IMO Levy and Economic Measure Under the Net-Zero Framework

The IMO levy, in the draft text “GHG emissions pricing contributions”, is the economic element of the draft IMO Net-Zero Framework : a ship whose attained GHG fuel intensity exceeds its annual targets pays for the excess by buying remedial units from the IMO Net-Zero Fund, at USD 100 or USD 380 per tonne of CO2 equivalent for 2028 to 2030. The rules are draft regulations 36 and 40 to 43 of a new Chapter 5 of MARPOL Annex VI , published as MEPC/ES.2/2.

The mechanism is not law. MEPC 83 approved it on 11 April 2025, the extraordinary session MEPC/ES.2 adjourned in October 2025 without adopting it, and the resumed session is scheduled for 4 December 2026, subject to MEPC 85. The IMO described the approved package as the first in the world to combine mandatory emissions limits and GHG pricing across an entire industry sector.

Chapter 5 would apply to all ships of 5,000 gross tonnage and above (draft regulation 30.1), excluding ships operating only in their flag State’s waters, ships not propelled by mechanical means, platforms including FPSOs, FSUs and drilling rigs, and semi-submersible vessels until further review (30.2).

Terminology: levy, contribution and remedial unit

The word levy comes from the 2021 Pacific proposal and from press usage; the draft text does not use it. MEPC/ES.2/2 contains no occurrence of “levy”, “tax” or “WTO”. A ship pays “GHG emissions pricing contributions” (regulation 36.5) and in return receives remedial units , which it surrenders against its deficit. Regulation 40.2 has the Fund “receive and manage GHG emissions pricing contributions made by ships pursuant to regulation 36”.

Two further terms matter. Regulation 2.3.11 defines a remedial unit as non-transferable, and regulation 2.3.16 defines a surplus unit as “a transferable unit a ship in direct compliance is eligible to receive”. Earlier commentary used “Remediation Unit”, “Required GFI” and “Direct Compliance Threshold”; none of these occurs in the draft.

Market-based measures at the IMO, 2010 to 2018

The IMO’s first attempt at carbon pricing for ships ended in suspension. The MBM discussions of 2010 to 2013 began with an Expert Group on Feasibility Study and Impact Assessment of possible Market-based Measures, established by the Secretary-General and chaired by Andreas I. Chrysostomou. Its report, MEPC 61/INF.2 of 13 August 2010, analysed ten proposals against nine criteria. Its terms of reference said it “should not make specific recommendations on policy issues”, so it ranked none of them.

The nine criteria of paragraph 1.2 still frame the debate. In summary they were: environmental effectiveness; cost-effectiveness and impact on trade and sustainable development; incentives to technological change; practical feasibility; technology transfer and capacity building for developing countries, “in particular the least developed countries (LDCs) and the small island development states (SIDS)”, including “the potential to mobilize climate change finance”; relation to the UNFCCC, the Kyoto Protocol, the WTO and UNCLOS; administrative burden on Administrations; burden on ships and the industry; and compatibility with IMO enforcement provisions. On this site’s reading, the Fund provisions in regulations 40 to 42 address the fifth criterion’s finance and capacity-building points.

The ten proposals it analysed already contained most of the designs later revived:

The report put international shipping at 2.7 percent of global CO2 emissions in 2007 (para 1.3, citing the Second IMO GHG Study 2009). It concluded that “all proposals could be implemented notwithstanding the challenges associated with the introduction of new measures” (para 20.9), while noting that “In some cases even small increases in costs could have relatively significant consequences” (para 20.10). The GHG Fund design already linked price to ambition: if meeting the target required a quarter of sector emissions to be offset, “the contribution rate would be a minimum of one quarter of the external carbon price” (para 9.22).

The proposals then stalled. The IMO’s account records that MEPC 62 in July 2011 postponed the subject, MEPC 63 in 2012 agreed that an impact assessment was needed, and MEPC 65 in May 2013 “agreed to suspend discussions on MBMs and related issues to a future session”.

The Initial IMO GHG Strategy , resolution MEPC.304(72) of 13 April 2018, reopened the subject. Among candidate mid-term measures for 2023 to 2030 it listed “new/innovative emission reduction mechanism(s), possibly including Market-based Measures (MBMs)”.

The Pacific levy proposal, MEPC 76/7/12

The first concrete levy came from two Pacific island States. At MEPC 76 (10 to 17 June 2021) the Marshall Islands and Solomon Islands submitted MEPC 76/7/12, “Proposal for IMO to establish a universal mandatory greenhouse gas levy”. The IMO briefing for the session described “a mandatory levy of $100 per tonne carbon dioxide equivalent on heavy fuel oil” to be further considered at the intersessional working group. The MEPC 76/7/12 article covers the proposal.

The UNCTAD review for MEPC 80 (MEPC 80/INF.39/Add.1, 6 June 2023) summarizes the design as an entry level of USD 100 per tonne of CO2 equivalent by 2025 “with upward ratchets on a 5-yearly review cycle”, with “most revenues being used to support an equitable transition, and some share for use in-sector including for RD&D”. The same summary records the sponsors’ own view that the price, “Even though initially below the necessary $250-300 tonne price, it would still enable take-up”. The USD 100 figure survives in the approved text as the Tier 1 price.

The 2023 Strategy and the six proposal families

The 2023 IMO GHG Strategy , resolution MEPC.377(80) of 7 July 2023, made pricing part of the mandate. Paragraph 4.5 required a basket “comprised of both: .1 a technical element, namely a goal-based marine fuel standard …; and .2 an economic element, on the basis of a maritime GHG emissions pricing mechanism”. Paragraph 4.6 required the measures to be adopted “along with the assessments of impacts on States”, and paragraph 6.3 asks for the marginal abatement cost of each measure to be evaluated on a regular basis.

By then the economic proposals had settled into six families, set out in MEPC 80/INF.39/Add.1:

The same review notes that the ICS submission ISWG-GHG 10/5/2 “does not provide an explicit carbon price level”. The approved text draws on several families: a fuel standard with two targets, a price per tonne on the shortfall, and a Fund that pays rewards and supports developing States. It has no cap on total emissions and no auction.

What each family proposed on price

The families differed most on the price itself, and several declined to name one:

• ICS and INTERCARGO. A contribution per tonne CO2 into an IMO Maritime Sustainability Fund, arguing that “Due to its fixed and stable quantum, a levy would minimize uncertainty”. Analysis with Clarksons Research modelled levies from USD 25 to USD 400 per tonne CO2 (ISWG-GHG 12/3/8), and a later submission suggested that USD 12.5 per tonne “could be sufficient”, which might raise about USD 10 billion a year; ICS continued to take no view on the level.
• Japan (ZESIS). A feebate for ships of 5,000 GT and above, with rewards of USD 30 to USD 15 per GJ for zero-emission fuels ending in 2040 while the contribution continues (ISWG-GHG 13/4/6). Japan estimated average shipping cost increases of 3.8 percent at USD 25 per tonne CO2, 7.6 percent at USD 50, 15.3 percent at USD 100 and 30.5 percent at USD 200.
• Norway (ECTS). A closed cap-and-trade system for ships of 400 GT and above, with a price ceiling through borrowing allowances from future years at a set price.
• EU Member States and the Commission (GFS). A fuel standard whose deficit ships buy “GFS Remedial Units (GRUs) at a predetermined price” (ISWG-GHG 13/4/7), with a levy variant applying to ships above 5,000 GT; on its size “the cosponsors do not take a position” (ISWG-GHG 15/3/2). On this site’s reading, this is the closest ancestor of the remedial unit.
• Argentina, Brazil, China, South Africa and the UAE (IMSF&R). A feebate based on the CII with a bracketed revenue split of “[40%] to reward”, “[30%]” for capacity building and impact mitigation, “[20%]” for RD&D and “[10%]” for administration (ISWG-GHG 12/3/9). China’s IMSF&F variant had remedial units priced by the Committee before each compliance period.
• Marshall Islands and Solomon Islands. The USD 100 levy, “increased every 5 years”, derivable from bunker delivery notes (ISWG-GHG 13/4/11).

On this site’s reading, the approved text takes the remedial unit from the fuel standard family, the fixed price from the levy proposals, and the reward-and-fund structure from the fund proposals. The bracketed 40/30/20/10 split did not survive: regulation 41 sets no percentages.

The MEPC 81 outline and the comprehensive impact assessment

MEPC 81 (18 to 22 March 2024) agreed “an illustration of a possible draft outline of an ‘IMO net-zero framework’”, with a new Chapter 5 of MARPOL Annex VI containing “a new global fuel standard and a new global pricing mechanism for maritime GHG emissions” (IMO press briefing, 22 March 2024). The outline’s economic part, “New Chapter 5.2 - Economic mechanism(s) to incentivize the transition to net-zero”, listed six regulations: application, calculation of the economic contribution by ships, its collection, flexible compliance mechanisms, central management of collected revenue, and distribution of revenue. The approved Chapter 5 contains a counterpart to each of the six items.

The Strategy required the measures to be adopted with an assessment of their impacts on States, and the comprehensive impact assessment was submitted to MEPC 82 as four reports dated 26 July 2024:

DNV found fleet cost intensity per tonne-mile rising against business as usual “by 16% to 47% in 2030, 56% to 80% in 2040, and 71% to 85% in 2050”, with the highest 2030 increases “in scenarios with a 150–300 USD per tonne of carbon dioxide equivalent (tCO2eq) levy”. UNCTAD modelled ten scenarios and found world GDP lower by “-0.03 to -0.07 per cent” in 2030 and by -0.08 to -0.16 per cent in 2050, with the smallest impact where a levy with revenue distribution was combined with a fuel standard. It found that “In many scenarios, LDCs and SIDS see the largest impact”, that the world mean price of agricultural imports rises “by up to 2.5 per cent by 2050”, and that LDC export volumes fall by up to 36 percent by 2050 in some scenarios.

Two further UNCTAD findings bear on the design that was approved. Maritime logistics costs by 2050 “range between 34.7 and 36.8 per cent” above business as usual across the scenarios, and consumer prices in 2050 rise by “between 0.20 per cent” and “0.39 per cent”, with “LDCs experience the largest CPI increases. Revenue disbursement roughly doubles the CPI increase globally”. DNV found the lowest 2040 cost increases “in scenarios with a GFI flexibility mechanism and a 30–120 USD/tCO2eq levy”. On this site’s reading, that is the modelled combination closest to the design MEPC 83 approved.

UNCTAD stressed that “The policy scenarios are conceptual. They do not represent the specific proposals that have been made for IMO mid-term measures.” MEPC 82 “noted the outcomes of the study” and agreed to assess the impacts on food security, particularly for net food importing developing countries; regulation 43 of the draft now addresses food security.

MEPC 82 (30 September to 4 October 2024) worked on consolidated draft legal text, a “draft IMO net-zero framework”, developed at ISWG-GHG 17 (23 to 27 September 2024) and ISWG-GHG 18 (17 to 21 February 2025) before approval at MEPC 83.

How the pricing mechanism works

The IMO’s briefing of 11 April 2025 described the package as introducing “a global pricing mechanism for emissions”, with “two levels of compliance with GHG Fuel Intensity targets: a Base Target and a Direct Compliance Target”, mandatory for ships over 5,000 gross tonnage, “which emit 85% of the total CO2 emissions from international shipping”. It summarized the approved design: “Ships emitting above GFI thresholds will have to acquire remedial units to balance its deficit emissions”, while “those using zero or near-zero GHG technologies will be eligible for financial rewards”. It named three ways to balance a deficit: “Transferring surplus units from other ships”, “Using surplus units they have already banked”, and “Using remedial units acquired through contributions to the IMO Net-Zero Fund”.

The price attaches to a ship’s compliance deficit , not to fuel bought. Each year a ship’s attained annual GFI, calculated under regulation 33 by the attained GFI methodology , is compared with two targets from Table 4 of regulation 35: the base target and the stricter direct compliance target .

Regulation 36.4.1 prints the Tier 1 formula as “(Direct compliance target annual GFI - Attained annual GFI)”, which is negative for a ship in deficit; the deficit is its magnitude. Deficits are in grams CO2eq and are divided by 10^6 to give tonnes.

The prices in regulations 36.8 to 36.10

Regulation 36.8 reads: “For the reporting periods 2028 to 2030, the initial price of a Tier 1 remedial unit shall be US$100 per tonne of CO2eq on a well-to-wake basis.” Regulation 36.9 sets the Tier 2 unit at USD 380 on the same basis. Regulation 36.10 reads: “By 1 January 2028, the Committee shall determine the mechanism for reviewing and defining the price … for the reporting periods from 2031 and onwards.” No price after 2030 exists in the text, and the five-yearly review in regulation 44 does not cover prices.

The prices are administered, not discovered. The draft has no auction, exchange or index for remedial units; a ship buys the number it needs at the fixed price.

Payment, crediting and surrender

A ship in deficit records its compliance approach in the IMO GFI Registry within one month of its verified data reaching the Registry, and no later than 31 July (regulation 37.4). Remedial units are acquired “by means of GHG emissions pricing contributions to the IMO Net-Zero Fund” (36.5); the Registry credits them to the ship account on proof of payment and cancels them against the deficit (38.4). The ship’s balance is shown on the ship account statement by 31 August (37.5), and the Statement of Compliance follows by 30 September (37.6).

Surplus units and the Tier 2 price

Surplus units give the Tier 2 price a market alternative. A ship in direct compliance receives one surplus unit per tonne of positive balance (36.11) and may transfer it to another ship to balance that ship’s Tier 2 deficit, bank it or cancel it (36.12). On this site’s reading, the USD 380 Tier 2 price caps what a buyer would pay for a transferred unit in 2028 to 2030, because the buyer can always buy a Tier 2 remedial unit instead. No surplus unit can reduce a Tier 1 payment, so every tonne in the Tier 1 band is paid to the Fund.

Worked example: what a VLSFO ship would pay

The example uses MEPC.391(81) default factors, under which a VLSFO pathway has a well-to-wake intensity of about 95.484 gCO2eq/MJ, and a ship burning 10,000 tonnes of VLSFO a year, 4.02 x 10^8 MJ (site arithmetic).

The Tier 1 amount is constant because the gap between the targets is 12.129 gCO2eq/MJ in every year. The Tier 2 amount grows as the base target falls.

Averaged over the whole deficit, the 2028 payment is about USD 192 per tonne CO2eq, rising to about USD 224 in 2030. Per tonne of fuel it is about USD 139 in 2028 and USD 196 in 2030. The marginal figure matters more to a fuel decision: each tonne of VLSFO replaced by zero-intensity energy removes about 3.84 tonnes CO2eq of deficit, worth about USD 1,459 while the ship is above the base target and about USD 384 once it is between the targets.

That marginal step explains the design. The first fuel switching saves at the USD 380 rate; the last increment to direct compliance saves only at USD 100, unless it takes the ship below the direct compliance target, where it starts to earn surplus units instead.

Ships between the targets and below them

The same 4.02 x 10^8 MJ ship pays very differently depending on where it lands in 2030 (site arithmetic):

Crossing the base target is the largest single step in the schedule. Between 85.836 and 95.484 gCO2eq/MJ every megajoule of improvement is priced at USD 380 per tonne CO2eq; below 85.836 it is priced at USD 100, and below 73.707 it earns surplus units whose value depends on a buyer with a Tier 2 deficit.

Who bears the payment

The obligation sits on the ship. Regulation 36.7 states that a ship which has fully balanced its deficit “shall be considered as being compliant with its target annual GFI”, without prejudice to recovering costs relating to the operational responsibility of the ship, defined as “determining the fuel used or the cargo carried or the route or the speed”. The draft creates no statutory right of reimbursement of the kind Article 3gc of Directive 2003/87/EC gives the ETS shipping company, so passing remedial unit costs to a charterer under a time charter party depends on the contract. The cost recovery article covers the provision.

A ship also pays an annual IMO GFI Registry administration fee, due by 30 June 2028 and each 30 June after, set by the Secretary-General (regulations 38.2 and 38.3). It is separate from the pricing contributions.

Surplus unit transfers and Fund revenue

Every surplus unit used against a Tier 2 deficit replaces a Tier 2 remedial unit that would have paid USD 380 into the Fund for 2028 to 2030. On this site’s reading, the more surplus units the fleet generates and transfers, the less Tier 2 revenue the Fund receives; Tier 1 revenue is untouched, because no surplus unit can balance a Tier 1 deficit. The draft gives no revenue projection, and none is given here.

Price levels proposed and approved

The approved prices sit inside the range the negotiation produced:

On this site’s reading, the approved design differs from the levy proposals listed above in one respect: it prices only the deficit against the targets, not every tonne emitted. A ship at the direct compliance target pays nothing, while a flat levy of USD 100 would have charged it on its entire emissions.

Pricing timeline

The IMO Net-Zero Fund

Every contribution goes to one Fund. Regulation 40.1 reads: “The Secretary-General of the Organization shall establish the IMO Net-Zero Fund”, and “Any costs associated with the operation of the Fund and its Governing Board shall be borne by the Fund”. The Fund does not exist yet; it would be established after adoption.

Governance under regulation 40

• Governing provisions. The Committee adopts them and appoints “a Governing Board to oversee the day-to-day operations” (40.3). They specify eligible entities, financing mechanisms, operating procedures, the entities the Fund may cooperate with, and “allocations of revenue to the different purposes set out in regulation 41” (40.4).
• The Board. It is to be “gender and geographically balanced”, with “adequate representation of developing countries, in particular of small island developing States (SIDS) and least developed countries (LDCs)” (40.5). The Governing Board article tracks its design.
• Oversight. The Board reports annually to the Committee (40.6), the Committee “shall periodically review the allocation of revenue” (40.7), and “The Fund shall be subject to audits” (40.8).

Uses of revenue under regulation 41

Regulation 41.1 lists three heads: rewards for zero or near-zero GHG fuels, technologies and energy sources under regulation 39 (41.1.1); promoting a just and equitable transition in States, “paying particular attention to the needs of developing countries, in particular [LDCs] and [SIDS]” (41.1.2); and the administration and operational costs of the Fund and its Governing Board (41.1.3). The transition head has five sub-purposes: deployment of ZNZs and “maritime, coastal and port-related infrastructure”; a just transition for seafarers and other maritime workforce; technology transfer and capacity building; National Action Plans “including fleet renewal and upgrade”; and “disproportionately negative impacts on States, including on food security”.

The draft sets no percentage for any head, names no external climate fund, and gives no revenue estimate. Regulation 42 adds technical cooperation and technology transfer, and regulation 43 requires the Committee to address and keep under review the negative impacts on food security . The IMO Net-Zero Fund disbursement article covers the disbursement side.

ZNZ rewards

The Fund also pays for good performance. Regulation 39.2 lets ships “receive rewards from the IMO Net-Zero Fund for the ZNZs used”, for fuels at or below 19.0 gCO2eq/MJ until 31 December 2034 and 14.0 gCO2eq/MJ from 1 January 2035 (39.1). The Committee is to define the reward by 1 March 2027 (39.3). The ZNZ reward article covers it.

Interaction with the EU ETS and FuelEU Maritime

EU-trading ships already pay two EU carbon instruments. The EU ETS for shipping , under Directive 2003/87/EC as amended by Directive (EU) 2023/959, requires allowances for tank-to-wake emissions. FuelEU Maritime , Regulation (EU) 2023/1805, penalizes intensity above its limit at EUR 2,400 per tonne of VLSFO-equivalent energy.

Neither EU instrument switches off on IMO adoption:

• Article 3gg(1) of Directive 2003/87/EC requires the Commission, if the IMO adopts a global market-based measure, to report within 18 months of adoption and before it becomes operational, on its ambition, environmental integrity and coherence, “while avoiding any significant double burden”. There is no automatic phase-down.
• Article 30(5) of Regulation (EU) 2023/1805 requires a Commission report “without delay” on IMO adoption of “a global GHG fuel standard”, on “articulation or alignment”, “including the need to avoid duplicating regulation”.

If the draft were adopted as approved, voyages in EU scope would fall under both until the EU acts. The EU ETS and FuelEU double compliance article and the FuelEU compliance balance and pooling article cover the EU side.

Legal character and the objections

The draft frames the payment as a contribution attached to a compliance obligation. A ship that has fully balanced its deficit “shall be considered as being compliant with its target annual GFI” (36.7), and the price is fixed by the regulation, not by a taxing authority. Whether that makes it a tax under any national or international law is not addressed in the text.

The United States treats it as a tax. A joint statement of the US Secretaries of State, Commerce, Energy and Transportation on 12 August 2025 described the framework as “effectively a global carbon tax on Americans levied by an unaccountable UN organization”. A State Department statement of 10 October 2025 said the United States “is considering” measures including “additional port fees on ships owned, operated, or flagged by countries supporting the framework”. The US position article tracks these statements.

Proposals to change the pricing in 2026

MEPC 84 (27 April to 1 May 2026) recorded that Member States “will be able to submit new amendments and adjustments to the draft amendments previously approved”. Proposals touching the price include:

• Circular Letter No.5215 (Tuvalu): no surplus units, with all emissions subject to remedial unit payment at a minimum of USD 300 per tonne CO2eq;
• Circular Letter No.5213 (Liberia): no remedial units and no Fund;
• MEPC 84/7/28 and 84/7/36 (Fiji and others), which the European Parliament briefing PE 780.423 (April 2026) reports would raise the Tier 1 price from USD 100 to USD 300 per tonne;
• MEPC 84/7/38 (Argentina, Liberia and Panama, 20 February 2026): a single GFI target with surplus units, banking and borrowing.

The circular letters are summarized in an IMO officer’s presentation to the ISCC conference of 10 June 2026. None of the proposals has been agreed.

Common errors about the IMO levy

• “The levy was adopted at MEPC 83.” It was approved; nothing has been adopted.
• “Tier 1 is the higher price.” Tier 1 is USD 100 on the band between the targets; Tier 2 is USD 380 above the base target.
• “Remediation Units”, “Required GFI”, “DCT”. The draft terms are remedial unit, base target and direct compliance target.
• “Surplus units reduce Tier 1 payments.” They balance Tier 2 only.
• “The Fund gives at least half its revenue to SIDS and LDCs” or “has a Steering Committee”. The draft sets no percentage and provides for a Governing Board.
• “Revenue flows to the Green Climate Fund.” No external fund is named.
• “Options A to E were chosen between at MEPC 83.” No IMO document uses those labels; the proposal families are those in MEPC 80/INF.39/Add.1.
• “The price rises on a set trajectory to 2050.” No price exists after 2030.

Limitations

The pricing described here is MEPC/ES.2/2, approved in April 2025 and not adopted. Prices, tiers and Fund provisions could change at the resumed session or through the amendments MEPC 84 allowed, and the governing provisions of the Fund have not been drafted. The text of MEPC 76/7/12 is described from the IMO briefing and the UNCTAD review in MEPC 80/INF.39/Add.1, and the circular letters from an IMO officer’s presentation, not from the documents themselves.

The worked example is this site’s arithmetic on Table 4 and MEPC.391(81) defaults for one fuel pathway; real payments depend on certified fuel values and verified energy. No revenue projection for the Fund is given, because the draft contains none. MEPC 61/INF.2 and the UNCTAD impact assessment report were read in copies of the IMO documents hosted by third parties, and the MEPC 80/INF.39/Add.1 summaries of the proposal families are the Secretariat’s, not the proposals themselves. The impact assessment scenarios were, in UNCTAD’s words, conceptual, so their GDP, price and trade figures describe modelled levies, not the approved two-tier design.

The post-2030 price is the largest open variable. Regulation 36.10 leaves the mechanism to a Committee decision by 1 January 2028, and paragraph 6.3 of MEPC.377(80) asks for the marginal abatement cost of each measure to be evaluated on a regular basis; neither sets a figure.

Related Articles

• IMO Net-Zero Framework GHG fuel intensity
• GFI reduction trajectory
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• Statement of Compliance for annual GFI
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• MEPC 84
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• MEPC.391(81) LCA Guidelines
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