Following the postponement for one year of the adoption of the Net Zero framework at IMO last November, the question in every shipping professional’s mind is what will happen to this regulation when IMO attempts to decide again on it next November. Will the framework be finally adopted as is, with changes or not at all?
To try to predict what will happen, we need to first understand why the framework did not pass. And then try to apply a valuable tool: “follow the money” ( who gains and who loses).
There are many reasons why the NZF regulation was ultimately not adopted, such as the incomplete details of the regulation, the unwillingness to consider the practical proposals of the shipping organizations and the 180 degree turn of the previous MEPC majority, including the EU member states, bowing to Chinese pressure to drop a Levy as part of the economic measure of the regulation and adopting instead the Chinese proposal (which practically is an ETS).
However, the most important reason was the unprecedented threat of retaliation by the USA to any country that would vote for the regulation, if it passed!
After the USA’s threats, many countries changed their previous position and were prepared to vote against the regulation. But there was also a second complication. When a regulation is passed (adopted) at the IMO, it enters into force 16 months later, with “tacit” approval of the member states, that is, when 1/3 of the members, or those with more than 50% of the fleet, do not object in writing. However, there is also the option of “active” approval within 16 months, where 2/3 of the members must indicate in writing that they accept the regulation. This second option has never been used as it would, probably, never bring any regulation into effect, and, therefore, it would put the very existence of the IMO at risk. This second option was cleverly invoked by Saudi Arabia (in close agreement with the US). Eventually, S. Arabia was “persuaded” (probably by the IMO secretariat) to simply request a one-year delay of the decision instead. Of course, the “active” approval option can be invoked again at the next session.
It is a well-known tactic of the IMO that, if you don’t have the votes, you delay the decision and the vote, rather than “killing” a regulation forever. And this is what happened. So, the vote changed to whether to delay the decision or not. The US and its friends (S. Arabia, etc) wanted the delay. The EU and friends wanted a decision now. In this situation, the position of Greece, with the largest fleet in the world, was very difficult. Would it risk its excellent relations with the US, or would it differentiate from the European Union, something that has never been done before by any EU member state at the IMO? Surely the Greek decision on how to vote was made at a high political level and was correct and brave. “Abstention” was an excellent middle ground choice, even if the European Union did not like it. It was important that Cyprus did the same.
But why was the USA so much against the regulation? The answer is simple: LNG (follow the money). This IMO regulation penalizes LNG use as fuel, starting in a few years after the regulation’s effect. And of course, that is totally against the USA’s and President Trump’s aspirations to increase Natural Gas exports from the US. Obviously, Saudi Arabia and other oil-producing states also saw a golden opportunity to stop the regulation. But here we must mention that the EU is also partially to blame! In the making of IMO’s NZF, the EU did not apply its own regulations and practices. It is an EU regulation that, when something is discussed at the IMO for which there is already a European regulation, then the EU members at the IMO must support positions that are in line with the existing European regulation. But here, the European Union behaved as “more royal than the king”. While its own regulation, the Fuel EU, considers LNG as a fuel of reduced emissions, and therefore, instead of a penalty, it brings income to the user, for IMO’s NZF, the EU wanted LNG to incur a penalty almost immediately (from around 2030). And this at a time when the President of the European Commission herself, Ursula Von der Leyen, has already committed to importing 750 billion dollars of LNG from the USA by 2028 (!). In other words, LNG is good for the Fuel EU regulation and good for European land use, but not for use in the engines of the ships that bring it to Europe!
Of course, there is also another more sinister “conspiracy theory”. If the NZF is passed at IMO, the EU will be pressured to drop its own EU ETS and Fuel EU regulations and lose many billions, which will then be directed to the IMO.
So, what is the future of the NZF regulation? I repeat that, in my view, the key is LNG. If, for example, the regulation changes to give a free pass (i.e. without penalty) to LNG for, say, 10 to 15 years, then perhaps America will see the economic benefit (follow the money) and join. If the US does not join, it is impossible for this regulation to pass under the current US administration. And since it is unlikely that the hard-line environmentalist proponents of the regulation at the IMO are prepared to water it down so much, the regulation is unlikely to pass. If a compromise is not worked out by that next IMO meeting in November 2026, then the regulation is probably dead.
Of course, an environmental regulation that considers LNG to be of “reduced emissions” cannot really be considered serious. But even now, the current proposed regulation lacks a proper environmental assessment. It is based on the narrative that green hydrogen and its derivatives (green ammonia and methanol) will reduce global warming, which is not supported by the latest scientific studies (hydrogen is a potent Green House Gas that easily escapes to the atmosphere). Moreover, these green fuels will never exist in meaningful quantities, since they require unattainable amounts of renewable electricity to be produced. Thus, ships will simply pay huge amounts in penalties in the future using the only fuels available to them. These fuels will continue to be fossil fuels, including, perhaps, grey or blue ammonia and methanol (which are made from natural gas and are far worse than diesel in their carbon footprint).
This shift to a global hydrogen economy is both environmentally damaging and hugely expensive. Perhaps it would ultimately be better not to pass the regulation, to give time to debunk the hydrogen narrative, while new, truly green technologies are actually being developed, such as better batteries or even atomic-nuclear batteries.
*Technical Director, Atlantic Bulk Carriers
