The Indian Directorate General of Shipping (DGS) has issued a comprehensive guidance on the newly adopted IMO NetZero Framework and its implications for India’s maritime sector.
The Global Fuel Standard (GFS)-based mechanism, expected to formally come into force in March 2027 and effectively from calendar year 2028, mandates progressive reduction in the lifecycle carbon intensity of fuels used by ships above 5,000 GT engaged in international voyages. The mechanism is applicable to all ships flying the flag of a Party to MARPOL and will have significant operational, economic, and strategic implications for shipowners, ports, training institutes, classification societies, and fuel suppliers.
Action requested
All stakeholders – including Indian shipowners, managers, port authorities, fuel suppliers, classification societies, and training institutions – are advised to review the Guidance Note in detail and initiate necessary preparatory measures. This includes but is not limited to:
- Monitoring ship-level fuel intensity data
- Reviewing procurement strategies for low-GHG fuels
- Enhancing technical training on GFI methodologies
- Planning green infrastructure upgrades at ports
- Engaging with classification societies for early compliance assessment
To aid interested parties in their efforts to understand the implications of the adopted standard, the DGS has provided a QnA to explain key aspects of the regulation. Some of these include:
What is the GFI-based measure adopted by the IMO, and what does it aim to achieve?
The Greenhouse Gas Fuel Intensity (GFI)-based measure, approved at MEPC 83 in April 2025, is a GHG reduction mechanism requiring ships above 5,000 GT on international voyages to progressively reduce the GHG intensity of fuels used while the integrated GHG pricing mechanism promotes energy transition of international shipping while contributing to a level playing field and a just and equitable transition. It is aligned with the IMO’s Revised GHG Strategy (2023), which targets net-zero emissions from international shipping by or around 2050. It aims to incentivize decarbonization via fuel efficiency, green fuel adoption, and climate-equitable cost distribution.
What is the GFI in simple terms?
The GHG Fuel Intensity (GFI) is a metric that represents the amount of carbon dioxide (CO₂) equivalent emitted per unit of energy (measured in grams of CO₂ equivalent per megajoule) from marine fuels used by ships. The IMO has set progressive GFI limits, and ships are expected to stay within these limits or face compliance costs. Fuels such as green hydrogen, ammonia, and methanol typically have much lower GFI values, making them attractive under the new regime.
How does the two-tier GFI compliance mechanism work?
Ships are evaluated annually (calendar year) based on their GFI performance against a reference trajectory. Those exceeding the intensity limit must buy Remedial Units priced at:
- Tier 1: USD 100 per tonne of CO₂ equivalent for mild non-compliance
- Tier 2: USD 380 per tonne of CO₂ equivalent for significant non-compliance.
Ships that perform better than required can generate Surplus Units, which are tradable or eligible for rewards under the IMO incentive scheme.
When will the GFI measure become enforceable, and what is the amendment timeline?
The GFI regulation is expected to enter into force in March 2027, subject to the IMO amendment process under MARPOL Annex VI:
- Accepted for circulation at MEPC 83 (April 2025)
- To be formally adopted at an Extraordinary MEPC Session in October 2025
- A 10-month deemed acceptance period follows, with entry into force 6 months after that, unless formally objected by one-third of parties representing 50% of global tonnage.
- Expected to come into force by March 2027.
How is the GFI methodology different from a traditional levy?
Unlike a flat carbon levy, which imposes a uniform charge on every tonne of CO₂ emitted regardless of ship performance, the GFI methodology is based on the actual GHG emission intensity of fuels used by a ship. It creates a performance-linked system where compliant ships are rewarded and only non-compliant ships face costs through the purchase of remedial units. This allows flexibility, supports innovation, and ensures that efficient ships and early adopters of green fuel are not penalized—making it more equitable for developing countries like India.
How does the Two-Tier GFI proposal offer a better deal for India?
From India’s perspective, the Two-Tier GFI proposal provides a more flexible and economically viable solution compared to the flat levy systems. It limits the country’s compliance cost to under USD 100 million annually, in stark contrast to the estimated USD 1.5 to 2.4 billion annual impact under the flat levy approaches. The model enables India’s efficient ships to generate tradable surplus units and rewards early adopters of clean technology. It is also closely aligned with India’s national green fuel targets and unlocks access to a projected USD 27.5 billion global climate transition fund, offering both financial support and strategic leadership in shaping implementation mechanisms.
What is the estimated compliance cost for India’s fleet?
The total compliance cost is projected at USD 87–100 million annually by 2030, assuming partial reliance on remedial units. This is equivalent to a ~14% increase in fuel cost and ~5% increase in freight rates—well within industry operating margins.
How does this compare with the flat levy proposals from the EU and SIDS?
Flat levy proposals (USD 100–150/tCO₂e) would have imposed a burden of USD 1.5–2.4 billion annually on India’s EXIM trade, with freight cost increases of 20–30%, disproportionately affecting steel, fertilizers, and petroleum exports. In contrast, the adopted GFI model offers predictable, performance-based compliance with cost burden capped under 1% of national maritime trade value.
Are coastal and domestic Indian ships affected?
No. 100% of coastal and domestic ships are exempt from the GFI regime. Only foreign-going vessels above 5,000 GT are covered.
How does this mechanism benefit India’s green fuel sector?
India’s target of 5 MMT of green hydrogen by 2030 enables production of 28 MMT of ammonia and 26.3 MMT of methanol, which qualify under the IMO’s GFI reward system. Green fuels with lifecycle emissions ≤19 gCO₂e/MJ earn compliance credits and shipping rewards, boosting India’s export potential and investment in clean bunkering infrastructure.
Can Indian ships generate revenue from surplus units?
Yes. Indian ships that operate well below the IMO’s prescribed GHG Fuel Intensity (GFI) limits can generate tradable surplus units under the new compliance framework.
Is the GFI-based system managed by the Government of India?
No. It is an IMO-administered global mechanism. Indian shipowners comply directly through data reporting, performance verification, and purchase/sale of units.
What are India’s strategic gains from this engagement?
- Access to climate funds for R&D, infrastructure, and transition
- Early mover advantage in green fuel trade and green shipping corridors
- Preservation of export competitiveness by avoiding punitive flat levies
- Strengthened leadership among developing countries in global climate governance.
What are the compliance obligations for Indian shipowners?
Indian shipowners operating foreign-going vessels above 5,000 GT must annually report fuel consumption, voyage data, and carbon intensity metrics through standardized IMO Data Collection Systems. Vessels exceeding GHG intensity thresholds must purchase remedial units, while high-performing ships may claim surplus unit credits. Compliance will be verified by the Flag State and submitted to the IMO registry.
What preparations are required at the national level for smooth implementation?
The Directorate General of Shipping, in collaboration with the Ministry of Ports, Shipping and Waterways, is preparing operational guidelines, compliance templates, and capacity-building frameworks. Indian maritime training institutions (IMU and MTIs) will integrate GFI awareness into pre-sea and post-sea training. Ports are being encouraged to plan infrastructure for green bunkering and digital inspection protocols to streamline compliance verification.
How will the revenue from GFI compliance be used globally, and can India benefit?
Revenue from the sale of remedial units will be pooled into the IMO Net-Zero Fund. This fund will support capacity-building, green shipping incentives, technology deployment, and infrastructure upgrades in developing countries. India, as a large developing economy with high green fuel potential, can access this fund to advance port electrification, ship retrofitting, and domestic fuel innovation programs.
