To decarbonize global shipping, the industry must move beyond “pay to pollute” models and embrace scalable, sustainable fuel alternatives that meet evolving emissions targets.

The International Maritime Organization (IMO) is working hard to finalize historic regulations to achieve net-zero emissions for the hard-to-abate shipping industry.

At  Maersk, we are encouraged by the good and productive progress of the negotiations and acknowledge that the IMO discussions revolve around a levy. However, we cannot overlook the consequences of the fuel standard proposals. The mathematics of the proposals do not add up to support the multiple fuel pathways that the industry needs. The result could be an unfortunate delay in the decarbonisation of shipping.

The industry should power ahead towards its targets for plenty of reasons. The shipping industry accounts for up to 3% of global greenhouse gas emissions and heavily depends on fossil fuels. However, vessels capable of utilizing many alternative low-emission fuels such as bio- and e-methanol, bio- and e-methane, biodiesel, and ammonia are on their way, and some are already in operation.

No fuel can do it alone.

Ideally, the industry could identify “the best” alternative fuels. However, none of these fuels has the scalability to propel the entire global merchant fleet alone. They tap into different feedstocks, and there are significant supply chain bottlenecks in production. Demand signals for these fuels must increase immediately to stimulate the nascent supply.

Therefore, it is essential that the future IMO regulation is fuel-agnostic and provides an equal financial incentive for each of the alternative pathways. With the latest IMO intercessional concluded, there are many promising developments, for example, related to a global fuel standard and the overarching aim of closing the price gap between fossil and alternative low-emission fuels.

Yet, the math applied in current fuel standard proposals has an unintentional consequence: It is not fuel-agnostic, and financially, it heavily favors liquified natural gas (LNG, fossil methane).

LNG can reduce GHG emissions by 10-20% compared to conventional fuel oil and must be acknowledged as a relevant part of the transition, as these vessels can also run on bio- and e-methane. However, bio- and e-methane cannot scale to supply the entire shipping industry, and there will be little to no financial incentive to run them on the lower emission alternatives for the next decade with the current proposals. Hence, the bottlenecks in the low-emission fuel supply would be exacerbated. It will not get the industry to net-zero.

The fuel standard math makes the pay-to-pollute principle the financially most attractive strategy for most shipping companies in the following decades.

Consequences of current proposals

If this element remains in otherwise promising fuel standard proposals, the financial business case for LNG will likely be compelling in any shipping company’s boardroom.

This would have some unfortunate consequences for global shipping:

• Pay-to-pollute as the most financially attractive fuel strategy: The limited potential of the bio-methane and e-methane pathways will not be able to decarbonize the vast fleet of LNG vessels incentivised by IMO regulation; hence, burning fossil LNG and paying the fine will be the most optimal financial strategy.

• Delayed low-emission fuel supply chains: There will be limited to no demand in the market for low-emission fuels such as blue and e-ammonia and bio- and e-methanol. Hence, these supply chains will be significantly delayed or mothballed, further incentivizing the pay-to-pollute pathway based on fossil LNG.

Here is the math problem:

Looking into the mathematics of the IMO proposals with a Greenhouse Gas (GHG) Fuel Standard (GFS), compliance is based on the difference between a GHG fuel intensity target and the attained GHG Fuel Intensity (GFI). This focus on a subset of total emissions results in a significant discrepancy between the actual GHG emissions saved and the amount of so-called Deficit Units generated, which must be canceled by buying Remedial or Surplus Units for compliance. While LNG burned in the right engines can deliver a GHG emissions reduction of up to 19% vs traditional fuel oil, it will get a disproportionate financial benefit far exceeding what is merited by this reduction.

For example, consuming 1 tonne of low-sulphur Heavy Fuel Oil (HFO) with an attained GFI of 95.5 gCO2e/MJ generates 1.58 Deficit Units. In contrast, the LNG equivalent with an attained GFI of 77.2 gCO2e/MJ generates only 0.83 Deficit Units. Despite a 19% emissions savings, the reduction in Deficit Units is 48%, creating a significant financial benefit for fossil LNG.

A concrete example of a container ship can illustrate the issue. For a trade lane between Asia and Europe, the regulatory cost advantage of fossil LNG versus conventional oil will be more than USD 300 per forty-foot container. This should be compared to a typical total fuel cost of USD 500-600 per container and a total cost of USD 2,000. It is important to note that the financial incentives for the low-emission fuels and related energy sources are insufficient to make them more attractive than fossil LNG and the methane pathway. Adding a reward for low-emission energy sources will not change the highly beneficial business case for LNG versus low-emission fuels.

Proposed Adjustments

Luckily, we still have time to get the correct result. The IMO member states will meet again in early April to agree on a proposal.

To turn it into the landmark historical agreement that the industry needs, we need regulatory proportionality to ensure that the calculation of deficit units corresponds directly to actual emissions reductions.

We also need to limit the accumulation of surplus compliance units (so-called “banking”) to one year to maintain the incentive to transition to fuels that provide deep emissions reductions instead of sticking to fossil fuels.

A levy could mitigate the inherent fuel standard flaw, yet it would have to be substantial.

A multi-pathway future is essential for achieving the IMO’s climate targets. Addressing the inadvertently disproportional aspects of current proposals will prevent pay-to-pollute from becoming the most financially attractive solution, resulting in a single fuel type lock-in. Most importantly, it will set global shipping on a course to net zero.

Learn more about this subject: 

• Low-Carbon Marine Fuel Projects
• Advanced Biofuels from Pyrolysis
• Maritime Emissions Reports
• Contact Morten Bo Christiansen, Senior Vice President, Head of Energy Transition at A.P. Moller - Maersk

The Choice Is Clear — Decarbonize or Pay the Price

With tightening carbon taxes and emissions regulations, shipping companies face a fork in the road: innovate with clean fuels or pay rising penalties that threaten profitability and competitiveness.

Klean Industries Powers the Alternative:

✅ Marine-grade fuels from recovered oil & circular feedstocks
✅ Hydrogen-based propulsion systems & port infrastructure
✅ Lifecycle carbon tracking with KleanLoop™ for compliance & ESG
✅ Proven systems aligned with IMO and FuelEU Maritime policies

Connect with Klean Industries to navigate toward zero-carbon shipping, without falling into the trap of paying to pollute » GO.