IMO's Carbon Pricing Framework: A Bold Step Toward Net-Zero Shipping, But Stormy Seas Ahead

The International Maritime Organization (IMO) has launched its landmark 2025 net-zero strategy, introducing the world’s first sector-wide carbon pricing mechanism for shipping. While the plan marks a critical shift toward decarbonizing an industry responsible for nearly 3% of global CO₂ emissions, its design flaws and political compromises raise questions about its ability to navigate toward a 1.5°C-compliant future.

The Framework’s Architecture: Ambition Meets Compromise

The IMO’s strategy mandates a two-tiered carbon pricing system for ships exceeding emissions thresholds. By 2030, vessels must reduce greenhouse gas (GHG) intensity by 21% (from 2008 levels) or face a $100 per tonne charge; by 2035, this escalates to a 30% reduction with a $380 per tonne penalty. Revenue from these fees will flow into the IMO Net-Zero Fund, supporting low-emission technologies, developing nations, and climate-vulnerable states.

The framework also enforces a fuel-neutral lifecycle assessment (well-to-wake) for all marine fuels, from LNG to ammonia. However, this agnosticism has sparked debates about whether it will prioritize cheaper biofuels over cleaner but costlier alternatives like hydrogen.

The EU’s carbon price has already surpassed $100/tonne, highlighting the IMO’s delayed response to market realities.

Headwinds Ahead: The Strategy’s Flaws

1. Ambition Gap: The 2030 target of 21% GHG reduction falls short of the 20–30% originally proposed in the 2023 IMO strategy, undermining alignment with the Paris Agreement. Meanwhile, global shipping emissions rose 4.5% post-2020, per the International Chamber of Shipping.
2. Scope Limitations: Only emissions above the mandated thresholds are taxed, leaving 85% of a ship’s emissions unpriced. This contrasts sharply with the EU’s broader ETS, which taxes all emissions within its jurisdiction.
3. Fuel Competition Risks: Analysts warn that biofuels could dominate early adoption, given their lower upfront costs. However, first-generation biofuels linked to deforestation and land-use changes risk greenwashing accusations.
4. Equity Concerns: Developing nations, which contribute 12% of global shipping emissions but lack capital for zero-emission infrastructure, may struggle to comply without robust funding from the Net-Zero Fund.

Investment Implications: Winners and Losers

The strategy creates clear winners and losers. Companies like Maersk (MAERSKB.CO), which has pledged to invest $1 billion in zero-emission vessels, stand to benefit from premium pricing for low-carbon ships. Conversely, firms relying on heavy fuel oil or slow to adopt cleaner fuels face rising compliance costs.

Maersk’s early commitment to decarbonization has bolstered its ESG ratings and investor appeal.

Meanwhile, the $380/tonne penalty may still be too low to incentivize innovation. Analysts at ING estimate that a $150–200/tonne price—half the IMO’s 2035 target—is needed to make green fuels competitive. This gap could delay adoption of ammonia and hydrogen, which remain cost-prohibitive at scale.

A Course Correction Is Essential

The IMO’s 2028 review offers a critical opportunity to strengthen targets. However, political hurdles loom large. Developing nations, already wary of the EU’s aggressive shipping tax, may resist further tightening.

The Net-Zero Fund’s success hinges on transparency: Without clear guidelines on revenue distribution, there’s a risk of misallocation to pet projects rather than climate-vulnerable regions.

Conclusion: A Start, But Not a Finish Line

The IMO’s strategy is a pivotal milestone, but its effectiveness depends on urgent course corrections. The 2030 target must align with the Paris Agreement, and the carbon price should escalate more rapidly.

Even with conservative estimates, the fund could amass $50 billion by 2030—enough to catalyze innovation—if managed wisely.

Investors should favor companies prioritizing low-carbon fuels and lobbying for stricter targets. The shipping sector’s transition will be turbulent, but those navigating toward decarbonization will secure long-term resilience in a carbon-constrained world.

In the end, the IMO’s framework is a vessel adrift without a rudder—its success hinges on whether policymakers will seize the helm and steer toward deeper emissions cuts. The stakes, after all, are as vast as the oceans themselves.