Shipowner Investment Returns Risk Weakening IMO Fuel Rules Without Cutting Freight Costs

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Shipping compliance proposals that would let shipowners direct emissions payments into projects or investments could weaken incentives to adopt cleaner fuels without lowering freight costs, according to a Getting to Zero Coalition brief prepared ahead of upcoming International Maritime Organization talks.

The coalition consulted 15 member companies, mostly shipowners, across container shipping, dry bulk and tankers, alongside charterers, fuel producers and infrastructure businesses. Participants were mainly based in Europe and Asia, with some representation from Latin America and the United States.

Their responses challenge the premise that giving shipowners greater control over compliance spending would make shipping’s energy transition cheaper or more efficient. According to the brief, uncertain investment returns would offer little help with immediate fuel decisions, while payments would still be reflected in freight rates.

The brief examines three enforcement mechanisms as IMO member states hold informal discussions ahead of the 23rd Intersessional Working Group and the 85th Marine Environment Protection Committee.

Under the remedial unit mechanism, included in the Net-Zero Framework agreed at MEPC 83, noncompliance payments would enter a fund or facility supporting cleaner fuel uptake and an equitable transition.

A direct contribution model would instead allow shipowners to select projects receiving their payments, subject to approval. A voluntary unit model would treat part of the payment as an investment, potentially providing assets and financial returns.

The latter proposals seek political agreement over the economic measures and management of revenues. However, every company consulted favoured keeping noncompliance payments meaningful and comparatively simple, the brief said.

Participants argued that returning part of a payment through investment income would reduce the effective cost of continuing with conventional fuels, weakening the incentive to switch.

The companies consulted said shipowners typically assess fuel choices and freight pricing over periods ranging from three months to one year.

Compliance payments would therefore enter cost calculations immediately, while investment returns would arrive later and remain uncertain. Participants said those returns would need to become reliable and predictable before potentially influencing freight prices.

For cargo owners, that distinction matters: the proposed investment mechanism would not, according to interviewees, prevent compliance costs from passing through into transport charges.

Companies also questioned whether decentralising spending would simplify oversight. Although participants expressed doubts about central fund management, they raised greater concerns about competitors selecting and administering projects.

Monitoring project eligibility, financial returns and outcomes would require substantial safeguards, potentially adding administrative work for both companies and regulators.

Fuel producers consulted emphasised the importance of securing purchase commitments to support financing. Investment alone, without prospective customers, would not resolve that problem, the brief said.

Participants also warned that individual project choices could spread funding too thinly and favour shipowners’ home markets or established trading routes.

Lower-income countries could struggle to attract support because of higher financing costs and unfamiliar investment conditions, according to the consultation.

The findings reflect the views of the 15 companies consulted rather than a sector-wide survey. The alternative mechanisms remain under discussion, with any eventual design requiring further detail in legal provisions or implementation guidelines.

_{Source: Global Maritime Forum}