Recent federal, state, and international policy developments have introduced regulatory uncertainty in the low-carbon maritime fuels sector, complicating investment in both fuel production and supporting energy infrastructure. Stakeholders across the maritime shipping industry are grappling with the nuances of evolving tax incentives, eligibility criteria, and implementation rules. The ability to interpret this regulatory landscape is paramount as producers, shippers, and investors alike navigate this next phase in maritime decarbonization.
The stakes are considerable. The global shipping industry, which currently accounts for roughly 3 percent of global greenhouse gas (GHG) emissions and is projected to rise to as much as 17 percent by 2050, consumes over 300 million tons of fossil-based “bunker fuel” each year. Although low-carbon fuels have become a mainstay in highway transportation, their use in maritime shipping is still in its nascent stages. Shippers are increasingly investigating the various benefits associated with use of biodiesel, ethanol, clean methanol, renewable diesel, and renewable natural gas (RNG). Shipping giant Maersk, for example, has targeted 15 to 20 percent green fuel or renewable fuel use by 2030, having already invested in 18 dual-fueled methanol container vessels.
At the same time, as electrification accelerates in the automotive sector, uncertainty surrounding long‑term demand has prompted biofuel producers to turn toward maritime applications of their products. The adoption of low-carbon maritime fuels offers both an opportunity for emissions reductions and an avenue of growth for the mature, U.S.-dominated biofuels industry. The sector is also closely tied to industrial power, logistics energy use, and port infrastructure, areas in which the United States has significant competitive advantages. Both state and federal policy will be critical in determining the United States’ ability to leverage these advantages.
Fuel producers, ship builders, and shipping companies are taking notice. International methanol producer Methanex is increasingly focused on maritime fuels, as are U.S. biofuel players Archer Daniels Midland and Seaboard Energy. A growing list of trade associations taking positions on maritime fuel policy now includes the American Biogas Council, Clean Fuels Alliance America, Growth Energy, Renewable Fuels Association, Renewable Natural Gas Coalition, and Sea-LNG. Several new maritime fuels umbrella groups have joined the fray, including the Maritime Innovation Coalition and the American Biofuels Maritime Initiative.
Stakeholder enthusiasm notwithstanding, the policy landscape continues to evolve in ways that directly impact low-carbon maritime fuel adoption. The following section untangles this landscape and breaks down the most relevant policy decisions.
Federal Tax Incentives: Understanding 45Z
Among the most recent federal actions impacting the low carbon shipping fuels industry are the Treasury Department’s regulations implementing new clean fuel tax credits. The 2022 Inflation Reduction Act (IRA) created new tax code section 45Z, a performance-based and technology-neutral clean fuel production tax credit intended to lower the cost and drive adoption of low-carbon transportation fuels, including maritime fuels. This tax incentive is expected to become a major factor in increased production of biofuels by 1) providing increased credits for fuels that demonstrate decreased carbon emissions, and 2) allowing producers who don’t have a current-year tax liability to sell the credits to other taxpayers who want to reduce theirs.
The One Big Beautiful Bill Act of July 2025 extended the clean fuel tax credit from 2027 to 2029 and expanded eligibility for both start-up and legacy fuel producers. The bill also made notable changes to the credit, limiting eligibility to fuels produced from feedstock originating in the United States, Mexico, or Canada, and generally prohibiting producers from receiving increased tax credit rates from fuels with emission rates below zero.
Prior to February 2026, when Treasury and the Internal Revenue Service (IRS) at last released proposed regulations under Section 45Z, the lack of comprehensive guidance around the credit restricted biofuel producers from claiming it. While Treasury issued some preliminary guidance in January 2025 before the change in administrations (Notices 2025-10 and 2025-11), the proposed regulations provide essential clarifications on eligibility requirements for producers, facilities, and transportation fuel as well as guidelines for calculating emissions rates.
Critical to the maritime use of low‑carbon fuels, the regulations clarify that while a transportation fuel must be “suitable for use” in a highway vehicle or aircraft, the fuel’s actual use in a highway vehicle or aircraft is not required to qualify for the tax credit. As such, fuel that has “practical and commercial fitness” for use in highway vehicles or aircraft but is ultimately used as marine fuel still qualifies. Additionally, the guidelines clarify that “suitable for use” includes fuels that may be “blended into a fuel mixture” fit for highway or aircraft use.
These broad eligibility requirements allow established fuels like biodiesel, renewable diesel, and RNG—which are approved for use in trucks—to be used in maritime fuel and still qualify for 45Z credits. Other promising fuel candidates for maritime use like ethanol (denatured and undenatured) and clean methanol—which are approved for blending with gasoline—also qualify. Importantly, these fuels must also meet additional emissions standards, eligibility criteria for producers and facilities, and be sold to an “unrelated person” to generate the credit.
Late-Breaking Update: The comment period for the proposed regulations closed on April 6, with many taxpayers taking an opportunity to provide feedback. Taxpayers will also testify at a public hearing on the proposed regulations, which will be hosted on May 28. Following the hearing, Treasury and the IRS will issue final regulations, enabling eligible low-carbon fuel producers and maritime shippers to move forward with confidence as they claim 45Z credits.
Federal Credits: The Renewable Fuel Standard
Beyond federal tax incentives, one of the most important policy levers in the clean fuels sector is the Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS). The RFS is a key policy driving production of biofuels in the United States and has greatly increased the output of biofuels, including ethanol and biodiesel, over the past 20 years. The program requires refiners and importers of fuel to blend increasing volumes of biofuel into the nation’s transportation fuel supply each year. These “obligated parties” prove they have complied with the blending requirements by submitting to the EPA Renewable Identification Numbers (RINs), numerical credits assigned to every gallon of biofuel produced in the U.S. These credits can also be traded among obligated parties and therefore have monetary value.
Unfortunately for maritime shippers, under current RFS regulations, RINs associated with biofuel used in ocean-going vessels (defined as ships powered by Category 3 engines) must be retired with no value in the program. If the law were changed to integrate maritime fuel into the RFS, fuel producers and blenders could generate and sell RINs to obligated parties, subsidizing the higher production cost of biofuels. This would allow them to offer competitive pricing to maritime shippers, increasing demand and incentivizing low-carbon maritime fuel production.
Such changes may be on the horizon: Senators Pete Ricketts (R-NE) and Amy Klobuchar (D-MN) last September introduced S. 881, the Renewable Fuels for Ocean-Going Vessels Act, which would allow biomass-based fuel used in ocean-going vessels to participate in the RFS program. Reps. Mariannette Miller-Meeks (R-IA) and John Garamendi (D-CA) introduced companion legislation in the House (H.R. 1896) in March 2025. The introduction of these bills reflects growing Congressional recognition of U.S. potential in the maritime fuels industry, and their progress will signal whether low-carbon maritime fuels are likely to receive sustained policy support in the United States.
State-Level Developments
Independent of federal incentives and credits, several states have pursued policies impacting the adoption of clean shipping fuels.
Enacted by the California Air Resources Board (CARB), California’s Low Carbon Fuel Standard (LCFS) is a market-based program that sets a gradually decreasing cap on the carbon intensity (CI) of transportation fuels sold in the state. Fuel producers earn LCFS credits by generating fuel that falls below the CI metric while producers of higher-CI fuels must purchase these credits to offset their CI, directly subsidizing low-carbon fuel production. Many potential low-carbon maritime fuels, including biodiesel, renewable diesel, RNG, ethanol, and methanol, are effectively “pre-approved” to earn LCFS credits provided they meet CI criteria.
While fuels used in ocean-going vessels (OGVs) are currently exempt from the LCFS program and do not generate deficits, low-carbon maritime fuel producers can still opt-in to earn credits. Additionally, under other CARB regulations, OGVs are subject to restrictions on particulate matter, nitrogen oxide, and sulfur oxide emissions, limiting the use of traditional, high sulfur “bunker fuel.” Taken together, these incentives create a generally favorable environment for clean shipping fuel adoption in the state.
It is important to note, however, that amendments to LCFS approved in mid-2025 will soon enforce a 20% “crop cap” on LCFS credits for biofuels produced from virgin crop oils. The cap, which will be effective January 1, 2028, seeks to avoid GHG emissions from indirect land-use change, pushing biofuel producers away from crop feedstocks toward waste inputs like used-cooking oil (UCO), agricultural waste, tallow, and distillers corn oil. While the United States supplies many of its own waste feedstocks for biofuel production, recent spikes in demand have resulted in increasing reliance on imports. Unfortunately, fuels made from imported waste feedstocks are not eligible for 45Z tax credits, which may force producers to choose between competing incentives.
In the Pacific Northwest, Oregon and Washington have established similar programs to California’s LCFS. As in California, the maritime sector is exempt from generating deficits in both states, but low-carbon maritime fuel producers are encouraged to opt-in.
As the first non-coastal state to launch a full, market-based program, New Mexico’s Clean Transportation Fuel program will enter effect on April 1, 2026. While the state has no ports, the program features flexible “book-and-claim” provisions that allow producers to claim credits for fuels intended for transportation use elsewhere, including maritime use.
The rapid development of state-level incentives for low-carbon fuel production may indicate growing support across the United States for low-carbon fuel production. In the maritime sector, close monitoring of state-level developments may allow stakeholders to stack both federal and state incentives. However, as state policies evolve, it may become increasingly necessary to assess how federal and state incentives conflict.
Late-Breaking Update: On the East Coast, New York Senate Bill S.1343B, which would establish New York’s own Clean Fuel Standard, is awaiting action by the Senate Environmental Conservation Committee. The bill aims to reduce GHG emissions from “on-road” transportation by 20% by 2034.
Notably, attempts in recent years to advance similar versions of the bill have failed. In 2023, the bill, then S.1292, passed the Senate but “died” in Assembly in early 2024. The Senate then immediately re-passed the bill in 2024 but never came to an Assembly vote. The bill then expired at the end of the 2023–2024 legislative cycle. In 2025, the bill was reintroduced as S.1343 and passed the Senate but once again died in Assembly in January 2026. The newest version of the bill, revived by State Senators as S.1343B in March 2026, is amended to push the compliance date from 2033 to 2034.
At the same time, New York Governor Kathy Hochul proposed a plan on March 20 that would push the state’s 40% emissions reduction target from 2030 to 2040 and alter the way GHG emissions are counted, citing affordability concerns. While the plan has been fiercely criticized, it also reflects cooling attitudes in the state toward decarbonization efforts like the Clean Fuel Standard bill. For East Coast low-carbon fuel stakeholders, New York’s Clean Fuel Standard progress will be a key indicator as to the future of the policy landscape on the East Coast.
Regional and Local Initiatives
Supported by state-level incentives and funding grants under the IRA, individual ports and regional coalitions have set forth initiatives designed to reduce carbon emissions from ships operating in their waters. These initiatives, while not legally binding regulations, are strengthened by state and federal incentives that ease the cost of low-carbon fuel adoption.
The Detroit/Wayne County Port Authority announced its Decarbonization and Air Quality Improvement Plan in 2024, which sets the ambitious goal of transitioning vessels and shoreside equipment to biodiesel, battery-electric, or hydrogen by 2040. Similarly, a coalition including the ports of Seattle, Tacoma, Vancouver Fraser, and British Columbia as well as the Northwest Seaport Alliance adopted the Northwest Ports Clean Air Strategy in 2020. The initiative aims to completely phase out maritime carbon emissions by 2050.
To reach the coalition’s goals, the Port of Seattle has set forth its own implementation strategy, the Port of Seattle’s Maritime Climate and Air Action Plan (MCAAP). For ocean-going and harbor-going vessels, the Port aims to greatly expand shore power capacity, reducing idling emissions from docked cruise ships, tugboats, and fishing vessels. The Port began requiring shore power usage by cruise ships in 2024, the first port to do so independent of state regulations. For bulk carriers, which do not have the requisite equipment to connect to shore power, the Port is pursuing voluntary agreements with tenants and industry to encourage renewable fuel adoption. Fortunately, Washington State’s pro-clean fuel policy landscape, including the Clean Fuel Standard, facilitates these conversations.
The Port of Seattle is also a partner in the Pacific Northwest to Alaska Green Corridor (PNW2AK) project, which seeks to establish a low-carbon cruise-line route between participating Northwest and Alaskan ports. By seeking to decarbonize specific routes, the project allows public and private actors to coordinate their investment timelines. The project aims to decarbonize these cruise routes by 2032. Similar ‘green corridor’ initiatives, many for shipping, are being pursued out of the Port of Los Angeles in partnership with ports in Japan, China, Vietnam, and the Port of Singapore.
Late-Breaking Update: A new study by UC Berkeley published on March 19 highlights Japan’s leadership in port-level decarbonization. The report commends Japan’s Carbon Neutral Port (CNP) certification framework and the City of Yokohama’s port decarbonization initiatives, noting how these models mark important progress amid uncertainty in maritime decarbonization. As ports along the United States’ West Coast pursue initiatives of their own, similar initiatives across the ocean will be key to scaling up the adoption of low-carbon shipping fuels in maritime trade.
International Uncertainty: The International Maritime Organization
On an international scale, the path toward greater government buy-in has not been without its challenges.
In April 2025, the United Nations’ International Maritime Organization (IMO) approved its Net-Zero Framework, a set of international regulations intended to accelerate the shift toward lower-carbon, and eventually, zero-emission shipping fuels. Central to the framework are a Global Fuel Standard (FGS) and a GHG pricing mechanism, the first globally binding regulations to reduce GHG emissions from any industrial sector. The framework sets ambitious targets, requiring maritime suppliers to reduce CO2 emissions by at least 40 percent by 2030 and 70 percent by 2050, relative to 2008 levels.
However, at an extraordinary session of the Marine Environment Protection Committee (MEPC) in October 2025, IMO voted 57 to 9 to delay formal adoption of the Net-Zero Framework into MARPOL, the International Convention for the Prevention of Pollution from Ships, by one year. The delay followed extensive disagreement over fuel standards and emissions pricing as well as muscular lobbying against the new provisions by the United States. In advance of the vote, President Donald Trump personally assailed the Net-Zero Framework, labeling it a “Global Green New Scam Tax on Shipping” in a Truth Social post.
In addition to the delay itself, the U.S.’s resistance to international regulation on low-carbon shipping fuels creates uncertainty for maritime fuel suppliers, particularly those within the United States. While federal-level incentives like the 45Z tax credit encourage low-carbon fuel production for maritime use, this opposition on the international stage projects political hostility toward fuel adoption. So long as these conflicting signals persist, it may be difficult for the low-carbon maritime fuel sector to develop in the United States.
Nevertheless, the one-year delay marks only a temporary pause to framework implementation, not a reversal. The next vote is slated for October 2026.
Additionally, technical work continues that seeks to change the United States’ outlook. Clean fuel advocates and biofuel producers emphasize that the U.S. has clear advantages in low-carbon maritime fuels given its mature biofuel sector, emerging pipeline of e-fuel projects, three million miles of natural gas pipelines, and 30 to 35 percent of global renewable natural gas production. With federal and state incentives that financially bolster the industry, the United States could emerge as a leader in low-carbon maritime fuels production.
Late-Breaking Update: In advance of the MEPC’s 84th session to be held from April 27 through May 1, the United States submitted comments this month that call on the IMO to cancel the October 2026 vote. The comments argue that the Net-Zero Framework would “have dire economic
consequences for the shipping industry, energy producers and global consumers” and confirmed the U.S.’s opposition to any provisions that would enforce a carbon tax or economic penalties. If the United States is successful in its continued lobbying against the IMO’s adoption of the Net-Zero Framework, it would mark a major setback in the adoption of low-carbon shipping fuels.
International Uncertainty: European Standards
Further complicating the international policy landscape for clean maritime fuels, the European Union (EU) formally implemented its FuelEU Maritime Regulation in January 2025. The program sets a limit on the GHG intensity of energy used onboard all ships of 5,000 gross tonnage (GT) or above that call into the European Union or European Economic Area, including those from abroad. The regulation examines the entire lifecycle of fuels used aboard ships, from production to combustion or a “well-to-wake” approach. For ships coming into or out of the EU, the GHG intensity requirement only applies to half of the energy used during the voyage. Ships that fail to comply face a sizeable economic penalty.
While the program is designed to disincentivize traditional fossil fuels and accelerate the adoption of low-carbon maritime fuels, the FuelEU Maritime Regulation prohibits the use of crop-based biofuels. As corn and soybean oil are currently the two primary feedstocks for U.S. biofuel production, the European regulation poses a problem for the adoption of U.S.-made, low-carbon biofuels. While used-cooking oil has recently emerged as a notable feedstock in biofuel and renewable diesel production, waste-based biofuel infrastructure and supply chains are not as developed as those for crop-based fuels. Given that the EU is a major American trade partner, the conflict between federal incentives in the U.S. and EU policies creates uncertainty for the future of low-carbon fuels in shipping.
Aside from its FuelEU regulation, maritime carbon emissions in Europe are also regulated under the European Union Emissions Trading System (EU ETS), a “cap-and-trade” regulatory initiative that sets an annually reducing limit on total carbon emissions across the power, aviation, manufacturing, and as of 2024, maritime shipping. The regulation requires firms in these sectors to purchase or receive emission allowances for every ton of carbon emitted. Like FuelEU, the regulation is “flag-neutral” and applies to all cargo and passenger ships of 5,000 GT or above entering EU ports, including 100% of emissions for inter-EU voyages and 50% for intra-EU voyages.
Unlike FuelEU’s lifecycle emissions criteria, the EU ETS uses the “tank-to-wake” approach for maritime vessels, only evaluating emissions from on-board activities like fuel combustion. Additionally, though previously focused only on carbon dioxide emissions, the EU ETS began regulating methane and nitrous oxide emissions for maritime shipping in January 2026.
These rapid changes and differences in how GHG emissions are counted within the EU complicate compliance for maritime shippers and may create uncertainty for certain low-carbon fuel producers. However, the regulations also signal a policy landscape that, despite its complexity, favors low-carbon fuel, assuring producers of a market in Europe.
Late-breaking update: In the United Kingdom, a new amendment to the UK Emissions Trading Scheme (ETS), the UK’s “cap-and-trade” regulation, will expand restrictions on GHG emissions to the maritime sector beginning July 1.
Following its exit from the European Union, the UK created the UK ETS, a mandatory initiative modeled after the EU ETS that came into effect in 2021. While the EU ETS began targeting maritime shipping emissions in 2024, it was not until January 2026 that legislation proposing an extension, the Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026, was introduced to the House of Commons. After passing the Commons in a February vote, the Order faced backlash from the UK shipping industry which argued that the UK’s fuel supply chains and infrastructure were unprepared to comply with the rapid ETS timeline. Despite these protests, the Order passed the House of Lords on March 12.
When the regulation takes effect in July 2026, all commercial vessels of 5,000 GT and above, regardless of nationality, will be subject to the UK ETS. The mandate covers 100% of emissions from domestic voyages and emissions from in-port activities. Unlike the EU ETS, the regulation does not currently target international voyages, although an expansion that mirrors the EU’s 50% inclusion is currently scheduled for 2028.
Future Policy Directions
As the IRS and Treasury work to finalize federal fuel tax guidance, it should be noted that liberalizing RFS standards would substantially strengthen U.S. supply-side incentives for low-carbon maritime fuels. Additionally, harmonization between federal, state, and port-level initiatives would reduce regulatory uncertainty and strengthen the clean fuels sector. On an international scale, developments at the IMO will be critical to the future of low-carbon maritime fuels. With individual countries and blocs pursuing their own regulations, consistency across emissions criteria and calculations will ease the burden of uncertainty. Continuing to monitor policy developments in these areas is essential to streamlining low-carbon fuel adoption and ensuring that emerging projects can operate with confidence.
Special thanks to Margaret Hecht and Ruby Ann Gilmore for their contributions.
