The new regulatory reality – what MEPC 83, FuelEU and EU ETS mean for shipowners

“I’m a firm believer in the IMO process. It’s not perfect – and it’s certainly not built for the impatient. But I get why we’re dancing the way we are; this is a global negotiation, not a sprint. Clarity will come, and we’ll see a wave of new guidelines finalised before 1 January 2028. Some may feel that’s too late but it gives the industry a clear window to prepare thoughtfully – and take meaningful steps – before enforcement kicks in.”- Kate Schrøder Jensen

Here is a breakdown of what was agreed, what is already on the table and what is still in play.

Midterm measure approved (the big outcome)

The headline from MEPC 83 was the approval of the IMO’s midterm measure to reduce GHG emissions. It introduces a two-tier compliance system proposed by Singapore:

• Direct compliance – strict and which essentially introduces a minor levy.
• Base target – roughly in line with FuelEU Maritime.

It is expected to enter into force in 2027, with compliance kicking in from 2028. A few procedural technicalities remain but the direction is clear.

The system includes the following financial penalties applicable until 2030:

• $100 per tonne of CO₂e if you miss the direct compliance target.
• An additional $380 per tonne of CO₂e if you also miss the base target.

The measure is well-to-wake, not just tank-to-wake. If you outperform, surplus compliance units can be transferred across your fleet, sold at market prices or banked for later use (up to a maximum of two years).

So, what does that mean in practice? Efficiency and operational performance are no longer nice-to-haves, they are regulatory necessities as the penalties not only reflect the kind of fuel used but also the amount of fuel used.

There were also a few big question marks left hanging:

• How will funds be redistributed?
• How much of the fund will be invested back into the fleet through the zero- and near-zero-emission fuels, energies and technologies concept (ZNZs) in the midterm measure?
• What will the definition of ZNZs be?
• Will the level of penalty drive transition and deliver on the target?
• What will the penalties be beyond 2030?

Uncertainty remains but the agreement on the midterm measure sends the world a united political message – transition starts now.

North-East Atlantic ECA expansion

Another outcome was the approval of a new North-East Atlantic Emission Control Area (ECA). This expands strict sulphur limits and continues NOx Tier III rules for newbuilds.

As this new area will expand the northern hemisphere ECAs, ships operating in and out of the region will spend more time in ECA mode. That means more time on ultra-low sulphur fuels and more load on emission systems.

FuelEU Maritime: GHG intensity targets starting 2025

While the IMO’s midterm measure makes headlines, FuelEU Maritime is arriving sooner.

From January 2025, ships over 5,000 GT calling at EU ports must reduce the GHG intensity of the energy used onboard.

This applies to voyages within the EU, voyages into or out of EU ports and any mix of these.

Penalties apply if your fuel mix exceeds the allowed GHG intensity – regardless of compliance with other standards. The regulation heavily incentivises the use of low- and zero-emission fuels, such as advanced biofuels, e-fuels and synthetic methanol. But it also “favours” the use of LNG until 2030.

It isn't just a fuel decision; it is a planning and sourcing challenge in terms of fuel availability and retrofit readiness.

As the IMO midterm measure is very close to the FuelEU Maritime regulation, one cannot help comparing the two frameworks. Looking at the requirements to the reduction level, the IMO’s framework is stricter than FuelEU Maritime. Considering penalties, from a single fuel perspective, and comparing 2030 penalties and 2035 penalties, FuelEU Maritime will be tougher than the IMO’s midterm measure in 2030, but this picture changes close to 2035, when the midterm measure will issue much higher penalties.

We still await whether the EU will sunset FuelEU Maritime now that the IMO will be implementing the midterm measure.

EU ETS: Paying for every tonne of CO₂

Shipping is now in the EU Emissions Trading System (EU ETS) — which puts a price on carbon in line with the polluter pays principle.

From 2024, shipowners must surrender allowances for CO₂ emissions from:

• 100% of voyages within the EU
• 50% of voyages into or out of the EU

Each EU Allowance (EUA) covers one tonne of CO₂ emissions. These are:

• Sold at auction or traded on the carbon market
• Required to match annually reported emissions (tank to wake)
• Becoming scarcer and more expensive every year as the cap decreases.

The pressure is threefold:

1. Track and report emissions accurately
2. Buy enough allowances – or face stiff penalties
3. Factor EUA pricing into routing, fuel selection, energy efficiency choices and voyage planning

Emissions now carry a direct financial cost – and it is only going to go up.

Practical implications for fuel strategy

The regulatory vice is tightening and in terms of fuel strategies, most owners are weighing three options:

1. Pay the price – Installing scrubbers and staying on heavy fuel oil (HFO) will provide lower penalty fees compared with the use of compliant low-sulphur fuels (VLSFO, MGO).
2. Opting for LNG-fuelled ships will, roughly estimated, provide zero penalties in the early years and will not reach the same level of penalty as traditional liquid marine fuels before five years later.
3. Transition partly to biofuels and e-fuel to lower penalty exposure, however this may come with an additional cost on the fuel as the level of penalty might not make it to a break-even.

One clear trend is that fuels like biofuels and methanol offer attractive flexibility. Engines retrofitted to dual-fuel usage of methanol allow ships to switch between methanol and conventional fuels, which is a smart hedge against both fuel price volatility and patchy supply chains. A word of caution though, if the IMO Lifecycle Assessment Guidelines (under development) define default emission factors for fossil-based methanol to be at the same level as in the FuelEU Maritime regulation, it will provide higher fines than using VLSFO alone.

MEPC (ES.2) and beyond

Looking ahead, a second extraordinary session (ES.2) of the MEPC planned for mid-October – as well as future meetings – will tackle some tricky unresolved issues:

• Defining fund redistribution mechanisms.
• Clarifying incentive structures for overcompliance for ZNZs.
• Revising carbon intensity measures (CII) and EEDI formulas to account for low- and zero-carbon fuels.
• And the overall question, whether there is a future for CII and EEDI.

The debate will continue but will not change the direction of travel. The pressure to decarbonise will increase, and we all have a shared responsibility.