In October 2025, the International Maritime Organization (IMO) is expected to adopt its Net-Zero Framework, which would enter into force in 2027. The framework’s supporting guidelines will define zero- and near-zero-emission fuels, reward mechanisms, emissions accounting, certification, and how a central fund will be governed. These guidelines will be crucial in further supporting the energy transition and ensuring a just and equitable transition.

A recent Global Maritime Forum insight brief provides an analysis and explanation of the IMO’s reward mechanism. This guide—written before October’s expected adoption—summarises its key takeaways.

Why is a reward mechanism for e-fuels in shipping needed?

Through the Net-Zero Framework, shipping emissions will be slowly restricted over time through Global Fuel Intensity (GFI) targets, which are measured in a ship’s annual greenhouse gas emissions per unit of energy used. The GFI promotes gradual decarbonisation and transitional technologies but is unlikely to sufficiently incentivise long-term solutions such as e-fuels early on. This is why a reward mechanism is needed.

It is projected that by 2030, the IMO will raise around $11–12 billion annually through penalties from non-compliance with the framework. These funds will then be channelled into rewards for zero- and near-zero-emission (ZNZ) fuels and support a just, equitable transition in which no country or region is left behind.

The IMO reward mechanism can be further tailored to provide financial incentives for using ZNZ fuels. Tailoring rewards to scalable solutions such as e-fuels can help close their competitiveness gap with transitional fuels, such as liquefied natural gas or biofuels.

Why is it important to support e-fuels in shipping?

To keep the shipping sector on track to achieve its stated goal of net-zero emissions by 2050, at least 5% of the industry’s energy demand should be met by scalable alternatives, such as e-fuels, by 2030. E-fuels are critical because they provide a scalable pathway to decarbonise global shipping.

To realise this potential, it’s important to build out the maritime value chain early on so different segments can de-risk one another, enable uptake at scale, and support full commercialisation in the long run. However, e-fuels face high upfront costs and uncertain returns.

E-fuel producers need affordable financing, but shipping companies (offtakers) are hesitant to commit to long-term contracts due to limited supply and unclear price trends. At the same time, investors generally seek quick, low-risk returns, which e-fuels cannot currently provide. This mismatch, often described as the sector’s ‘chicken-and-egg problem’, makes e-fuel growth difficult without policy intervention.

What are the key components of the IMO’s reward mechanism?

The impact of the reward will be driven by two main components of the reward:

• Fuel eligibility – defining which fuels qualify for rewards.
• Reward level-setting – determining the timing, size, and distribution of rewards

What are the various design options for the reward mechanism?

According to the Intergovernmental Panel on Climate Change, four key criteria should be considered when evaluating the feasibility and efficiency of a climate-related policy: environmental effectiveness, cost-effectiveness, distributional considerations, and institutional feasibility. Translated into a shipping context, that looks like the following:

• Investment certainty (Environmental effectiveness): Shipowners need long-term revenue assurance, especially for high-risk commitments like e-fuels which entail long-term offtake agreements, to confidently invest in zero-emission fuels.
• Price discovery (Cost-effectiveness): It’s essential to ensure transparent pricing of alternative fuels in emerging markets to prevent both under- and over-subsidisation.
• Accessibility (Distributional considerations): Rewards should be accessible to shipowners across regions and income levels to ensure the system does not disproportionately benefit larger companies.
• Institutional feasibility:
  1. Limiting liability: Fund allocations must be controlled so demand for rewards does not exceed what is actually available.
  2. Administrative burden: The mechanism should be practical for the IMO to implement and manage.
  3. Political feasibility: The system needs to align with IMO principles and remain politically viable.

What is important to consider when determining fuel eligibility?

There are three main ways the IMO could choose to determine which fuels are eligible under its rewards scheme:

• Technology-centric, based on the fuel’s production pathway (e.g., e-fuels, biofuels)
• Emission-centric, based on greenhouse gas intensity
• Hybrid, a combination of both approaches.

According to the insight brief, the best way for the rewards mechanism to deliver a positive impact on the four considerations outlined above would be through either a technology-centric or a hybrid approach. These approaches would limit the scope of eligible fuels and specifically target e-fuels while significantly increasing investment certainty in the long-term fuels and limiting the liability of the reward fund.

How can the rewards be set, and what are the costs and benefits?

Reward levels can be determined in three main ways, each of which has its trade-offs:

1. Administratively-set rates: A flat administrative annual rate is simple and predictable. However, this approach does not allow the market to discover its most efficient pricing. There is also a risk that payouts could exceed the fund’s assets, creating a potential liability. Finally, an annual fixed rate does not give shipowners long-term certainty, which can undermine investor confidence. However, both these risks could be mitigated by distributing a limited number of multi-year, fixed-rate rewards, which would offer investment certainty while limiting liability.
2. Auction-based rewards: With an auction, multi-year rewards are allocated through competitive bidding. The shipowners that win auctions will have investment certainty since they know their reward upfront for multiple years. Because auctions are based on a set volume, there’s no risk that the fund amount is exceeded. Plus, competition drives price discovery of the rewarded fuel. A downside of auctions is their complexity, as they can’t be too strict (otherwise shipowners won’t apply) or too loose (as companies may pull out later). They’re also a heavy administrative and technical burden for the IMO.
3. Hybrid models: With a hybrid model, rewards are linked to external benchmarks and could incorporate both administrative and auction-based mechanisms. For example, using ‘contracts for difference’ would involve paying out the cost difference between the conventional fuel and the fuel being rewarded. This is controlled by setting a cap for the rewarded fuel, either administratively or through auction. With this approach, shipowners have certainty about what their new fuel will cost. It also simultaneously closes the cost gap directly. However, there is still a risk of exceeding the fund limits since total payouts depend on the price fluctuations of the conventional fuel. It also adds complexity for both the shipowner and IMO administration.

What is the predicted timeline for the rewards?

The timeline for reward mechanisms is critical. Between late 2025 and 2027, the IMO measures are expected to be adopted and enter into force. Rewards will be essential to achieving the 5% e-fuel uptake by 2030, but will require further national and regional support to avoid delays in offtake commitments.
Source: Global Maritime Forum