IMO Net-Zero Framework: Impact On Different Fuel Types And Costs

The FuelEU Maritime Regulation has been a hot topic in the EU for more than a year. But as of last Friday, the International Maritime Organization (IMO) has followed suit and has finalized its Net-Zero Framework, as amendment to MARPOL Annex VI. This new framework is a major step towards maritime decarbonisation, with a compliance mechanism that closely mirrors the FuelEU Maritime Regulation — but on a worldwide scale.

In this newsletter, we explain the basic elements of the IMO Net-Zero Framework and analyze its commercial implications, with a focus on compliance cost projections for key fuel types over time.

A Quick Overview: The IMO Net-Zero Framework

The IMO’s Net-Zero Framework will apply to all ships of 5,000 GT and above. The regulation's first reporting year will start in 2028. Like FuelEU, it introduces a GHG fuel intensity standard, with ships needing to progressively reduce their attained annual GHG fuel intensity (GFI) measured in gCO₂eq/MJ.

Unlike FuelEU Maritime, the regulation introduces a dual-tier target:

• Base Target: A less ambitious target

• Direct Compliance Target: A stricter target

Failure to comply with the Direct Compliance Target target results in a Tier 1 deficit which can be offset by Tier 1 Remedial Units (RU) priced at 100 USD/t CO₂eq, while failure to comply with the Base Target results in a Tier 1 deficit and a Tier 2 deficit. The latter is to be covered by Tier 2 RUs priced at 380 USD/t CO₂eq in addition to the mentioned Tier 1 RUs or, alternatively, by Surplus Units (SU), resembling FuelEU pooling, produced by ships falling below the Direct Compliance Target. The price of RUs is subject to review for the period from 2031 onwards.

Here are the relevant reduction targets until 2035, considering a reference value of 93.3 gCO₂eq/MJ:

Year	Base Target	Direct Compliance Target
2028	4.0%	17.0%
2029	6.0%	19.0%
2030	8.0%	21.0%
2031	12.4%	25.4%
2032	16.8%	29.8%
2033	21.2%	34.2%
2034	25.6%	38.6%
2035	30.0%	43.0%

The Influence of IMO and EU Regulation on Fuel Costs

Similar to FuelEU, ships that are exposed to penalties (RUs) will have increased OPEX costs defined by the burnt fuel type, while ships performing better than the ambitious Direct Compliance Target will have the chance to monetize their efforts through SUs or, to maintain comparability with FuelEU, pooling. Therefore, the new clarity around all applicable maritime decarbonisation regulations allows for a comprehensive review of the change in fuel costs going forward.

Table 2 shows the expected increase in fuel costs per fuel type in 2028, the first reporting year of the new IMO Net-Zero Framework.

Table 2: Effect of IMO and EU regulations on fuel costs per fuel type in 2028

In the first year, the common maritime fuels (HFO, LFO, and MDO/MGO) experience a higher OPEX increase as under FuelEU Maritime. LNG-powered vessels, however, are less incentivized under IMO than FuelEU. Only LNG with Diesel slow speed engines collects surplus under both regulatory frameworks. The remaining three LNG-based engine types face an IMO penalty (RU) but a FuelEU surplus (except for LNG Otto medium speed). The remaining fuel types all achieve surplus under both IMO and FuelEU Maritime in 2028. Only Bio24, dependent on the emission reduction of the bio content, may be at risk of penalties under IMO.

The picture already changes dramatically in 2030, as depicted in Table 3.

Table 3: Effect of IMO and EU regulations on fuel costs per fuel type in 2030

Although, the fossil-based LNG Otto and Diesel slow speed as well as both LPG options still result in surplus under FuelEU, all four are penalized under the IMO framework, facing exposure to IMO Tier 1 RUs. The same holds true for the assumed Bio24 and Bio30 options in this study. Only the Bio100 fuels with 65 and 80% emission reduction compared to RED II generate surplus under both schemes.

Table 4 shows that this statement is still valid for 2035.

Table 4: Effect of IMO and EU regulations on fuel costs per fuel type in 2035

Despite FuelEU Maritime's consistent surplus rewards for LNG Diesel slow speed and LPG, IMO's framework penalizes all three, leaving Bio100 as the only option for compliance. When combined with the fact that IMO's regulation only allows banking for 2 years, in contrast to the indefinite banking option under FuelEU, it can be stated that IMO's framework is significantly more strict when it comes to LNG-powered vessels, requiring an earlier shift to bio-LNG or e-LNG.

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What This Means for Your Commercial Strategy

The introduction of a global fuel standard with a trading mechanism (via surplus units) adds to the existing FuelEU Maritime pooling scheme and underlines that maritime decarbonisation is not merely a luxury of the big shipping companies anymore but a key commercial driver:

• Ships running on traditional HFO or VLSFO will face recurring deficits. The use of fuels like HFO hardly makes financial sense going forward. A ton of HFO may cost about 852 USD in 2028, about 1,017 USD in 2030, and 1,559 USD in 2035.

• LNG remains a transition fuel, but the benefits under FuelEU have been significantly decreased by the introduction of IMO's Net-Zero Framework.

• Dependent on market developments, e-fuels and biofuels may become cost-neutral or even cost-negative when including rewards and surplus trading under the IMO framework and FuelEU Maritime.

Conclusion: Awareness & Action

This framework sends a strong signal: ships with poor GHG performance will pay — either directly or through traded surplus. The right preparation is key to navigating the current and upcoming regulations and maintaining commercial operability:

• Review fuel strategies, even for ships operating outside the EU.

• Model your GHG intensity under the IMO and FuelEU standards to estimate future deficits or surpluses.

• Start engaging in surplus markets (like BetterSea's FuelEU Marketplace) to learn how to navigate the new market reality and ultimately secure lower compliance costs.

We’ll be tracking the development of the IMO Net-Zero Framework and building tools to help you manage global compliance across both FuelEU and IMO regulations. Stay tuned — surplus markets just got even more serious and BetterSea is providing the standard framework the maritime industry trusts.

BetterSea’s FuelEU Maritime Compliance Platform with integrated marketplace provides you with a fast, streamlined, end-to-end process covering all potential compliance options, including external pooling and surplus trading. It allows you to comprehensively strategize your FuelEU and EU ETS compliance on a ship-specific level amidst volatile markets. Book a demo below!

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Stay tuned for more insights on navigating maritime decarbonisation compliance in our upcoming newsletters. If you have any questions or need further guidance, feel free to reach out!

Best regards,

The BetterSea Team

Contact Us: info@bettersea.tech

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Assumptions: No consideration of ZNZ rewards, no consideration of RU cost increases from 2031 onwards, WTW GHG EFs and related factors for all fuels derived from FuelEU (based on AR5 as can be expected for 2028) or MEPC 81/16/Add.1 Annex 10 (if WtT EF missing in IMO, FuelEU values were used), EUR/USD conversion factor: 1.14, FuelEU surplus value: 250 €/t CO2e, IMO SU value: 250 €/t CO2e, EUA value: 60 €, no change in EUA or surplus values over time, HFO costs in Rotterdam: 430 USD/t