As the International Maritime Organization (IMO) moves toward finalizing its Net-Zero Framework, one of the most critical components under development is a reward mechanism to accelerate the adoption of zero- and near-zero emission fuels in shipping, reports Global Maritime Forum.
Scheduled for adoption in 2025 and enforcement from 2027, the framework will include guidelines for fuel eligibility, emissions accounting, certification, and the distribution of rewards through a centralized fund.
Why a reward mechanism is needed
The shipping industry currently follows Global Fuel Intensity (GFI) targets, which measure greenhouse gas emissions relative to energy used. While this helps improve efficiency, GFI targets alone aren’t expected to drive large-scale adoption of more expensive, low-emission solutions such as e-fuels. A dedicated reward mechanism is needed to create financial incentives that close the cost gap between conventional fuels and climate-aligned alternatives.
By 2030, the IMO is expected to generate billions of dollars annually from penalties paid by ships that exceed fuel intensity thresholds. The reward mechanism would redirect these funds to support the use and production of cleaner fuels, helping to make them more competitive and accessible compared to transitional options like LNG or traditional biofuels.
Key elements of the reward mechanism
The effectiveness of the reward mechanism depends on two critical decisions: which fuels qualify for rewards, and how rewards are set and distributed. These choices must balance fairness, economic efficiency, feasibility, and global accessibility.
The mechanism must offer certainty to investors, particularly in new fuel production, by providing long-term reward structures or price guarantees. At the same time, it must ensure cost-effectiveness through accurate price discovery. A fair and accessible design should enable participation from shipowners across all regions and scales of operation. Administrative feasibility is also crucial—the system must be manageable, transparent, and politically acceptable, while limiting financial risk to the fund.
Determining fuel eligibility
Fuel eligibility can be defined in several ways. One approach is technology-centric, where specific types of fuels such as e-fuels or sustainable biofuels are rewarded. Another is emission-centric, focusing on fuels with verified low lifecycle emissions. A hybrid model, combining both approaches, offers greater flexibility and better alignment with climate goals, while giving investors clearer signals about which fuels qualify.
Several models are being considered to determine reward levels:
- Fixed Administrative Rates: Set reward amounts per unit of qualifying fuel provide predictability but may lack flexibility to respond to changing market conditions.
- Auction-Based Systems: Competitive bidding allows for more efficient allocation of funds and real-time price discovery, but can be complex and less predictable for shipowners.
- Hybrid Models: Combining fixed rates with market-responsive tools like contracts for difference can provide both certainty and efficiency, though they require more sophisticated governance.
Each method involves trade-offs between stability, risk, and administrative complexity. The ultimate goal is to support early adopters while avoiding overcommitment of limited public funds.
The Net-Zero Framework is set to be adopted in late 2025, with enforcement beginning in 2027. By 2030, the shipping industry aims to have at least 5% of its energy sourced from scalable zero- or near-zero emission fuels. To reach this goal, early investment and strong policy support are essential.
In addition to international mechanisms, national and regional policies will play an important role in supporting e-fuel production, de-risking capital investment, and ensuring global supply chain readiness.
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Source: Global Maritime Forum
