China has outlined how an incentive multiplier could be used to improve the economics of zero- and near-zero (ZNZ) emission marine fuels under the IMO's proposed Net-Zero Framework (NZF), signaling its willingness to work within key elements of the framework rather than oppose them.

The non-monetary incentive would be applied through the calculation of a ship's attained GHG Fuel Intensity (GFI), according to China's submission to the IMO ahead of next month's NZF technical talks. China said the measure could be particularly relevant during the early stages of ZNZ fuel uptake.

"ZNZ prices remain high and investment in ZNZ supply capacity remains dependent on policy certainty and credible demand signals," China said in its proposal.

The NZF is a central pillar of the IMO's strategy to reach net-zero greenhouse gas emissions from international shipping by or around 2050. The framework would combine a GFI requirement with an emissions pricing mechanism and a reward system for low-carbon fuels, making the design of its incentive structures critical to whether the regulation meaningfully shifts the fuel mix. China is the world's largest shipowning nation by gross tonnage and the largest shipbuilder by completions, giving its positions substantial weight in the IMO's Marine Environment Protection Committee negotiations.

How the Multiplier Would Work

The multiplier would effectively increase the weight given to ZNZ energy when calculating a ship's attained GFI, with the multiplier value specified in advance for each compliance year.

China used a cost-gap approach to calculate indicative multiplier levels, comparing a ZNZ pathway against a reference pathway using conventional fuel oil and biodiesel to meet the same GFI target.

The calculations put the multiplier at approximately 1.95 in 2029, declining to 1.60 in 2032 and 1.10 in 2035 as the assumed cost gap between ZNZ and conventional fuels narrows over time.

China said the approach could also bolster demand for ZNZ fuels. Where supply is sufficient, its analysis suggests the fleet-wide share of ZNZs could be around 10–15 percentage points above the level projected under the current framework. Where supply is constrained, the share could be around 2–3 percentage points lower.

"A ZNZ incentive multiplier could provide an effective incentive for ZNZ uptake without inherently weakening the GFI target," China said.

China recommended that the multiplier be considered as a possible "alternative or complementary incentive arrangement" in situations where funding for monetary rewards is constrained. It noted that the mechanism could, in principle, also be combined with direct monetary rewards, although this would require further assessment and detailed design.

Separate Proposal on Netting ZNZ Rewards

In a separate submission, China proposed allowing verified ZNZ rewards to be used towards payment of GHG emissions pricing contributions through netting.

Under the approach, reward and contribution payments would be combined into a single net settlement, avoiding "unnecessary two-way payment flows and duplicative administrative procedures."

If a ship's verified reward is less than or equal to its GHG emissions pricing contribution, the reward would be netted against the amount due and the remaining contribution paid to the IMO net-zero fund. If the reward exceeds the contribution, the contribution would be fully settled through netting and the remaining reward would stay payable by the net-zero fund.

China stressed that netting would not create a separate compliance pathway or change the requirement for ships to balance GFI compliance deficits through remedial units. It also said the arrangement would change neither total GHG emissions pricing contributions nor the aggregate value of verified ZNZ rewards.

Taken together, the two proposals suggest China is seeking to shape key elements of the NZF as discussions over its future design continue, rather than abandoning the framework.

Source: Ship & Bunker