
Existing ships and those on order would produce twice the emissions required under a 1.5°C-aligned carbon budget
Jan 22
3 min read
A rapid transition could lead to "premature scrapping" of over a third of the fleet, valued at over 400bn USD, unless they undergo costly retrofits to remain competitive in the wake of new GHG policies and wider energy transition.
London, 23rd January 2025 – A new report from UCL's Energy Institute Shipping and Oceans Research Group assesses the financial risks to the shipping industry from stranded assets due to stricter GHG regulations in the sector and a global transition to a low-carbon economy. The report finds the shipping sector faces substantial supply-side risks linked to carbon-intensive vessels becoming obsolete and demand-side risks linked to decreased fossil fuel demand. All investors must actively address these risks through strategic investment choices, energy efficiency measures, and proactive planning for the IMO's mid-term measures and wider climate change policies.
The report finds that over 40% of ships globally transport fossil fuels, and nearly all ships are fossil-fuelled. To align with shipping’s fair share of the carbon budget of 9.6 giga tonnes, ships representing over one third of the existing and ordered fleet value would need to quickly transition to zero-emission technologies or face premature scrapping. The transition away from fossil-fuels in the wider economy creates further risks of oversupply for fossil fuel carrying ships. In particular, liquefied gas tankers face oversupply, with 26–32% of fleet value at risk around 2030.

Marie Fricaudet, PhD Student at the UCL Energy Institute, said: “If existing ships can be retrofitted to zero/near-zero technologies, much of the fleet at risk of being stranded could be saved, and this is a strong incentive for investors to invest in retrofittable ships. However, even those retrofits would come at a cost, so we expect some asset devaluation as the mid-term measures become more material.”
Growing evidence suggests that shipowners and financiers, are not anticipating a highly ambitious transition, see for example the authors work on financiers’ beliefs. In the short term, transition risks, such as those related to policy, litigation, and technology, do not appear fully credible to them. As a result, these risks are not being adequately factored into their investment decisions, thereby exacerbating transition risk, as shown in a separate study by the authors which reveals that a ship’s carbon intensity does not directly impact the cost of the loan for that ship.
Dr Nishatabbas Rehmatulla, Principal Research Fellow at the UCL Energy Institute, said: “Our research to date consistently shows that the majority of the shipping stakeholders, particularly investors including shipowners and financiers, are not anticipating an ambitious transition. This research shows that an investment strategy that is based on ‘watch and wait’ is a risky strategy, it could lead to rapid unanticipated write-downs and losses from forces within and outside the sector”
Shipowners and financiers could manage or account for demand-side risks by avoiding investment in segments with uncertain future transport demand, investing in optionality for repurposing to other cargoes, and by factoring this risk into expected returns. Retrofitting and repurposing ships would reduce the amount of stranded assets but can still be a costly alternative. Uncertainty in future technology mix complicates planning but proactive management through optionality for example through dual fuelled vessels [1], of the supply-side risks of stranded assets remains necessary.
Dr Tristan Smith, Professor of Energy and Transport at the UCL Energy Institute said: “Shipping’s transition has never been just about what happens at the IMO, however, 2025 is a key year in the international regulator’s calendar as it will approve policies, a global fuel standard, a carbon price, and lifecycle analysis (LCA) guidelines, which will particularly crystallise the supply-side risks. Anticipating an ambitious outcome on these and following the latest available science is the least risky strategy, particularly because, as has been evidenced, the ambition will ratchet up over time as the IMO continues to bridge the gap between policy and the latest available science, for example from the IPCC”
Investing in energy efficiency provides a degree of resilience in all scenarios by enabling fossil-fuel-powered ships to comply with climate regulations and lower emissions for an extended period, allowing time for the fuel mix to stabilize and reducing the size requirements for tanks and engines while maintaining the same level of transport capacity, thereby enhancing operational flexibility and efficiency.
[1] Where at least one fuel option is a scalable zero emission fuel, defined as a fuel which has net zero well-to-wake GHG emissions and has the potential to be produced at a competitive price compared to fossil fuels over a long period of time, whilst also having the potential to be produced at the volumes necessary to meet a significant amount of global maritime demand. The total cost of operation of those fuels is provided in LR & UMAS (2020) Techno-economic assessment of zero carbon fuels