Norway has put forward a significant proposal to redesign the IMO (International Maritime Organization) carbon neutrality framework, which includes a combination of additional units for zero and near-zero fuels, five-year banking, and broader use of surplus at both compliance levels. This package is recognized as an acceptable agreement, but its success hinges on a difficult question: can this additional market provide affordable compliance while offering sufficient and predictable rewards for investment in clean fuels?
Key Features of Norway's Proposal
Before the ISWG-GHG 23 and MEPC 85 meetings, Norway presented two interrelated proposals, ISWG-GHG 23/2/5 and ISWG-GHG 23/2/6, which address existing concerns about the IMO carbon neutrality framework. Instead of discarding the existing structure, Norway proposes to refine its incentives and flexibility mechanisms while maintaining the two-tier GHG Fuel Intensity compliance system.
Major Changes in the Compliance System
This proposal includes some interesting features. Instead of relying on financial rewards from an IMO fund, the use of zero and near-zero greenhouse gas (ZNZ) fuels is encouraged through additional units (SUs). Additionally, the crediting period for additional units is extended from two years to five years, allowing these units to be used to balance deficits at both Tier 1 and Tier 2 levels. A major change is that additional units can be used against both tiers, whereas previously the framework only allowed the transfer or banking of additional units for Tier 2 compliance.
Norway also proposes a technical coefficient for the use of qualifying ZNZ. This coefficient starts at 1.25 in 2029, decreases to 1.10 in 2030, reaches 0.30 in 2033, and remains at that level until 2036.
The goal of this proposal is to provide ZNZ users with a more predictable amount of compliance value while maintaining incentives for actual fuel change. However, the predictability of the number of units differs from the predictability of their market value.
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