell, but some estimate that the measure may generate around $30-$40 billion in the first two years and about $10 billion annually, with funds used to subsidize the transition to low-carbon fuels and climate projects in developing countries.
Theoretically, zero would be deposited in the IMO fund if all ships complied with the Tier 2 targets. Still, there will likely be insufficient quantities of low-carbon fuel for full international fleet compliance, at least in the early years. But the measure also means fossil fuels can continue to be burned well into the future, limited only by the Carbon Intensity Indicator (CII) and regulations Energy Efficiency Design Index) (EEDI), (which have now been extended to 2030), with increasing financial penalties for required purchases of Remedial Units.
Many national delegations and environmental nongovernmental organizations (NGOs) believe that this measure will fall short of meeting the IMO's ambitious strategic goals of 20-30% GHG reductions by 2030, 70-80% by 2040, and ultimately net zero in 2050, which were adopted in 2023. However, depending on the attained and measured GHG reductions, the plan includes a provision for adjusting the targets in 2031.
The IMO Process and Reactions
IMO functions as a consensus organization, usually finding a middle ground for safety and environmental regulations. Relatively non-contentious issues are traditionally approved by acclamation, and contentious issues are approved by vote. Conventions are enacted by a 2/3 approval of member states, or amendments to existing conventions are approved tacitly by not receiving rejection by 1/3 member states within 24 months.
With 170 member countries and 110 participating NGOs, this process often requires hard-fought compromises from many and results in regulations that represent not the highest standard but rather the highest standard that enough members of the IMO can support.
In this case, we have very contentious issues of climate change, GHG reductions, and the first-ever international regulations using financial incentives and potential carbon levies. The IMO did precisely what it promised and adopted mid-term GHG reduction measures with both a technical and financial component by the end of the MEPC 83rd session.
Some countries could not support such a measure as it was deemed too stringent, and some felt it was ineffective in meeting IMO’s overall goals without a carbon price for all CO2 emissions.
what was passed was the world’s first mandatory global carbon pricing mechanism. Several major shipping industry groups positively noted the IMO outcome:
Guy Platten, Secretary General of the International Chamber of Shipping, said:
“Today will hopefully be remembered as a historic moment for our industry. If formally adopted, shipping will be the first sector to have a globally agreed carbon price, something which ICS has been advocating for since COP 26 (UN Climate Change Conference ) in 2021, when the industry agreed a net zero 2050 target.”
“Shipping is now at the forefront of efforts to decarbonize rapidly to address the climate crisis. The world’s governments have now come forward with a comprehensive agreement which, although not perfect in every respect, we very much hope will be formally adopted later this year. On behalf of the industry, I would like to thank Member States and the IMO for their exceptional hard work in achieving this agreement in challenging political circumstances.”
