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Ocean Oct 22, 2026 · 7 min read

Japan’s plan to drop the IMO Net-Zero Fund

Japan’s fund swap gives shipping’s carbon price a way out. A briefing published on 21 October urges governments to reject Japan’s proposal to scrap the IMO Net-Zero Fund. That fund is meant to collect a mandatory carbon payment on ships’ fuel. Japan would replace it with direct industry payments to approved projects. The UN shipping body meets on it from 30 November to 3 December. Our view: this hands sceptical governments a reason to delay again. A campaign group calls Japan’s and Liberia’s plans “wrecking balls”, and the vote has already slipped once, 57 to 49, in October 2025. Our call: no global shipping carbon charge is adopted with a mandatory fund intact by 4 December.

Japan’s plan to scrap the carbon fund hands December’s IMO talks an exit

A briefing published on 21 October urges governments to reject Japan’s proposal to remove the IMO Net-Zero Fund. The decision point is close. The IMO’s Marine Environment Protection Committee, known as MEPC, meets for its 85th session from 30 November to 3 December. A special session that could formally adopt the rules is expected to reconvene on 4 December, according to ENGINE.

The Net-Zero Fund is the part of the plan with teeth. It is where ships would pay a mandatory charge when their fuel is too dirty. Remove it, and the world’s first global carbon price on an industry loses its collection point.

What Japan wants

The Net-Zero Framework is the International Maritime Organization’s (IMO) planned global rulebook for cutting shipping emissions. It has two main parts. One is a fuel standard that sets a falling limit on the greenhouse gases in ships’ fuel. The other is a pricing mechanism. Ships that miss the limit pay; ships that beat it earn surplus units, a kind of credit they can sell or bank.

Japan’s submission, as described in the 21 October briefing published by Cyprus Shipping News, would remove the Net-Zero Fund. It would rely instead on surplus units and direct industry contributions to IMO-approved projects. In the briefing’s words, “Japan has put forward a proposal to the International Maritime Organization to remove the Net-Zero Fund”.

ENGINE, in a report carried by Hellenic Shipping News on 8 August, said Japan’s text also seeks to “soften GFI reduction targets from 2030 onwards”. GFI is greenhouse gas fuel intensity: the emissions per unit of energy in a ship’s fuel. ENGINE said Japan would replace fund payments with a “direct contribution” mechanism.

The briefing lists several worries. Control of the money could move from governments acting together to private companies. Funding for poorer, climate-exposed countries could shrink. Companies could steer payments back into their own supply chains. And weaker rewards for going beyond the rules could slow the shift to zero- and near-zero-emission fuels. Its bottom line is that voluntary contributions “are not an adequate substitute for the predictable mandatory payments into an IMO Net-Zero Fund”.

Why we think this means more delay

Our view: Japan’s plan is unlikely to pass as written, but that is not the point. It gives governments that dislike a global levy something they can support without looking like they oppose climate action. In a body that prefers consensus, a credible middle option tends to produce one result: more time.

Japan is not a fringe voice in shipping. It is a major shipowning and shipbuilding nation. When a country like that questions the core of the deal, fence-sitters gain cover.

There is also a procedural problem. Lukas Leppert, president of the Clean Shipping Coalition, wrote in The Maritime Executive on 23 August that because Japan’s proposal was not circulated six months ahead, it “cannot be adopted under normal rules at MEPC 85”. Tristan Smith of University College London made the same point to ENGINE: proposals submitted after June would not ordinarily be eligible for December adoption. That cuts both ways. Japan’s text cannot win in December. But its existence can stop the original text from winning, by keeping the argument open.

What happened last time

This has happened before. In October 2025, governments voted to adjourn adoption of the framework by a year. Seatrade Maritime reported the vote at 57 in favour of delay, 49 against and 21 abstentions, with 8 member states absent. Seatrade said US President Donald Trump publicly criticised the carbon pricing plan before the vote. It also reported that the US pressured smaller states with threats of tariffs, port fees and restrictions on ships calling at US ports. Entry into force had been planned for March 2027.

Industry was split then too. “We are disappointed that member states have not been able to agree a way forward at this meeting,” said Thomas A. Kazakos, secretary general of the International Chamber of Shipping. Tanker owners’ group Intertanko took a different line. Its managing director Tim Wilkins said: “This gives us time to improve the single regulatory maritime framework to cut maritime emissions.”

Smith, speaking to ENGINE, linked Japan’s plan directly to that history. He said the proposal answers “concerns raised by the US and other countries over the IMO managing large revenue flows”. In other words, the objection that sank the vote last year is the one Japan is trying to design around.

The rival texts on the table

Japan is not alone. ENGINE’s August report set out a wide spread of options, from strengthening the pricing to removing it entirely.

Liberia, which Cyprus Mail described as the world’s largest flag state, would let ships keep using conventional fuels where cleaner ones are too costly or unavailable. It would also drop mandatory fund payments. ENGINE reported that Oman, Kuwait, Jordan, Somalia, Yemen and Tunisia backed Liberia’s approach at MEPC 84 in 2026.

At the other end, Tuvalu wants the lower penalty price raised from $100 to $300 per tonne of CO2-equivalent, leaving the upper price at $380, ENGINE reported. Australia, Canada, South Africa and the UK would keep the framework largely unchanged but delay it by one year.

Campaigners are blunt. “Both the Liberia and Japan proposals are wrecking balls,” Leppert said in a statement reported by Cyprus Mail on 2 September. Alex Springer of Transport & Environment warned, in the same report, that Japan’s approach “risks creating a scheme where money is invested into projects that do little to reduce emissions.”

At MEPC 84 earlier this year, there was “widespread support” for the framework, according to that NGO statement. Support in a room is not the same as votes in December, as October 2025 showed.

What it means for forwarders and shippers

For freight buyers, the question is simple: when does a global carbon cost show up on an ocean invoice? Our view is that the answer keeps moving later.

If a fund-based framework had been adopted on the original timetable, carriers would by now be modelling a global fuel surcharge for 2027 and beyond. That timetable is gone. A one-year delay, or a weaker design based on direct contributions, means any IMO charge would start later and be harder to price. Direct contributions to chosen projects are also harder for a shipper to audit. A surcharge line saying “IMO compliance” would be tough to check against a published price.

Europe is different. The EU’s Emissions Trading System, the EU ETS, already covers passenger and cargo ships of 5,000 gross tonnes and above calling at EU ports, and has done since 2024, Cyprus Shipping News reported. That does not depend on anything the IMO decides. So the carbon surcharges forwarders see on Europe-linked lanes stay, whatever happens in December.

The EU picture is not settled either. In a separate 21 October report, ferry group Interferry said road transport’s entry into the EU’s second carbon market, ETS2, has already slipped from 2027 to 2028, and some member states want more delay. Interferry put ferry operators’ ETS cost at about EUR 250 per tonne of diesel, and roughly EUR 1 billion a year for European ro-pax and ro-ro operators. Its director of regulatory affairs, Johan Roos, objected to “allowing residential heating concerns to grant an unearned commercial advantage” to road freight. For shippers choosing between short-sea and trucking in Europe, that cost gap could last longer than planned.

Practical steps: keep carbon surcharges in tenders as a separate, indexed line. Ask carriers to show how any future IMO charge would be calculated before agreeing to it. And do not price a global shipping carbon cost into 2027 contracts as a certainty.

Our call

Our prediction: MEPC 85 will not adopt the Net-Zero Framework with a mandatory central fund intact by the end of the special session on 4 December. The most likely outcome, in our view, is another delay or a softened text sent back for more work. We also expect no major container line to announce a surcharge tied to the IMO framework before the end of Q1 2027. EU ETS surcharges will remain the only carbon line on most ocean invoices through that period.

Sources