Ahoy, All Aboard! Navigating IMO’s Carbon Regulations in 4 Bullets

As global climate goals intensify, the shipping industry, responsible for nearly 3% of the world’s greenhouse gas (GHG) emissions, finds itself at a critical turning point. With new regulations set by the International Maritime Organization (IMO) taking effect in 2028, vessel operators, shipbuilders, and investors are reevaluating long-term strategies for compliance and sustainability. At the same time, geopolitical developments, particularly the ongoing U.S.  investigation into Chinese industrial practices, are increasing uncertainty across global supply chains and shipbuilding markets. 

Why This Matters

• IMO introduces global carbon regulations staring in 2028. 

• A new two-tier credit system offers shipping companies financial incentives to invest in cleaner technologies.

• LNG is still prevalent but newer fuels are gaining momentum.

• Geopolitics and policy are influencing fleet decisions.

Point 1: IMO has introduced global carbon regulations staring in 2028. 

In April 2025, the IMO's Marine Environment Protection Committee (MEPC 83) adopted a revised climate framework. The shipping sector was the last sector after aviation to finally adopt decarbonization targets. Instead of the initially envisioned 20% to 30% reduction in GHG emissions by 2030, the newly approved Base Target calls for just an 8% reduction, while a Direct Compliance Target of 21% is available for more proactive shipping companies. These softer targets give shipping companies more time to delay decarbonization investments, potentially postponing major transitions until after 2028. While the framework preserves the long-term net-zero emissions goal by 2050, it has drawn criticism for not doing enough to stimulate the near-term adoption of zero- and low-carbon fuels. 

Point 2: A new two-tier credit system offers shipping companies financial incentives to invest in cleaner technologies. 

To enforce compliance while promoting flexibility, the IMO introduced a hybrid carbon pricing system that replaces the idea of a flat tax with a two-tiered penalty and reward mechanism. Ships that exceed the Base Target but fall short of the Direct Target will pay a modest US$ 100 per ton of CO₂ whereas ships that miss both thresholds will incur a steeper US$ 380 per ton penalty. Ships that perform better than required will earn Surplus Units (SUs), which can be sold to other operators or banked for use over the next two years. This creates a financial incentive to overperform and opens the door to strategic trading within fleets or corporate alliances. 

Point 3: LNG is still prevalent but newer fuels are gaining momentum.

Although liquefied natural gas (LNG) plays a role in the decarbonization of shipping, its role as a transition fuel is reaching its limits. LNG will fall short of the IMO’s Direct Compliance Target beyond 2032. This target brings in tiered carbon pricing that incentivize corporations to use alternative fuels through a system of tradable “Surplus Units.” This allows shipping companies to transition to other more sustainable options like biofuels, ammonia, green methanol, and hydrogen. Specifically, ships that utilize methanol are growing, and we have already seen a rise in these types of vessels being used. In the first quarter of 2025, vessels using LNG and alternative fuels accounted for 66% of tonnage, rising from 48% the year before. 

Point 4: Geopolitics and policy are influencing fleet decisions.

Geopolitical developments are also changing the decisions shipbuilders make and how shipping operators compose their fleets. Amid the tensions between the USA and China in the status quo, the U.S. Section 301 investigation germinates more uncertainty. Section 301 of the Trade Act of 1974 allows the U.S. to investigate and respond to unfair trade practices, which explains why the current probe targets China’s dominance in the shipbuilding sector. If the proposed fees targeting Chinese-built vessels are implemented, they would change shipping alliances. Liner operators like Evergreen Marine, that doesn’t really rely on Chinese-built ships, will acquire a competitive advantage in the market. Contracts for new vessels are shifting to South Korea, with them accounting for 55% by Compensated Gross Tonnage (CGT). These shifts are responses to the changing regulatory and geopolitical environment.  

Action Items: Corporations 

• Stay Observant of Geopolitics: As new regulations and alliances form, corporations should be wary of investments and how they could be affected by the geopolitical landscape. 

• Transition to Alternative Fuels: Corporations should also invest in dual-fuel vessels or retrofit their existing fleet and make them able to utilize fuels like ammonia, green methanol, and biofuels. 

• Strategize for the Two-Tier System: Lastly, corporations should develop carbon management systems that track fuel usage across vessels to ensure that they don’t fall below compliance thresholds.  

  
  

Interested in talking about shipping decarbonization with us? Contact Hermen Westerbeeke who leads our blue economy practice and is currently moderating a session on the topic at the Geospatial World Forum in Madrid, Spain.