China appears to be willing to work within key elements of the proposed IMO's net-zero framework. File Image / Pixabay

• It says green marine fuel prices remain high and investment in supply needs policy certainty and credible demand signals.
• It has separately proposed allowing ZNZ rewards to be netted against GHG emissions pricing contributions.

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).

The non-monetary incentive would be applied through the calculation of a ship's attained GHG Fuel Intensity (GFI), according to its 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 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 multiplier effectively increases the weight given to ZNZ energy when calculating a ship’s attained GFI.

The multiplier would be specified in advance for each compliance year.

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

Its calculations put the multiplier at about 1.95 in 2029, falling to 1.60 in 2032 and 1.10 in 2035 as the assumed cost gap narrows.

China said the approach could also support 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” where funding for monetary rewards is constrained.

It said the mechanism could also, in principle, be combined with direct monetary rewards, although this would require further assessment and detailed design.

China Also Proposes Netting ZNZ Rewards

In a separate submission, China set out a proposal for verified ZNZ rewards to be used towards payment of GHG emissions pricing contributions through netting.

Under the approach, the 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 proposals suggest China is seeking to shape, rather than abandon, key elements of the NZF as discussions over its future design continue.