ISWG-GHG 16

DEVELOPMENT OF A BASKET OF CANDIDATE MID-TERM GHG REDUCTION

MEASURES
Fact sheet

Name of the candidate Zero Emission Shipping Fund (ZESF) – Fund and
measure(s): Reward (Feebate) Mechanism

Reference document(s): ISWG-GHG 16/2/3 (Bahamas, Liberia and ICS)

Are the technical element and
economic element integrated
into a single measure or
developed as separated
measures?
To be adopted as a separate maritime GHG emissions
pricing mechanism (economic measure), in addition to
a Global (GHG) Fuel Standard (technical measure).

***
1 GHG fuel intensity (GFI) values setting
1.1 Methodology/approach N/A
for setting GFI trajectory
and baseline

1.2 Proposed GFI Additional reductions in GFI to those required by the

trajectory/pathway/values separate GFS for 2030 would be achieved by the
from entry into force to accelerated production and uptake of zero/near-zero GHG
2050 fuels that will be incentivized by the Zero Emission Shipping
Fund (ZESF) Fund and Reward (Feebate) Mechanism.

While the GFS might achieve the GFI agreed for 2030
through, for example, increased use of sustainable biofuel
blends or LNG, this will not itself achieve the IMO level of
ambition for 5% to 10% of the energy used by shipping in
2030 to come from zero/near-zero sources.

The ZESF Fund and Reward (Feebate) Mechanism, by

reducing the cost gap between zero/near-zero GHG fuels
and conventional fuel oil though a guaranteed level of
rewards per tonne of CO2e prevented by the use of
zero/near-zero fuels, will help to ensure that the 2030 goal
for 5% to 10% of the energy used by shipping to come from
zero/near-zero sources is achievable.

This in turn will make possible the more aggressive

reductions in GFI which will be necessary after 2030 to
achieve the 2040 indicative checkpoint and the (by or close
to) 2050 net zero goal in the 2023 IMO GHG Strategy.

1.3 How to take into The proposal for ships to make contributions to the ZESF per
account GHG emissions of tonne of CO2e emitted, and to receive rewards per tonne of
marine fuels and CO2e prevented by the use of eligible zero/near-zero GHG
sustainability aspects as energy sources, takes account of these issues as follows:
addressed in the LCA
Guidelines? Rationale for Contribution: Life-cycle emissions of zero and near-zero
the approach? GHG fuels (including the biofuel component of blends), as
determined by the LCA Guidelines, can be taken into account
when setting the contribution rate per tonne of these fuels
consumed, so that the contribution to be made to the ZESF
is either zero rated or lower than the contribution per tonne
required for conventional fuel oil. This approach would be
compatible with the requirement in the 2023 IMO GHG
Strategy for the measure not to increase the GHG emission
of other sectors. However, ships would not be charged for
life-cycle emissions for which other sectors are responsible.

Reward: With regard to the reward rate per tonne of CO2e

emissions prevented by the use of eligible zero/near-zero
GHG fuels, this would take account of the life-cycle
emissions of these fuels (and their energy densities) as
determined by the LCA Guidelines. This approach is set out
in annex 3 of document ISWG-GHG 16/2/3.
 Whilst the reward rate per tonne of CO2e prevented by not
using conventional fuel oil would be the same for all eligible
zero/near-zero GHG fuels (and technologies such as carbon
capture), the reward rate per tonne of these fuels consumed
would be based on their CO2e conversion factors as
determined by the LCA Guidelines.

1.4 How to ensure The ZESF/feebate proposal addresses this issue in several
fuel/technology neutrality ways:
in the process of
identifying Rewards for the use of zero/near-zero GHG fuels and
compliant/eligible technologies are fuel/technology neutral because these are
fuels/technologies? What calculated on the basis of the CO2e emissions prevented, as
considerations have been determined by the LCA Guidelines, compared to using
taken to incentivize the conventional fuel oil (diesel/gas oil).
production of alternative
marine fuels? The accelerated production and uptake of zero/near-zero
GHG marine fuels (and technologies) will be incentivized by
the combination of both a lower (or zero) contribution rate per
tonne of these fuels consumed plus rewards for the CO2e
emissions prevented by the use of eligible fuels. However, it
is the rewards element that provides the most effective
incentive to accelerate the production and uptake of
zero/near-zero GHG fuels.

This fuel (and technology) neutral reward (feebate)

mechanism is effective for incentivization as it multiplies the
effect of the contribution rate in reducing the cost gap
between zero/near-zero fuels and conventional fuels, without
requiring the quantum of the contribution by ships to the
ZESF to be set at a level that will have disproportionately
negative impacts on States.

If the cost gap was determined to be, for example, US$600

per tonne of fuel, the reward element means it would not be
necessary to increase the cost of conventional fuel oil by
setting the contribution rate at US$600.

This is why the reward (feebate) mechanism is the most

effective means of reducing the cost gap to incentivize the
accelerated production and uptake of zero/near-zero GHG
fuels by 2030 to achieve a “take-off” point in their use, as it
will greatly de-risk investment decisions which urgently need
to be taken by energy producers and shipowners, so that the
pathway to net zero by or close to 2050 remains achievable
and plausible.

For example, as the initial objective of the measure is to help

ensure, by reducing the cost gap (with a reward rate set at,
say US$100 per tonne of CO2e prevented) that 5% to 10% of
the energy used by shipping in 2030 comes from zero/near-
zero GHG sources, the contribution rate needed to reward
the use of this amount of energy would require a contribution
rate equivalent to about US$20 to US$40 per tonne of
conventional fuel oil (US$6.25 to $12.5 per tonne of CO2e).
 However, the total contribution rate would be higher
depending on the additional amount of funds which IMO
decides should be collected for allocation, via the separate
IMO (GHG) Maritime Sustainability Fund (IMSF), to support,
inter alia, the maritime GHG reduction efforts of developing
countries.

As shown by the updated economic impact assessment

submitted as document ISWG-GHG 16/2/2 (ICS), the
economic impact on States of the contribution rate required
to fund the reward programme plus billions of US$ to support
developing countries would be minimal.

The production and uptake of zero/near-zero GHG fuels will

also be incentivized by the confidence created by the billions
of US$ of guaranteed funding that will be generated from
contributions by ships to the ZESF (via the separate IMSF) to
support, inter alia, the production of ‘green’ marine fuels and
the necessary bunkering infrastructure in ports in developing
countries.

2 Flexible compliance strategies

2.1 How to Although a separate measure to the GFS, the ZESF Fund
incentivize/reward over- and Reward (Feebate) Mechanism will incentivize over-
compliance vs. compliance with the fuel standard by providing rewards for
penalize/remedy under- the CO2e emissions prevented by the use of eligible
compliance? zero/near-zero GHG fuels which will have a far lower GFI
than other fuel types that may comply with the standard likely
to be agreed for 2030.

Moreover, because the reward rate per tonne of CO2e

prevented will be guaranteed for a minimum of 5 years, it will
be far more effective in incentivizing the accelerated
production and uptake of zero/near zero fuels (needed to
achieve the IMO target for 5% to 10% of the energy used by
shipping to come from zero/near-zero GHG sources by 2030)
than any rewards for over-compliance that might be linked to
a more complex version a GFS where the level of rewards is
not guaranteed, instead of being linked to a variable/volatile
market and/or the availability of these fuels.

The rewards provided via the feebate mechanism are

targeted at increasing the production and uptake of those
zero/near-zero GHG fuels which will be necessary if the 2023
IMO GHG Strategy is to succeed, rather than any type of fuel
which may initially "over-comply” with the relatively low GFI
reductions which are likely to be required by a GFS in 2030.

The ZESF Fund and Reward (Feebate) Mechanism also

avoids those problems connected with penalising under-
compliance (e.g. through the purchase of remedial units)
given that under-compliance may be due to factors beyond
the ship’s control such as the availability of compliant fuels –
 which is also more likely to be an issue for ships which are
owned in or which serve the economies of developing
countries.

If the cost of under-compliance is uncertain, or the market

determines that the cost of under-compliance is low, shipping
companies and their customers (which in tramp trades often
directly pay for marine fuels) may conclude that the cost of
under-compliance is less then investing in zero/near-zero
GHG fuels, with the effect of slowing down the transition to
net zero.

The ZESF Fund and Reward (Feebate) Mechanism avoids

this by focusing on rewards which will guarantee the
reduction of the cost gap for a minimum 5 year period, which
will be a far more effective means of incentivized the use of
zero/near-zero GHG fuels which over-comply with the GFI
that is likely to be agreed for 2030 and which will be vital to
achieve net zero by or close to 2050 (whilst also generating
US$ billions of funds to support, inter alia, the maritime GHG
reduction efforts of developing countries).

2.2 Main objectives and The first objective of the ZESF Fund and Reward (Feebate)
functioning of a Mechanism is to incentivize the accelerated production and
reward/contribution uptake of zero/near-zero GHG fuels (and technologies) by
system. reducing the cost gap with conventional fuel oil though the
provision of rewards to ships for the CO2e emissions
prevented by the use of zero/near-zero GHG fuels.

The immediate objective is to achieve the new IMO level of

ambition for 5% to 10% of the energy used by shipping to
come from zero/near-zero GHG sources by 2030, to achieve
a “take-off” point in their availability and use, so that the 2040
and (by or close to) 2050 goals remain achievable and
plausible.

The other important objective of the mechanism is to

generate US$ billions to support the maritime GHG reduction
efforts of developing countries. The proportion of funds used
for this purpose, generated by contributions from ships to the
ZESF, would be transferred from the ZESF to the separate
IMO (GHG) Maritime Sustainability Fund (IMSF).

With regard to the functioning of the reward/contribution

system, in summary:

• Ships will make annual contributions per tonne of

CO2e emitted to the ZESF via a fully automated,
internet-based, contribution and reward system – see
link to working prototype included with document
ISWG-GHG 16/2/1 (ICS).
• Shipping companies will be able to set up accounts
for their ships with the ZESF, linked to their IMO
numbers.

• On behalf of the ship (to which the regulations will

apply), the shipping company will provide the system
with the same verified fuel consumption data already
provided for use with the DCS.

• The system will then calculate the CO2e emissions for

the fuel types consumed (based on the conversion
factors determined by the LCA Guidelines) and the
contributions to be made to the ZESF, which will be
set out in a Provisional Statement.

• The contribution will then be made by the ship directly

to the ZESF which will then issue an annual Account
Statement for the ship, confirming that the required
contribution has been made.

• The Ship will then send this ZESF Account Statement

to its flag State Administration which will issue a
Statement of Compliance for port State control
enforcement. To minimise the administrative burden,
this will be the only task which the flag State (or
delegated RO) would be required to perform, only
requiring a simple check that the verified annual fuel
consumption data provided by the ship to the ZESF is
the same as that previously used for the DCS.

• It should be noted that no contributions will pass via

governments, which will have no role in calculating or
collecting the contributions to be made to the ZESF.
It will also be unnecessary for IMO or flag States to
share DCS data with the ZESF as, to keep the
system simple, this will be provided to the ZESF by
the shipping company on behalf of the ship at the
start of the process.

• Rewards for the use of eligible zero/near-zero GHG

fuels for the CO2e emissions prevented will also be
calculated and dispersed by the same fully automated
system, using data provided by the ship based on
DCS data.

• Depending on the quantity of eligible fuels and

conventional fuels consumed annually (it is assumed
that most ships initially eligible for rewards will be
dual fuel ships) – the
ship will either pay a reduced net contribution or
receive a payment from the ZESF. How this will work
in practice can readily be seen via the link to working
prototype included with document ISWG-GHG 16/2/1.
 • It should be noted that the biofuel component of
sustainable biofuel blends would be eligible for
rewards, as would the CO2e emissions prevented by
the use of carbon capture technology.

2.3 How to set the
value/price of surplus and
remedial/deficit units to
incentivize first movers
and address the cost
difference between
conventional and
compliant fuels?
Suggested value/price, if
any?
The ZESF Fund and Reward (Feebate) Mechanism does not
use surplus or remedial/deficit units to incentivize first
movers, but instead, to reduce the cost difference with
conventional fuels, provides rewards to ships for the use of
eligible zero/near-zero GHG fuels (and technologies) for the
CO2e emissions prevented.
Subject to the findings of the CIA, a reward rate of around
US$100 per tonne of CO2e prevented has been tentatively
suggested to reduce the cost gap, without closing it
completely, which based on the need to fund rewards for 5%
to 10% of the energy used by ships to come from zero/near-
zero sources would cost between US$5 billion and US$10
billion per year (based on total energy consumption by
international shipping being equivalent to about 300 million
tonnes of conventional fuel oil per year.

If the tonnage threshold is 5,000 GT, and the total annual

consumption of conventional fuel oil for which contributions
are due is about 250 million tonnes per year, this would
require a contribution by ships to the ZESF equivalent to
about US$20 to US$40 per tonne of conventional fuel oil
consumed (about US$6.25 to US$12.5 per tonne of CO2e) –
plus the additional part of contribution to be allocated by the
ZESF to the IMSF to support developing countries.

2.4 Other possible flexible N/A

compliance approaches
(e.g. pooling of ships,
banking of units across
several compliance
periods, etc.) envisaged in
the proposal.

3 Reporting and verification requirements

3.1 How to ensure a The ZESF contribution and reward (feebate) system, to be
centralized management administered by IMO, would manage all of the information
of the information? Role of required – see link to working web-based prototype included
a central registry? Role of with document ISWG-GHG 16/2/1.
the IMO DCS?
The verified fuel consumption data used by the ZESF system
to calculate the annual contributions due and the rewards to
be disbursed for the use of eligible zero/near-zero GHG fuels
is the same verified data already reported for use with the
DCS.

The ship will report its annual fuel consumption data directly
to the ZESF, with the flag State checking, at the end of the
process, that the fuel consumption data used by the ZESF to
 calculate contributions and rewards is the same as that
which the flag State has already provided to the DCS, prior to
issuing the ship with a Statement of Compliance confirming
that the required contributions to the ZESF have been made.

The Statement of Compliance can then be checked for

enforcement purposes by port State control.

To keep the system simple and to facilitate quick calculation

by the ZESF of the required contributions and/or rewards
due, and the efficient collection of contributions and
disbursement of rewards, there is no need for IMO or flag
States to share DCS data directly with the ZESF.

In addition to calculating the annual contributions per tonne

of CO2e emitted to be made by the ship to the ZESF and
rewards for CO2e prevented by the use of eligible zero/near-
zero GHG fuels, the automated system will manage the
collection of contributions and the disbursement of rewards.

The system will also manage the associated documentation,

including each ship’s ZESF annual Account Statement which
will set out full details of how contributions and rewards have
been calculated and confirm that required contributions have
been made to the ZESF, subject to the flag State checking, at
the end of the process, that the verified fuel consumption
data provided by the ship to the ZESF is correct and issuing
a Statement of Compliance.

The web-based ZESF system will allow shipping companies

to set up separate accounts for each their ships which will be
linked to the ships’ IMO numbers, and have access to the
records of the contributions which have been made for these
ships, including annual Account Statements, which they can
forward to their flag State to receive a Statement of
Compliance.

3.2 Chain of custody These are set out in the suggested draft regulations and
procedures envisaged in guidelines contained in the annex to document ISWG-GHG
the implementation of the 16/2/3. In summary:
measure?
• By 31 March each calendar year, the ship is to
provide the ZESF with verified annual fuel
consumption data using data already provided for the
DCS.

• By 30 April, or within 30 days of receiving fuel

consumption data, the ZESF is to provide the ship
with a Provisional Statement setting out the annual
contribution due (in practice, the fully automated
system will do this immediately as soon as the fuel
data is reported).

3.3 Proposed measures to
limit administrative burden
and cost?
4 Revenue collection and distribution
4.1 Does the measure Yes.
generate revenue?
4.2 What are the key
objectives of the use of
revenue and their possible
distribution? How can
revenue raised help
ensure the achievement of
a just and equitable
transition as called for in
the 2023 IMO GHG
Strategy? Please also
refer to the 7 revenue
disbursement categories
(D1 to D7), see Working
document on value ranges
for scenario development
• By 30 April, the ship is to make the required annual
contribution to the ZESF (and the ZESF is to disperse
any reward to the ship if this is greater than the
contribution due).
• 31 May, the ZESF to provide the ship with its annual
Account Statement confirming that the required
contribution has been made (in practice, the fully
automated system will do this immediately as soon as
the contribution is received).
• By 30 June, the flag State is to issue a Statement of
Compliance (provided the ship’s annual Account
Statement received by 31 May).
The fully automated ZESF contribution system is designed to
be simple as possible to minimise administrative burden and
cost – see link to working web-based prototype included with
document ISWG-GHG 16/2/1.
The only task required by flag States will be to issue a
Statement of Compliance.
The cost of establishing a fully operational, web-based,
ZESF contribution and reward system is estimated to be
about US$1 million.
Because the system is fully automated, the operational costs
would be limited to managing and maintaining the IT system
and liaising with flag States to resolve any occasional
discrepancies with regard to fuel consumption data. The
annual staff costs required to administer the ZESF
contribution and reward system would be unlikely to exceed
US$5 million a year.
As stated in the suggested draft regulations set out in the
annex to document ISWG-GHG 16/2/3, the funds contributed
by ships to the ZESF will be used for the following purposes,
which are relevant to all of the revenue disbursement
categories (D1 to D7):
• To expedite the production and uptake of zero and
near-zero GHG fuels, energy sources and
technologies through the provision of annual rewards
(feebates) to ships for the CO2e emissions prevented;
(D4, D6)
• Funding for an IMO (GHG) Maritime Sustainability
Fund (IMSF) to support maritime GHG reduction
projects and programmes in developing countries as
may be decided by a Supervisory Committee, to be
(the appendix to annex 4 established by the Marine Environment Protection
of document MEPC 81/7) Committee, comprising representatives of Parties to
this chapter. (D1, D2, D3, D5, D6)

• These IMSF projects and programmes may include:

1. capacity-building in developing countries,

especially SIDS and LDCs, including
deployment of zero or near-zero GHG
maritime fuel production facilities and new
bunkering infrastructure that may be required
in ports to expedite transition (D2, D3, D6)
2. funding, inter alia, for the IMO GHG-TC Trust
Fund to support other maritime GHG
reduction projects in developing countries,
especially SIDS and LDCs; (D2, D6)
3. funding for applied research and development
(R&D) programmes of alternative fuels and
innovative technologies (D1, D3, D6) and
4. funding for seafarer training in developing
countries and promotion of a just transition
(D6); and

• Administration of the ZESF and the IMSF, including

the establishment and administration of a contribution
and reward (feebate) mechanism ensuring this entails
no costs to the Organization (D7).

4.3 Brief description and As explained above, ships will make mandatory contributions
how to set the rate of a to the ZESF based on annual CO2e emissions as already
proposed GHG revenue reported to the DCS, with rewards for CO2e emissions
raising mechanism? prevented by the use of zero/net-zero GHG fuels.

The contribution rate agreed needs to be sufficient to achieve

the principal objectives of the measure, inter alia, to reduce
the cost gap and provide support to the maritime GHG
reduction efforts of developing countries (see 4.1 above). It
also needs to avoid disproportionately negative impacts on
States and be politically acceptable.

Subject to confirmation by the CIA, a reward rate of around

US$100 per tonne of CO2e prevented has been tentatively
suggested to reduce the cost gap, without closing it
completely, which based on the need, in line with the IMO
goal, to fund rewards for 5% to 10% of the energy used by
ships to come from zero/near-zero sources by 2030 would
cost between US$5 billion and US$10 billion per year (based
on total energy consumption being equivalent to about 300
million tonnes of conventional fuel oil per year).

If the application tonnage threshold is 5,000 GT and above,

and the total annual consumption of conventional fuel oil for
which contributions are due is about 250 million tonnes year,
this would require a contribution by ships to the ZESF
 equivalent to about US$20 to US$40 per tonne of
conventional fuel oil consumed or US$6.25 to US$12.5 per
tonne of CO2e.

However, as explained above, the contribution rate will need

to be higher to generate funds for the IMSF, inter alia, to
support developing countries.

The co-sponsors of document ISWG-GHG 16/2/3 do not take

on view on the what the total quantum of the contribution per
tonne of CO2e should be, but note that Japan, for illustrative
purposes, has indicated that some US$2 billion per year
might initially be generated to support developing countries,
which would suggest the total revenue raised (in this case)
might be between about US$7 billion and US$12 billion per
year. This would be achievable with a contribution rate
equivalent to about US$28 to US$56 per tonne of
conventional fuel oil (about US$8.75 to US$17.5 per tonne of
CO2e).

The updated economic impact assessment of the measure,

submitted as document ISWG-GHG 16/2/2 (ICS), suggests
that a contribution rate within these parameters would not
have any disproportionately negative impacts on States.

Regardless of the contribution rate agreed, which, to provide

certainty, would be fixed for a 5-year period, this would be
subject to a review, to commence no later than 2 years after
the measure has entered into force, to allow time for the
regulation to be amended and enter into force by the end of
the 5-year period.

4.4 What is a suggested See 4.3 above.

price/value, if any? How
much revenue is expected
to be raised annually?

4.5 Which principles The most important principle is that this serves the
should govern revenue achievement of the goal in the 2023 IMO GHG Strategy, in
management and particular the new level of ambition for 2030 for 5% to 10% of
distribution? the energy used by shipping to come from zero/near-zero
GHG sources and achievement of net zero by or close to
2050, as well as supporting a just transition.

The management of the reward programme is relatively

simple, as the level of rewards will be set by the regulations
and no ‘policy’ decisions about distribution will need to be
made by the ZESF or the IMO secretariat.

The distribution of revenue for other purposes (see 4.1

above) will be more complicated. This is why it is proposed
that funds allocated for these other purposes should be
transferred to the separate IMO (GHG) Maritime
Sustainability Fund (IMSF).
 The proposed IMSF Supervisory Board, comprising Parties
to the new MARPOL Chapter, can then agree priorities for
how these other funds should best be used in support of
implementation of the 2023 IMO GHG Strategy, potentially
delegating detailed decision-making about which specific
programmes and projects to support in developing countries,
as well as their oversight and management, to other UN
agencies.

However, these are issues which can be addressed after the

regulations establishing the ZESF and the IMSF have been
adopted in 2025. The immediate priority of the Committee
should be to establish the regulatory architecture of the
measure to reduce the cost gap and generate funds for the
IMSF.

5 Assessment of the remaining work and indicative timeframe for development and
finalization of the basket of measures
5.1 Development of draft Document ISWG-GHG 16/2/3 contains a comprehensive
amendments to MARPOL package of draft amendments (and detailed implementation
Annex VI guidelines) which it will realistically be possible to finalize and
approve by MEPC 83, taking account of similar proposals for
a GHG pricing mechanism using a flat rate contribution
mechanism with ships making contributions per tonne of
CO2e emitted to an IMO fund, such as the ZESF.

Hopefully, it will be possible for the sponsors of similar

proposals to jointly agree upon possible draft amendments to
MARPOL Annex VI for submission to and consideration by
ISWG-GHG 17, which should be tasked by MEPC 81 to
develop regulatory text for consideration by MEPC 82.

5.2 Development of Document ISWG-GHG 16/2/3 contains detailed draft

guidelines/guidance
implementation guidelines which it will be possible to finalize
and approve by MEPC 83, taking account of similar
proposals for a GHG pricing mechanism using flat rate
contribution mechanism with ships making contributions per
tonne of CO2e to an IMO fund such as the ZESF.

Hopefully, it will be possible for the sponsors of similar

proposals to jointly agree upon possible draft text for these
guidelines for submission to and consideration by ISWG-
GHG 17, which should be tasked by MEPC 81 to develop
draft text for consideration by MEPC 82.

Document ISWG-GHG 16/2/3 contains:

• A draft Annex to an MEPC resolution setting out draft

ʺGuidelines for the establishment and governance of
the Zero Emission Shipping Fund, oversight of the
IMO (GHG) Maritime Sustainability Fund, and
collection of contributions and disbursement of
rewards (feebates) under chapter 6 of MARPOL
Annex VIʺ;

5.3 Time and resources
required for the
development of necessary
services/tools (e.g. central
Registry) and implications
for the Organization?
6 Implementation of the measure
• A draft Annex to an MEPC resolution setting out draft
guidelines on the ʺContribution to and Reward from
the Zero Emission Shipping Fundʺ.
Both of these MEPC resolutions would be adopted at the
Extraordinary session of the MEPC in 2025 when the
MARPOL amendments are adopted.
Finalisation of the second MEPC resolution will depend on
progress being made with respect to a clear agreement on
the CO2e conversion factors for different fuel types, and
energy densities of different fuels, to be determined by
further work on the LCA Guidelines.
The MEPC will also need to develop terms of reference for
the establishment, governance and management of the
IMSF. This can be similar to the document (then called the
“IMSB Charter”) set out in annex 4 of document ISWG-GHG
14/3 (ICS). However, this does not need to be finalised until
after the measure has been adopted.
As mentioned above, ICS has developed a working web-
based prototype of a fully automated ZESF contribution and
reward (feebate) system – see link in document ISWG-GHG
16/2/1.
This final system, complete with secure payment systems,
can be fully established and tested during the time between
approval of the measure in Spring 2025 and when it firsts
need to “go live” in early 2028, when ships will start providing
fuel consumption data for 2027, with an estimated cost of
about US$1 million.
As explained above, the management of the reward
programme is relatively simple, as the level of rewards will
be set by the regulations and no ‘policy’ decisions about
distribution will need to be made by the ZESF or the IMO
secretariat.
Because the system is fully automated, the operational costs
would be limited to managing and maintaining the IT system
and liaising with flag States to resolve any occasional
discrepancies with regard to fuel consumption data. The
annual staff costs required to administer the ZESF
contribution and reward system would be unlikely to exceed
US$5 million a year.
The shipping industry has experience of managing multi-
billion dollar funds, which are used for mutual insurance
purposes, and can help IMO identify suitable expertise to
assist with the management of ZESF (and IMSF) Funds.
6.1 Timeline for
implementation of the
measures? Specific
provisions (e.g. review or
ratchet clause)?
6.2 Respective
contributions of the
proposed technical and
economic elements in
delivering on the levels of
ambition of the 2023 IMO
GHG Strategy and in
effectively promoting the
energy transition of
shipping and providing the
world fleet a needed
incentive while
contributing to a level
playing field and a just and
equitable transition?
6.3 Possible synergies
with existing measures?
7 Scope of application
7.1 Which ship types and
sizes are covered by the
measure? How to take into
account other ship types
and ships below the size
thresholds?
Assuming entry into force in 2027, ships would start making
contributions to the ZESF and receiving rewards for the use
of zero/near-zero GHG fuels in the first half of 2028, based
on fuel consumption data for 2027.
The contribution and reward rate would be fixed for 5 years.
This would be subject to a review, to commence no later than
2 years after the measure has entered into force, to allow
time for the regulation to be amended and enter into force by
the end of the 5-year period.
The ZESF Fund and Reward (Feebate) measure is an
economic measure – working
in conjunction with a separate GFS (technical measure).
As explained above, this economic measure will help ensure
delivery of the new level of ambition for 5% to 10% of the
energy from shipping to come from zero/near-zero GHG
sources by 2030 (as well as the indicative checkpoint to
reduce the total annual GHG emissions from international
shipping by at least 20%, striving for 30%, by 2030,
compared to 2008) by reducing the cost gap to incentivize
the production and uptake of these zero/near zero GHG
fuels, so that the 2040 and (by or close to) 2050 goals
remain achievable. A GFS on its own is unlikely to achieve
this.
A level playing field is maintained by the flat rate contribution
system per tonne of CO2e emitted.
A just and equitable transition is ensured by the billions of
US$ which will be allocated to the IMO (GHG) Maritime
Sustainability Fund (IMSF) to support the maritime GHG
efforts of developing countries, in particular LDCs and SIDS.
The IMSF funds will help ensure the transition to net zero is
truly global, supporting deployment of zero/near-zero GHG
maritime fuel production facilities and new bunkering
infrastructure that will be required in ports in developing
countries to expedite transition, which will be vital during the
2030s if the 2023 IMO GHG Strategy is to succeed.
As explained above, the measure utilises the existing DCS
(regulation 27 of MARPOL Annex VI).
All MARPOL ships of 5,000 GT and above will be required to
make contributions to the ZESF, although ships below this
threshold would be eligible for rewards for the use of
zero/near-zero GHG fuels provided that they also make
contributions to the ZESF.
In principle, consistent with fair competition, the mandatory
requirements should be extended to ships below 5,000 GT.
 But it is recognised that the importance of this issue will
depend on the quantum of the contribution quantum and that
lowering the threshold would also require the scope of the
DCS to be extended which would create additional
administrative burdens, especially for developing countries.

7.2 Does the measure No.

contain differentiated
implementation aspects,
by flag or route?
______