This article is part of a Synergies series on climate and trade curated by TESS titled Addressing the Climate Crisis and Supporting Climate-Resilient Development: Where Can the Trading System Contribute? Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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In 2023, the International Maritime Organization (IMO) adopted its Revised Strategy on the Reduction of Greenhouse Gas Emissions from Ships, setting an aspirational course towards the full decarbonization of international shipping by approximately 2050. Since then, it has worked to create a regulatory framework that includes provisions for revenue generation, whether through a greenhouse gas emissions levy, penalties for non-compliance with a global fuel standard, or market-based mechanisms such as emissions trading or credit systems.

While the projected scale of revenue remains uncertain, the IMO endorsed a draft Net-Zero Framework (NZF) in April 2025 that is expected to be adopted at an extraordinary session in October 2025. This framework establishes legally binding measures that integrate a well-to-wake fuel-intensity standard with a market-based pricing mechanism. Vessels exceeding prescribed emission thresholds will be required to purchase remedial units, while those that surpass compliance targets may generate and trade surplus units.

Central to this is the newly established IMO Net-Zero Fund, designed to direct revenues towards accelerating the uptake of zero- and near-zero-emission fuels and promote a just and equitable transition by taking into account the needs of developing countries. However, the revenues generated by the IMO’s carbon pricing mechanism are expected to fall well short of the level that Pacific Island nations, small island developing states (SIDS), and least developed countries (LDCs) had advocated for.

While many of these countries called for a high, universal levy ranging from $100 to $150 for every tonne of CO2, the compromise framework introduces a less ambitious carbon price per tonne. Under the NZF, shipowners pay only for emissions that exceed set greenhouse gas intensity targets, with prices up to $100 or $380 per excess tonne. Since charges apply only to emissions above these limits, the total revenue collected will be lower than from a fixed carbon tax on all emissions. The framework is expected to raise $10–12 billion annually in the first three years, rather than the $40–60 billion that Pacific Island nations, SIDS, and LDCs argue will be necessary to address their urgent adaptation and development needs.

Distinctions between different revenue uses are also still to be defined. Some parties hold the position that the entirety of the proceeds should be reinvested in efforts to decarbonize international shipping. Other stakeholders advocate for a more expansive interpretation, suggesting that a share of revenues be directed towards activities not strictly confined to maritime decarbonization. This broader application may include addressing the wider environmental and climatic consequences of maritime emissions, such as supporting mitigation and adaptation initiatives in developing countries, particularly those most vulnerable to climate change. This more comprehensive approach is sometimes classified as “out-of-sector” use of revenues. However, the term remains ambiguous and inconsistently applied, and the lack of a clear operational definition can lead to misinterpretations in policy and legal discourse.

Regulation 41 of the NZF addresses the disbursement of revenues generated through the forthcoming Net-Zero Fund. Rather than being a general or discretionary guideline, it contains a structured framework that clearly mandates the purposes for which the funds are to be allocated. According to this regulation, the revenue generated through the mechanism must be disbursed in compliance with clearly defined objectives that are to be embedded in the governance framework of the fund managing these revenues, still to be developed in governing provisions of the fund. The regulation stipulates that these revenues must be used for purposes that directly support the decarbonization of the maritime sector and ensure a fair and inclusive transition for all countries, particularly those that are most vulnerable, such as LDCs and SIDS.

Among the specific uses identified in the regulation are: rewarding ships that use zero- or near-zero-emission fuels; supporting research, development, and global deployment of decarbonization technologies and infrastructure; assisting developing countries in building capacity and resilience “within the boundaries of the energy transition;” and supporting measures that offset any unintended adverse impacts caused by the new regulatory or economic burdens, such as impacts on food security or trade.

Regulation 41 is meant to ensure that the emissions pricing mechanism is not simply a cost imposed on the industry, but also a source of investment in sustainable shipping and international equity. By codifying how the funds are to be disbursed, Regulation 41 acknowledges the specific needs of climate-vulnerable nations, especially those with limited capacity to adapt.

Prior to the NZF agreement, submissions to the IMO suggested a distinction between “in-sector” and “out-of-sector” distributions. Nevertheless, Regulation 41 does not explicitly label revenue disbursement as “in-sector” or “out-of-sector”.

In-sector distribution would cover funds directly reinvested into the shipping sector, such as rewards for zero- or near-zero-emission fuels, naval fleet upgrades, seafarer training, capacity building for low-carbon technologies, and port infrastructure improvements. These are all purposes explicitly laid out in Regulation 41 (paragraphs 1 and 2.1, 2.2, 2.4).

Out-of-sector distribution would cover funding that supports broader climate or societal goals outside the shipping industry, such as general climate finance, food security in vulnerable states, or non-shipping mitigation initiatives. The NZF includes addressing negative impacts like food security under Regulation 41, while Regulation 43 underscores the IMO’s obligation to address, prevent, and mitigate any disproportionate negative impacts on food security with particular attention to vulnerable countries. It does not, however, extend this to completely unrelated sectors. As such, the draft confines “out-of-sector” usage within the context of mitigating shipping-related negative impacts.

Therefore, while Regulation 41 appears to allow for a broad range of revenue allocations, the language presents a key challenge to addressing disproportionate negative impacts directly tied to measures within the shipping sector’s energy transition. In practice, the line between "in-sector" and "out-of-sector" uses of revenue is often blurred. Investments in infrastructure, community resilience, and related areas, though not always classified as maritime, will nonetheless be essential to sustaining the sector's operations and supporting its transition to low-carbon pathways globally.

Unlocking opportunities associated with maritime decarbonization requires further support in countries with high capital costs or limited industrial infrastructure. Further, the ability of countries to participate in the maritime transition varies significantly (notably depending on the size of their fleet and ports), as does their exposure to the consequences of climate change and/or increased transport costs that the new regulations could cause.

While future efforts at the IMO are expected to initially focus on the technical and administrative aspects of setting up the Net-Zero Fund, it is critical that discussions on revenue use and disbursement are not deferred. Early clarity on how revenues will be allocated, particularly to support climate-vulnerable countries, will be essential to ensure credibility, build trust among stakeholders, and allow for timely and effective operationalization as soon as revenues start to flow.

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Sebastiano Gianino is a PhD student at the University of Copenhagen, and PhD Fellow at the Global Maritime Forum.

Ludovic Laffineur is Senior Advisor, Shipping Decarbonisation, Global Maritime Forum.

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Synergies by TESS is a blog dedicated to promoting inclusive policy dialogue at the intersection of trade, environment, and sustainable development, drawing on perspectives from a range of experts from around the globe. The editor is Fabrice Lehmann.

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