Cyprus faces fresh IMO battle over shipping emissions

Cyprus enters a decisive four-day round of global shipping talks in London on Tuesday, as member states seek agreement on rules that will determine how quickly ships must cut emissions, what non-compliance will cost and whether billions of dollars will pass through a new Net-Zero Fund. The negotiations place Cyprus, one of Europe’s leading maritime states, back at the centre of a dispute that divided the European Union last year. Cyprus and Greece abstained when the International Maritime Organisation’s (IMO) extraordinary environmental session voted in October 2025 to postpone formal adoption of the Net-Zero Framework for one year. The measure had been approved in April but was not adopted, leaving its future open to further negotiation. The Shipping Deputy Ministry subsequently explained that Cyprus had sought to create room for a broader agreement, supporting an IMO framework that was both ambitious and workable. A narrowly backed measure, it argued, could prove difficult to implement and encourage more regional rules. The Cyprus Shipping Chamber (CSC) has also supported a global agreement, warning that fragmented regional requirements would increase costs and weaken competitiveness. As the chamber has previously stressed, “only global rules can decarbonise a global industry”. The 22nd session of the IMO’s working group on greenhouse gas emissions, known as ISWG-GHG 22, runs from September 1 to 4. It is the first of two negotiating rounds intended to narrow the differences before the IMO’s Marine Environment Protection Committee meets later this year. According to the IMO timetable, a second working-group session will follow from November 23 to 27, before MEPC 85 meets from November 30 to December 3. The extraordinary session postponed last year is expected to resume on December 4, subject to confirmation. The London talks will not settle the issue, but they will show whether an agreement in December remains possible. The IMO said in May that close to 100 delegations had set out their positions, prompting secretary-general Arsenio Dominguez to say the organisation was “back on track”, although it still had to “rebuild trust”. The framework would create the first global system combining mandatory limits on the greenhouse gas intensity of marine fuels with a pricing mechanism for ships that fail to meet them. It would apply to oceangoing vessels above 5,000 gross tonnage, which account for more than 85 per cent of emissions from international shipping. Compliance would be measured through GHG Fuel Intensity, or GFI, expressed in grams of carbon dioxide equivalent per megajoule of energy. The calculation would cover carbon dioxide, methane and nitrous oxide across the entire fuel lifecycle, from production and transport to use on board. This well-to-wake method is particularly important for LNG because methane released during production, transport or combustion can substantially increase the fuel’s final emissions rating. Under the approved draft, ships would face two compliance tiers. The base target would initially require a 4 per cent reduction in fuel-emission intensity in 2028, rising to 30 per cent in 2035, compared with the 2008 average. The stricter direct-compliance target would begin with a 17 per cent reduction and rise to 43 per cent over the same period. These dates are now expected to change because adoption was delayed. Ships exceeding the limits could use surplus units bought from better-performing vessels, draw on units saved from previous years or acquire remedial units by contributing to the IMO Net-Zero Fund. The initial prices in the draft were set at $100 per tonne of carbon dioxide equivalent for a Tier 1 shortfall and $380 for Tier 2 during the 2028-2030 reporting periods. Ships performing better than the direct-compliance target could earn units to sell or retain for later use. Revenue from the pricing mechanism would finance rewards for zero- and near-zero-emission fuels, along with research, infrastructure, training, technology transfer and support for developing countries. Estimates suggest the original framework could raise around $10 billion a year, making the Fund’s governance and allocation among the most politically sensitive issues in the talks. Four proposed amendments were circulated within the six-month period required under the MARPOL convention. A fifth approach, submitted later by Japan as a paper for MEPC 85, will also form part of the negotiations, although its timing creates a legal complication if members seek to use it as the basis for adoption in December. Australia, Canada, South Africa and the United Kingdom propose retaining the framework almost unchanged, with the dates moved back to account for the one-year delay. Their proposal keeps both compliance tiers, the remedial and surplus units and the Net-Zero Fund. Brazil retains the same broad structure but proposes a gentler start, followed by stronger requirements later. Its plan would delay the early GFI reductions by about two years before increasing the 2040 base reduction from 65 to 70 per cent. Brazil also proposes replacing the Fund with a lighter facility that could work through accredited international institutions. Supporters say this would reduce early compliance pressure while fuel production and bunkering infrastructure expand. Critics argue that delaying the tougher requirements would also delay investment in cleaner fuels. Tuvalu takes the strictest approach. Its proposal would effectively place a charge on all remaining ship emissions, remove the opportunity to generate surplus units and increase the Tier 1 price from $100 to $300 per tonne. The Tier 2 price would remain at $380. The proposal is supported by a group of Pacific island states seeking a stronger price signal for producers of green ammonia, methanol, hydrogen and synthetic fuels, as well as greater revenue for vulnerable developing countries. Liberia proposes the most extensive redesign. It would link future tightening of the fuel standard to whether lower-emission fuels were commercially available, affordable and capable of being produced at scale. Its system would depend more heavily on the trading, banking and borrowing of surplus units while removing mandatory contributions to an IMO-managed fund. A related submission from Liberia and Panama would allow ships to earn surplus units through verified energy-efficiency improvements, expanding recognition beyond fuel switching to measures that reduce actual consumption. Japan has sought a middle course, retaining two compliance tiers while setting lower targets through 2035 and making later reductions dependent on the commercial availability of fuels and technologies. Its proposal would remove mandatory payments and the Net-Zero Fund, relying more on surplus-unit trading. Companies could instead make direct contributions to eligible IMO-approved projects. However, because Japan’s proposal was not among the four amendments circulated within the MARPOL deadline, using it as the legal basis for immediate adoption could delay the process into 2027. Recent independent modelling submitted to the working group by the Institute of Marine Engineering, Science and Technology found that Tuvalu’s levy-based option produced the deepest emissions cuts and was the only one of the four formally circulated amendments likely to meet the IMO’s 2030 and 2040 checkpoints. The modelling found that retaining the existing framework offered the lowest average cost of cutting carbon among the three options that kept an emissions-pricing mechanism. Liberia’s redesign produced the weakest emissions result and no revenue for a just transition. The European Union has signalled that it is prepared to consider changes, but its joint submission sets clear limits. Any agreement must still lead to net-zero emissions by or around 2050 on a well-to-wake basis, encourage the transition from the first year, remain enforceable and provide credible financing for developing states. The EU has also accepted that flexibility may be needed where ships cannot obtain lower-emission fuels at the ports they visit. However, tensions remain within Europe. Greek shipping minister Vassilis Kikilias warned before the meeting that preparatory discussions had not shown enough flexibility and had failed to give sufficient weight to member states representing more than 70 per cent of European shipping. According to the Greek minister of Maritime Affairs and Insular Policy, Vassilis Kikilias, emission rules must reflect the actual development of fuels, propulsion systems and available technologies, without passing excessive costs to households and businesses. The concern is particularly strong in bulk and tramp shipping, where vessels do not operate on fixed routes and cannot know years in advance which ports they will use or whether suitable fuels will be available. Union of Greek Shipowners president Melina Travlou has described the Liberia-Panama approach as a more balanced basis for further discussion, although she said it could still be improved. She argued that fuel availability and affordability must be taken into account and that energy efficiency should be recognised as a direct means of reducing emissions. The shipowners’ position reflects the central disagreement in London. If the IMO sets demanding targets before green fuels are produced at sufficient scale, ships may face high charges for fuels they cannot obtain. If the targets simply follow what is already available, producers may lack the guaranteed demand needed to invest in new plants. The final rules will also have commercial consequences beyond the fuel bill. Responsibility for choosing the fuel, route and speed often lies with the charterer rather than the vessel owner, meaning compliance costs are likely to be addressed through charter-party clauses, management agreements and freight rates. More efficient ships could gain commercial value through lower costs and the sale of surplus units. Older vessels with high consumption could face higher charges, reduced employment or pressure for early replacement. Member states must still agree on fuel certification, traceability, methane calculations, the treatment of biofuels and recognition of wind-assisted propulsion. They must also complete the digital GFI Registry that will record each ship’s emissions, compliance balance and unit transactions. The IMO’s wider climate strategy seeks net-zero emissions from international shipping by or around 2050. It calls for total emissions to fall by at least 20 per cent by 2030, while aiming for 30 per cent, followed by a reduction of at least 70 per cent by 2040, while aiming for 80 per cent, compared with 2008. The question in London is therefore no longer whether shipping must cut emissions. It is whether countries can agree on a system strong enough to create a market for cleaner fuels while remaining workable for ships operating across different trades, routes and financial conditions.