Trump Just Torpedoed Investors’ Big Bets on Decarbonizing Shipping

Today, members of the International Maritime Organization decided to postpone a major vote on the world’s first truly global carbon pricing scheme. The yearlong delay came in response to a pressure campaign led by the U.S.

The Net-Zero Framework — initially approved in April by an overwhelming margin and long expected to be formally adopted today — would establish a legally binding requirement for the shipping industry to cut its emissions intensity, with interim steps leading to net zero by 2050.

In the intervening months, however, U.S. opposition has gotten much louder. On Thursday, Trump posted on Truth Social that he’s “outraged that the International Maritime Organization is voting in London this week to pass a global Carbon Tax.” He also took the extraordinary step of threatening not to comply with the rules. “The United States will NOT stand for this Global Green New Scam Tax on Shipping, and will not adhere to it in any way, shape, or form.” If the framework ever does pass, noncompliance could subject U.S. vessels to fines or even denial of entry at the ports of IMO member countries, potentially setting off a cycle of retaliatory measures from all sides.

No specific date has yet been scheduled for the forthcoming vote, which will be taken again a year from now. That throws plans for the world’s largest shipping companies — some of which have already taken expensive measures to decarbonize their fleets — into turmoil. The framework would have marked a major turning point for a sector that’s responsible for 3% of global emissions, of course. But even more importantly, it would have made a range of decarbonization technologies — from advanced batteries and clean fuels to wind-assisted propulsion and onboard carbon capture — far more viable and attractive to investors.

Kate Danaher, managing director of the oceans team at S2G Investments, has a vested interest in the frameworks’ eventual passage. “Over the past two years people have really started investing around the anticipation of something like the Net-Zero Framework being adopted,” Danaher told me. For its part, S2G has invested in Sofar Ocean, which focuses on fuel savings through route optimization, battery company Echandia which is aiming to electrify smaller vessels, and ocean data and monitoring companies Xocean and Apeiron Lab.

The new rules were originally set to take effect in 2028, and would apply to large vessels — ships of 5,000 gross tonnage or more — involved in international voyages. Qualifying ships would be assigned a base target for emissions intensity and a stricter “direct compliance target.” For every metric ton of CO2 equivalent that exceeds the compliance target but falls below the base target, ships must pay $100. For all emissions that exceed the base target, ships must pay $380 per metric ton. Noncompliant ships would pay these penalties by purchasing so-called “remedial units” from a central IMO registry, while the cleanest vessels — those performing better than their compliance targets — would earn surplus units they can sell to others or bank for future use.

Green shipping fuels such as e-methanol, e-hydrogen, and e-ammonia — all produced from green hydrogen using renewable electricity — stand to be the biggest winners, she said. “A new fuel would completely decarbonize the industry. That is 10 years out, and is completely contingent on the IMO,” Danaher said, explaining that if the framework ultimately fails, there’s no economic incentive to adopt these more expensive fuels, which also require costly retrofits for existing fleets. But the framework would effectively cause the cost of conventional fuel to rise just as alternative fuels are scaling up, which would allow them to reach parity around 2035, she said.

A specialized agency within the United Nations, the IMO gets its power to set global regulations from the vastness of the ocean itself. Most of the world’s waters exist outside the jurisdiction of any national government. Because of that, IMO member states — which represent the vast majority of global shipping tonnage — have ratified treaties that empower the organization to set safety, security, and environmental standards on the high seas, which members then implement and enforce through their own national laws. Only member states have a stake in IMO policy. Furthermore, vessels that aren’t IMO-compliant face penalties such as fees and even possible detentions when entering the ports of IMO countries.

While IMO decisions are typically made via negotiated consensus, the contentious nature of these new regulations necessitates a vote. U.S. officials celebrated the delay. U.S. Secretary of State Marco Rubio posted on X that the postponement represents “another HUGE win for @POTUS,” going on to say that “the United States prevented a massive UN tax hike on American consumers that would have funded progressive climate pet projects.”

Along with Secretary of Energy Chris Wright, and Secretary of Transportation Sean Duffy, Rubio last week issued a statement threatening to punish nations that voted in favor of these “activist-driven climate policies” with actions such as banning their ships from U.S. ports, imposing vessel fees, and even leveling sanctions on officials supportive of the regulations.

Saudi Arabia — the world’s second largest oil producer after the U.S. — also strongly opposed the framework, as did a host of other oil-producing Middle Eastern countries, Indonesia, Malaysia, Pakistan, Thailand, Russia and Venezuela. Singapore ultimately put forth the motion to delay the adoption vote for a full year and Saudi Arabia called it to a vote. It passed with a simple majority, with 57 countries approving and 49 opposed.

When it comes to costs, Trump officials might actually have a point, Danaher conceded. “Once alternative fuels come online and people are actively paying penalties, it gets a lot more expensive,” she told me. “I don’t see how this isn’t incredibly inflationary to the global market in 10 years.”

Today’s standard low-sulfur fuel, she explained, costs about $500 per metric ton. But reaching the same energy density with e-methanol, for example, could push the price to around $2,000 a metric ton. “That is all going to get passed on, essentially, to the consumer,” she said.

Even so, the framework has the backing of major shipping trade organizations and industry giants alike, from the International Chamber of Shipping to Maersk. As a group of leading international maritime associations put it in an open letter last week, “Only global rules will decarbonise a global industry. Without the Framework, shipping would risk a growing patchwork of unilateral regulations, increasing costs without effectively contributing to decarbonisation.”

Indeed, a universal set of coherent rules is what many in the sector want most, Danaher affirmed. Some voting bodies, such as the EU and Singapore, have already set their own shipping-related emissions requirements, creating a regulatory patchwork that’s both costly and confusing for companies to comply with. “I think most people are like, let’s just do this. Let’s rip the Band-Aid off, and let’s get clarity,” Danaher told me.

In a statement released after the vote’s delay and the conclusion of the IMO’s days-long meeting in London, Thomas A. Kazakos, the shipping chamber’s secretary general, said, “We are disappointed that member states have not been able to agree a way forward at this meeting. Industry needs clarity to be able to make the investments needed to decarbonise the maritime sector, in line with the goals set out in the IMO GHG strategy.”

The delay also risks delegitimizing the power of the IMO as a whole, something the organization’s Secretary-General, Arsenio Dominguez, warned about in the meeting’s opening remarks on Tuesday, when he stated that “Prolonged uncertainty will put off investments and diminish confidence in IMO.”

There would be other ways for shippers to comply with the framework besides switching to e-fuels, Danaher told me. For example, S2G’s portfolio company Sofar Ocean operates a network of ocean sensors designed to improve marine weather predictions and power a route optimization platform that can help ships save time, fuel, and ultimately, emissions.

Software solutions have a pretty low barrier to adoption. But a step up in complexity — and cost — would involve a technology such as wind-assisted propulsion. The companies Norsepower and Anemoi, for example, use a cylindrical “rotor sail” that creates a powerful thrust as it spins, which they say allows for up to 25% to 30% fuel savings. Another approach is the “rigid wing sail,” such as that developed by Bar Technologies. This generates lift in the direction of the ship’s movement with less drag than a normal sail — similar to how an airplane wing works.

Pairing route optimization with wind-assisted propulsion will generate even greater emissions savings, as the software can direct ships towards areas with the most advantageous winds. Given the obvious co-benefits and cost savings stemming from lower fuel use, Danaher thinks this tech could gain traction even if the regulations ultimately fail to pass next year. “I think the adoption curve will still continue without IMO [Net-Zero Framework], but I think it'll be slower,” she told me.

One approach she doesn’t think will be economically viable without the framework is onboard carbon capture. This tech, which traps carbon dioxide from a ship’s exhaust system before it’s released into the atmosphere, is being explored by startups including Seabound — which I reported on last year — and Value Maritime, as well as more established companies such as Mitsubishi and Wartsila. “A lot of the carbon capture technologies have not yet solved for how to turn that captured carbon into a valuable resource, and how to get it off the boat, put it in a pipeline, and sell it,” Danaher told me.” The economic incentive just isn't there without the IMO.”

At the same time, when I talked to one of Seabound’s backers — Clea Kolster, of Lowercarbon Capital — last year, she told me that when it comes to cargo shipping, “carbon capture is probably the only way that you can get a meaningful amount of emissions reductions in any near term way.” And it’s true that alternative fuels will take a while to scale up, so if the framework is ultimately adopted, carbon capture may still have an important role to play — at least that’s what investors and startups alike are banking on. “Everybody's talking about carbon capture in anticipation of this getting adopted,” Danaher told me. “All these vessels are going to be old, they’re going to need to comply, and they’re not going to be able to comply fast enough,” she said.

Amidst the turmoil, one silver lining is that interest in maritime innovation and efficiency appears to be increasing regardless of global frameworks. For one, the surge in global military spending has underscored this tech’s potential for dual-use applications. “A lot of wars happen in and around the oceans, because that’s where we intersect each other the most.” Danaher told me. Many of S2G’s investments in ocean tech have received additional backing from governments and defense agencies looking to make their fleets more efficient, energy resilient, and secure. “Every single one of our ocean tech companies, one of their customers is the government, or many governments,” she said.

It’s an important reminder that there are many practical reasons for investors and states alike to support a decarbonization agenda, regardless of whether the U.S. is on board or not. But a global system of carrots and sticks sure wouldn’t hurt either. And now, we face the uneasy prospect of waiting another year to see whether the shipping industry will resist the Trump-era pushback or abandon its collective ambitions for a decarbonized future.