IMO Net-Zero Fund: Draft Governance and Disbursement

The IMO Net-Zero Fund is the fund that draft regulation 40 of a new Chapter 5 of MARPOL Annex VI would establish to receive the GHG emissions pricing contributions ships pay for remedial units and to spend them on the three purposes in draft regulation 41: rewards for zero or near-zero GHG fuels, a just and equitable transition in States, and the Fund’s own administration. The text is MEPC/ES.2/2 of 16 June 2025, the legal core of the IMO Net-Zero Framework .

The Fund does not exist. MEPC 83 approved the draft 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 . No governing provisions, no Governing Board and no revenue split have been agreed.

Legal basis and adoption status of the Fund

The Fund rests on draft regulations 40 and 41 of MARPOL Annex VI Chapter 5, which are part of an unadopted amendment package. Adoption would be under MARPOL Article 16(2)(d), with entry into force by the tacit acceptance procedure .

The mandate came from the 2023 IMO GHG Strategy , resolution MEPC.377(80) of 7 July 2023. Paragraph 4.5 of the Strategy required a basket of mid-term measures “comprised of both” a technical element, “a goal-based marine fuel standard regulating the phased reduction of the marine fuel’s GHG intensity”, and “an economic element, on the basis of a maritime GHG emissions pricing mechanism”. The Fund is where the economic element’s money goes. Paragraph 4.1.2 set the deadline: the basket “should be finalized and agreed by the Committee by 2025”. The Strategy’s timetable in paragraph 6.2 planned approval at MEPC 83 in spring 2025, adoption at an extraordinary session in autumn 2025, and entry into force 16 months after adoption.

The first two steps did not run to plan:

The draft adopting resolution put the deemed acceptance date at “[1 September 2026]” and entry into force at “[1 March 2027]”. Both dates are in square brackets and the first has passed. The IMO described the approved package on 11 April 2025 as the first in the world “to combine mandatory emissions limits and GHG pricing across an entire industry sector”.

Opposition to the pricing element is on the record. The US Secretaries of State, Commerce, Energy and Transportation stated on 12 August 2025 that the framework is “effectively a global carbon tax on Americans levied by an unaccountable UN organization”. The United States position article covers the statements that followed, and MEPC 84 opened the door to the 2026 amendment proposals . An IMO officer’s presentation to the ISCC conference of 10 June 2026 summarized one of them, Circular Letter No.5213 (Liberia), as having no remedial units and no Fund; the letter itself has not been published on imo.org.

Draft regulation 40: establishment of the Fund and its Governing Board

Regulation 40 creates the Fund, gives it one source of money, and hands every operational choice to the Committee. Its eight paragraphs, in sequence:

• 40.1. “The Secretary-General of the Organization shall establish the IMO Net-Zero Fund”, to support the implementation of Chapter 5 and achieve its goal in regulation 31. Any costs of operating the Fund and its Governing Board “shall be borne by the Fund”.
• 40.2. The Fund “shall receive and manage GHG emissions pricing contributions made by ships pursuant to regulation 36”.
• 40.3. The Committee adopts “governing provisions” and appoints “a Governing Board to oversee the day-to-day operations”.
• 40.4. The governing provisions specify eligible entities, financing mechanisms, operating procedures, which entities and organizations the Fund may cooperate with, and “allocations of revenue to the different purposes set out in regulation 41”, including those that promote a just and equitable transition.
• 40.5. The Board has a “gender and geographically balanced composition, ensuring adequate representation of developing countries, in particular of small island developing States (SIDS) and least developed countries (LDCs)”.
• 40.6. The Board reports annually to the Committee.
• 40.7. The Committee “shall periodically review the allocation of revenue” on the basis of that report.
• 40.8. “The Fund shall be subject to audits.”

“The Committee” in Chapter 5 is the Marine Environment Protection Committee , which is open to all IMO Member States; MARPOL amendments are adopted by the Parties to MARPOL present and voting in it (MARPOL Article 16(2)(d)). So the political body that sets the remedial unit price mechanism after 2030 (36.10) also writes the rules for spending the proceeds. The Governing Board sits below it, with day-to-day oversight only.

What regulation 40 leaves to the governing provisions

The text fixes the Fund’s existence and its oversight chain. It leaves the following to a Committee instrument that has not been drafted in public:

1. the number of Board members, their term and how they are nominated;
2. voting and quorum;
3. which entities are eligible to receive money, and through which financing mechanisms (grants, loans, guarantees or anything else);
4. the operating procedures, including how applications are made and assessed;
5. the organizations the Fund may cooperate with, which is where any link to a development bank or UN agency would appear;
6. the share of revenue for each purpose in regulation 41.

The draft does not say where the Fund’s secretariat sits, who audits it, or whether the Board’s annual report is public. Regulation 38.3 has the Secretary-General set a fee “to cover the administrative costs of the IMO GFI Registry”, and the Fund’s costs are met separately from Fund revenue. Whether the Registry and the Fund would share staff is not stated.

Oversight, reporting and audit

The accountability chain has three links: the Board reports every year (40.6), the Committee reviews the revenue allocation periodically (40.7), and the Fund is audited (40.8). There is no appeal procedure for a refused application and no dispute clause.

The allocation review in 40.7 is separate from the five-yearly review of Chapter 5 in regulation 44 . Regulation 44 looks at the reduction factors, the ZNZ thresholds and extension to ships of 400 GT and above; it does not mention the Fund. The 40.7 review can therefore move money between purposes at any interval the Committee chooses, without waiting for a regulation 44 cycle.

Draft regulation 41: what the Net-Zero Fund pays for

Draft regulation 41.1 lists three uses of revenue, and the second is split into five purposes. The text sets no percentage for any of them.

The opening words of 41.1.2 frame the transition purposes as “facilitating environmental and climate protection, adaptation and resilience building within the boundaries of the energy transition in shipping”. That last phrase limits the scope. On this site’s reading, a coastal adaptation project unrelated to shipping’s energy transition would sit outside it, while port infrastructure for ZNZ bunkering would sit inside.

41.1.1: rewards for zero or near-zero fuels

The first use pays ships that burn qualifying fuels. It is the only head that pays ships rather than States, and it is covered in its own section below under regulation 39.

41.1.2: the just and equitable transition purposes

The five transition purposes are addressed to States. The phrase “particular attention” to LDCs and SIDS sets a priority, not an exclusive list: a developing coastal State that is neither is still inside 41.1.2.

41.1.2.1, research and infrastructure. The text pairs R&D and deployment of ZNZs with “maritime, coastal and port-related infrastructure”. Regulation 42.3 separately asks the Organization to promote technical cooperation to enable ZNZ supply infrastructure in developing States. Candidate projects would include ammonia and methanol bunkering and shore power , but the draft lists no project types.

41.1.2.2, seafarers and the maritime workforce. This is the just transition for seafarers . The Maritime Just Transition Task Force , formed at COP 26 in 2021 by the International Chamber of Shipping, the International Transport Workers’ Federation, the UN Global Compact, the ILO and the IMO, stated in December 2023 that “up to 800,000 seafarers may require additional training by the mid-2030s”. Training standards themselves sit in the STCW Convention , which the Fund would not change.

41.1.2.3, technology transfer and capacity building. This overlaps with regulation 42 and with the IMO’s existing technical cooperation work, described below.

41.1.2.4, National Action Plans. Footnote 117 of the draft points to resolution MEPC.367(79), adopted on 16 December 2022, which encourages Member States to develop and submit voluntary National Action Plans on GHG emissions from ships. It revised MEPC.327(75). Operative paragraph 2 lists what a NAP may contain, items (a) to (h), including fuel production and distribution, “infrastructure for green shipping”, and route-based cooperation “consistent with international law, including the multilateral trade regime”. The Fund text adds “fleet renewal and upgrade”, which MEPC.367(79) does not list.

41.1.2.5, impacts on States. Footnote 118 cites MEPC.377(80) and MEPC.1/Circ.885/Rev.1 of 7 February 2023, the revised procedure for assessing impacts on States of candidate measures. The food security link is carried into regulation 43.

41.1.3: administration

The Fund pays its own way. Regulation 41.1.3 and the last sentence of 40.1 both put the costs of the Fund and the Board on Fund revenue, so, on this site’s reading, the Fund makes no call on the IMO’s regular budget.

Draft regulation 36: how money enters the Net-Zero Fund

The only inflow named in the draft is the GHG emissions pricing contribution a ship makes to acquire a remedial unit. Definition 2.3.11 reads: a remedial unit “is a non-transferable unit acquired by means of GHG emissions pricing contributions to the IMO Net-Zero Fund”.

A ship’s annual obligation is set against two targets from Table 4 of regulation 35, both cuts from a reference of 93.3 gCO2eq/MJ. The base target cuts 4.0 percent in 2028; the direct compliance target cuts 17.0 percent. By 2030 the factors are 8.0 and 21.0 percent, and by 2035 they are 30.0 and 43.0. The GFI reduction trajectory article sets out each year.

A ship whose attained GFI is above the direct compliance target has a compliance deficit , split into tiers:

The pricing mechanism for 2031 onwards is to be decided by the Committee by 1 January 2028 (36.10). The IMO levy and economic measure article covers the price history and the proposals that would change it.

The payment route through the IMO GFI Registry

Money reaches the Fund through the IMO GFI Registry . Within one month of the verified data reaching the Registry, and no later than 31 July, the ship records its compliance approach (37.4). Regulation 38.4.5 then has the Registry credit remedial units “equal to the amount and the tier type of remedial units acquired by means of GHG emissions pricing contributions to the IMO Net-Zero Fund, and cancel the remedial unit following proof of payment”. The ship account statement follows by 31 August and the Statement of Compliance by 30 September.

So the Fund is paid first and the Registry records the result. A remedial unit never circulates: it is bought, credited and cancelled in the same cycle.

What is not a Fund inflow

Three payments that sit near the Fund in the text do not go into it:

• The Registry fee. Each ship opens a Registry account by 1 October 2027 and pays “the annual administration fee to the IMO GFI Registry” by 30 June 2028 and each 30 June after (38.2). The fee covers Registry costs (38.3).
• Surplus unit transfers. A transfer under 36.12.1 is ship to ship. The Fund receives nothing, and the draft sets no price.
• Cost recovery. Regulation 36.7 lets a compliant ship recover costs from the party with “operational responsibility”, defined as “determining the fuel used or the cargo carried or the route or the speed”. That is a private claim, typically under a time charter party , and the cost recovery article covers it.

Worked example: what the Fund receives from one ship

The NZF hub’s worked example takes a ship burning 10,000 tonnes of VLSFO a year, about 4.02 x 10^8 MJ, at an intensity of about 95.484 gCO2eq/MJ on MEPC.391(81) defaults (this site’s arithmetic).

• 2028. The Tier 1 deficit is 4,875.9 t CO2eq, which pays USD 487,590 to the Fund. The Tier 2 deficit is 2,378.3 t. Bought as Tier 2 remedial units, it pays USD 903,754, for a total of about USD 1.39 million.
• 2030. Tier 1 is unchanged at USD 487,590. Tier 2 rises to 3,878.5 t, or USD 1,473,830 in remedial units, for about USD 1.96 million.

If the same ship covers its whole Tier 2 deficit with surplus units bought from an over-compliant ship, the Fund receives only the Tier 1 payment of USD 487,590 in either year. In 2030 that is about a quarter of the remedial unit total. The Fund’s income therefore depends on how many surplus units the fleet generates, which the draft cannot know in advance.

Surplus units and Fund income

Surplus units are issued free to a ship whose attained GFI is at or below the direct compliance target. Each one can be used once: transferred to another ship’s Tier 2 deficit, banked, or cancelled voluntarily as a mitigation contribution , and each lapses two calendar years after the year of issue (36.12 to 36.15). Every surplus unit used against a Tier 2 deficit is a Tier 2 remedial unit the Fund does not sell.

Regulation 38.9 requires the Secretary-General to report to the Committee each year on “transaction patterns in the issuance, transferring, usage and cancellation of surplus units and remedial units”. That report, and the Board’s annual report under 40.6, are the two documents from which the Committee would see what the Fund is earning.

The Fund’s annual cycle

Money arrives in the Fund once a year, months after the fuel is burned. On the draft’s own dates for the first reporting period, calendar year 2028, the sequence is:

On this site’s reading, the first contributions would therefore reach the Fund between August and September 2029, and each later year’s contributions in the same months of the year after. Rewards under regulation 39 are defined as “annual compensation”, so the outflow to ships runs on the same yearly beat. The draft does not say when in the cycle a reward is paid, or whether rewards for a year wait until that year’s contributions are in.

This timing matters for anyone planning around Fund money. A developing State expecting 41.1.2 support for a NAP could not see any until after the first contribution cycle closes and the Board has governing provisions to disburse under. The dates were written for adoption in October 2025 and, on this site’s reading, would move with a later adoption.

Draft regulation 39: ZNZ rewards paid from the Net-Zero Fund

A ZNZ reward is the one Fund payment made to ships. Regulation 39.1 sets the ZNZ threshold at “not greater than 19.0 gCO2eq/MJ for an initial period until 31 December 2034, and from 1 January 2035 … not greater than 14.0 gCO2eq/MJ”. Regulation 39.2 says ships “may receive rewards from the IMO Net-Zero Fund for the ZNZs used”, and definition 2.3.12 calls the reward “an annual compensation provided by the IMO Net-Zero Fund for used ZNZs”.

The draft sets no amount. Regulation 39.3 requires the Committee to define the reward and “the methodology to determine such reward” no later than 1 March 2027 and every five years after, and 39.4 has the Organization publish the ZNZ share. The data already flow through the compliance cycle: item 9 of the Statement of Compliance form in appendix XIII records, for a ship eligible for rewards, “the total amount of GHGs reduced by the uptake of ZNZs”, and regulation 38.6.5 has the Registry record the GHG emissions avoided.

The fuels that could qualify at 19.0 gCO2eq/MJ depend on certified well-to-wake values under the LCA guidelines, not on fuel names. The ZNZ reward article follows the guideline work.

Rewards and the rest of the Fund

Rewards and transition spending draw on the same revenue. Because 41.1 sets no shares, a high reward rate would leave less for 41.1.2, and a low one more. That trade-off is left to the governing provisions under 40.4 and the review under 40.7.

Rewards under a charter party

The draft pays the reward to the ship and says nothing about who keeps it. Regulation 36.7 lets a ship recover costs from the party with operational responsibility, “determining the fuel used or the cargo carried or the route or the speed”, but it addresses costs, not rewards. Under a time charter the charterer usually buys the bunkers, so the party that pays the ZNZ fuel premium and the ship that receives the reward can be different. On this site’s reading, the allocation of a reward is a contract term, in the same way that the BIMCO ETS Allowances Clause for Time Charter Parties 2022 allocates EU ETS allowance costs and the BIMCO FuelEU Maritime Clause allocates FuelEU compliance.

The date in 39.3 was written for adoption in 2025. On this site’s reading, a reward defined by 1 March 2027 would need an adopted chapter to attach to, and a later adoption would move the date.

Draft regulations 42 and 43: technical cooperation and food security

Two regulations outside the Fund’s own articles shape how it would be spent. Neither creates a separate pot of money.

Regulation 42, technical cooperation and technology transfer. Administrations are to promote technical cooperation and the transfer of technology related to Chapter 5 (42.1, 42.2), and the Organization is to promote information-sharing, technology transfer, capacity-building and technical cooperation to enable the development of infrastructure for the supply of ZNZs in developing States (42.3). This mirrors 41.1.2.1 and 41.1.2.3, so Fund money is the obvious financing route, though 42 does not say so.

Regulation 43, food security. The Committee shall “.1 address, including avoiding, remedying and mitigating, the disproportionately negative impacts” of the chapter on food security and “.2 keep … under continuous review” those impacts. The food security article covers the provision. Paragraph 4.6 of MEPC.377(80) required the measures to be adopted along with assessments of their impacts on States, and the Fund purpose in 41.1.2.5 is where remedial money for those impacts would come from.

IMO technical cooperation that predates the Fund

The IMO already runs GHG capacity-building on voluntary donor money, and the Fund’s transition purposes would operate alongside it. The IMO states that “In May 2019, IMO established a voluntary multi-donor trust fund” for GHG technical cooperation, the GHG TC Trust Fund .

GreenVoyage2050 Phase 1 averaged under USD 2 million a year. On the worked example above, one 10,000-tonne VLSFO ship paying remedial units for its whole deficit would put about USD 1.39 million into the Fund for 2028, a fifth of the entire Phase 1 budget. The draft says nothing about merging existing trust funds into the Net-Zero Fund.

SIDS and LDCs in the Fund text

SIDS and LDCs appear twice in the draft: as the priority in 41.1.2 and as the group the Board must adequately represent under 40.5. The text names no list and no UN definition, so which States qualify would be for the governing provisions.

The UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS) lists 44 least developed countries and 39 small island developing States . A count depends on which list the governing provisions would adopt.

The LDC category moves. The UN LDC Portal records graduations of Botswana (1994), Cabo Verde (2007), Maldives (2011), Samoa (2014), Equatorial Guinea (2017), Vanuatu (2020), Bhutan (2023) and Sao Tome and Principe (2024), with Bangladesh, Lao PDR and Nepal scheduled for 2026, Solomon Islands for 2027, and Cambodia and Senegal for 2029. Several of those are SIDS as well. A Fund rule that fixed eligibility by reference to LDC status on a given date would lose recipients each time a country graduates.

The draft gives no floor or share for SIDS and LDCs. MEPC.377(80) paragraph 4.5 and draft regulation 31 carry the same wording about “a just and equitable transition”, and regulation 41.1.2 asks for “sufficient revenue” for the transition purposes, without a figure.

IMO Net-Zero Fund compared with the IOPC and EU funds

No IMO document compares the Net-Zero Fund with another fund, so the comparison below is this site’s. It sets out three funds a maritime reader already deals with.

The IOPC Funds

The 1992 IOPC Fund is the nearest IMO-family fund, though it is a separate intergovernmental organization. According to the IOPC Funds’ explanatory note of April 2026, as at 31 March 2026, 122 States were party to the 1992 Fund Convention and 145 to the 1992 Civil Liability Convention , and 33 to the Supplementary Fund Protocol , which entered into force on 3 March 2005. The 1992 Fund has an Assembly of all Member States, an Executive Committee of 15 Member States whose main function is to approve claim settlements, and a joint Secretariat under a Director with 26 staff.

Two differences matter for the Net-Zero Fund. The IOPC Funds are financed by levies on oil receivers, not ships, and they pay after an incident on documented losses. The Net-Zero Fund would be financed by ships and pay forward, on criteria not yet written.

The EU Innovation Fund

The EU Innovation Fund is financed from about 530 million EU ETS allowances. The European Commission puts its size at “about €40 billion from 2020 to 2030, calculated by using a carbon price of €75/tCO2”. Article 10a(8), as amended by Directive (EU) 2023/959, requires calls to include topics dedicated to maritime decarbonization but sets no fixed maritime share. The Fund is implemented by the European Climate, Infrastructure and Environment Executive Agency (CINEA), with the European Investment Bank monetizing the allowances.

The EU Modernisation Fund

The Modernisation Fund is the closer precedent for directing climate revenue to lower-income parties. The Commission puts it at “€57 billion from 2021 to 2030, assuming a carbon price of €75/tCO2”, for 13 beneficiary Member States: Bulgaria, Czechia, Estonia, Greece, Croatia, Latvia, Lithuania, Hungary, Poland, Portugal, Romania, Slovenia and Slovakia. Its Investment Committee has the 13 beneficiaries, three non-beneficiary States (Germany, the Netherlands and Sweden), the Commission as chair and the EIB. That structure is fixed in the legislation, which is the level of detail draft regulation 40.5 leaves out.

Net-Zero Fund interaction with the EU ETS and FuelEU Maritime

A payment to the Net-Zero Fund would discharge only a Chapter 5 deficit. Ships in EU scope would still owe allowances under the EU ETS for shipping and meet FuelEU Maritime , Regulation (EU) 2023/1805, which has applied since 1 January 2025 with a limit of 89.34 gCO2eq/MJ for 2025 to 2029 and a penalty of EUR 2,400 per tonne of VLSFO-equivalent energy.

The draft IMO text contains no provision on either EU instrument. Each EU text carries a review clause instead:

• EU ETS. Article 3gg of Directive 2003/87/EC requires the Commission to report within 18 months of IMO adoption of a global market-based measure, and before it becomes operational, “while avoiding any significant double burden”. The Commission’s 2026 review proposal , COM(2026) 616 of 17 July 2026, would amend Article 3gg to address double payment with future IMO measures. It is a proposal, and no proposal removes shipping from the ETS.
• FuelEU Maritime. On IMO adoption of a global GHG fuel standard, Article 30(5) of Regulation (EU) 2023/1805 requires a Commission report on “articulation or alignment”.

FuelEU penalties go to Member States, and ETS auction revenue funds the Innovation and Modernisation Funds and national budgets. None of it reaches the IMO Fund. The EU ETS and FuelEU double compliance article covers the EU overlap, and FuelEU banking, borrowing and pooling covers the EU flexibility the IMO draft does not have.

What draft regulations 40 and 41 settle and leave open

MEPC/ES.2/2 settles the Fund’s structure and leaves its operation open.

The last public IMO step on the right-hand column was ISWG-GHG 21, which “held discussions in relation to the proposed IMO Net-Zero Fund, including its governing provisions”, the “possible disbursement of revenue, as well as possible measures to address food security”, and invited further intersessional work on draft reward guidelines. The IMO’s MEPC 84 summary does not mention the Fund, and ISWG-GHG 22 deferred guidelines to ISWG-GHG 23, scheduled for 23 to 27 November 2026.

Common errors about the Fund

• “The Fund was adopted at MEPC 83.” It was approved in draft; adoption was adjourned.
• “A fixed share goes to SIDS and LDCs.” No percentage appears in the text.
• “Part of the revenue goes to the UNFCCC or the Green Climate Fund.” No external fund is named.
• “Surplus unit trades pay into the Fund.” They are ship to ship and pay nothing to it.
• “The Registry fee funds the Fund.” It covers the Registry’s administrative costs.
• “There are four disbursement categories.” Regulation 41.1 has three heads, the second with five purposes.
• “A Steering Committee runs the Fund.” The draft says Governing Board, appointed by the Committee.

Limitations

This article describes MEPC/ES.2/2, approved in April 2025 and not adopted. The Fund provisions could change at the resumed MEPC/ES.2, through the amendments MEPC 84 allowed, or on adoption, and one circulated proposal, known from an IMO officer’s presentation of 10 June 2026 rather than from its published text, would remove the Fund. The governing provisions that would decide most of how the Fund works have not been published.

No revenue figure for the Fund is given, because the draft and the IMO publish none; the worked example is this site’s arithmetic for one ship on default factors. The SIDS and LDC counts are the UN-OHRLLS figures for UN Members at September 2026 and would change with graduation or with a different list. The comparison with the IOPC Funds and the EU funds is this site’s structural comparison, not an IMO position, and the EU figures are Commission estimates at a stated carbon price.

Whether Fund disbursements would count as official development assistance, or raise questions under trade law, is not addressed in any IMO document, and this article takes no position on either.

Related Articles

• IMO Net-Zero Framework : the draft Chapter 5 as a whole
• IMO levy and economic measure : the pricing element that funds the Fund
• Remedial units : the unit a contribution buys
• Surplus units : the transfers that bypass the Fund
• IMO Net-Zero Fund Governing Board : the body under regulation 40.3
• ZNZ rewards : the payment to ships under regulation 39
• Just transition for the maritime workforce : purpose 41.1.2.2
• GFI compliance balance : how a deficit is measured
• MARPOL Annex VI : the parent annex
• Shipping climate finance and ratings : private finance alongside the Fund
• Green shipping corridors : route-based cooperation named in NAPs