The Two-Part Mechanism: A Fuel Standard With a Price Attached

7 min read

What you'll take away Explain how the framework's global fuel standard and GHG pricing element work as one instrument, which ships it covers, and how it would sit inside MARPOL Annex VI.

Strip away the diplomacy and the framework is one regulatory machine with two moving parts: a standard that tells every large ship how clean its energy must be, and a price that tells it what falling short costs. Neither part works alone: a standard without a price has no teeth, a price without a standard has no direction. The IMO's own FAQ describes it as the first instrument anywhere to combine mandatory emission limits and GHG pricing across an entire industry sector (IMO FAQ).

Part one: the global fuel standard

Each ship would calculate an attained annual GHG fuel intensity, GFI, for every calendar year: the greenhouse gases attributable to the energy it used, divided by that energy, in grams of CO2-equivalent per megajoule. Three design choices in that sentence do most of the work.

Well-to-wake, not tank-to-wake. GFI counts the whole fuel chain: extraction or synthesis, processing, transport, and combustion on board. This is what stops a fuel that looks clean at the funnel but is emissions-intensive to produce from scoring as green. The accounting rests on the IMO's life-cycle assessment (LCA) guidelines, which assign each fuel pathway its emission factors.

CO2-equivalent, not just CO2. Methane and nitrous oxide count alongside carbon dioxide. For some fuels this is decisive: methane slip moves an LNG-burning ship's GFI in a way a CO2-only metric would never show.

Per megajoule, not per tonne-mile. GFI measures the quality of the energy, not the efficiency of the ship. Efficiency remains CII's job; the framework regulates what goes in the tank, well-to-wake.

One tonne of fuel, from source to funnel CO2 + CH4 + N2O, counted as CO2-equivalent Extraction or synthesis Processing and refining Transport and bunkering Combustion on board tank-to-wake (funnel only) well-to-wake: the boundary GFI counts Attained GFI = well-to-wake gCO2eq per MJ of energy used on board
The three design choices in one picture: the whole fuel chain rather than the funnel alone, three greenhouse gases rather than carbon dioxide alone, and energy rather than transport work as the denominator. A fuel that burns cleanly but is emissions-intensive to make cannot score as green inside the wider boundary.

The standard then declines: each year has a target GFI, expressed as a percentage reduction against a 2008 reference value. Lesson 3 puts the actual numbers on it.

Part two: the price

A ship whose attained GFI beats its targets has done something valuable and the framework treats it that way: it earns surplus units it can bank or transfer. A ship that misses must cover the gap, tonne for tonne of CO2-equivalent, by acquiring remedial units at fixed prices, in two tiers according to how far short it fell. The money paid for remedial units flows into the IMO Net-Zero Fund, which finances rewards for the cleanest fuels and support for the transition (lesson 4).

Note what this is not: it is not a levy on every tonne of fuel, an idea that was on the table during negotiations but not taken up. A ship exactly on target pays nothing. The economic consequence is proportional to the distance from the target, which is what makes it a steering instrument rather than a tax.

Who is covered, and where the law would live

The framework would apply to ocean-going ships over 5,000 GT: the same threshold as the IMO Data Collection System, and together those ships account for roughly 85% of the CO2 emitted by international shipping. The alignment is deliberate: DCS reporting of annual fuel consumption already exists, is already verified, and becomes the backbone that GFI calculation extends. ClassNK's plain-language walkthrough of the mechanism shows how the pieces connect end to end (ClassNK white paper). If DCS and its cousins are unfamiliar, our free course Maritime Regulations, Explained covers them.

Legally, the framework is drafted as amendments creating a new chapter of MARPOL Annex VI: the same convention that carries EEXI, CII and the sulphur limits. That choice matters operationally. Annex VI already binds the flag states covering the overwhelming majority of world tonnage, so there is no new treaty to ratify; amendments proceed by tacit acceptance, meaning they enter into force on a fixed clock after adoption unless enough parties object. Surveys, certification and statements of compliance flow through the flag administrations and recognized organizations that already audit DCS. An IMO-maintained GFI registry would track attained values, surplus units and remedial units.

Approved at MEPC 83 in April 2025, this machinery awaits adoption: the dated record is in lesson 6. The design, though, is settled enough to be worth learning now, because the next two lessons show that the numbers inside it would start binding from its very first compliance year.

Check yourself

1. A ship's attained GHG fuel intensity (GFI) is expressed in which unit?
2. The framework would apply to ocean-going ships above what size?
3. Why does the framework measure well-to-wake rather than tank-to-wake emissions?
4. How would the Net-Zero Framework become binding law?
5. Which existing IMO data stream would GFI compliance build on?
6. Which greenhouse gases count toward a ship's GFI?

Select all that apply.

7. The pricing element is a flat levy charged on every tonne of fuel a ship burns.
8. The framework covers ships over how many gross tonnage?
GT