A recent report from UCL’s Energy Institute Shipping and Oceans Research Group highlights significant financial risks to the shipping industry as it faces stricter greenhouse gas (GHG) regulations and the global shift to a low-carbon economy.
The publication underscores both supply-side risks, where carbon-intensive vessels risk becoming obsolete, and demand-side risks linked to declining fossil fuel demand. It emphasizes the need for investors and shipowners to adopt strategic investment practices, enhance energy efficiency, and prepare for the International Maritime Organization’s (IMO) climate policies to mitigate these risks.
Highlights
- Over 40% of ships globally transport fossil fuels, and nearly all ships are fossil-fuelled.
- Existing ships and those on order would produce approximately double the emissions required under a 1.5°C-aligned carbon budget for shipping of 9.6 giga tonnes CO2-equivalent.
- To align with this carbon budget and avoid overshooting, ships representing over one third of the existing and ordered fleet, valued at just over 400bn USD, 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.
- 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, remains necessary to mitigate supply-side risks of stranded assets.
- 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 factoring this risk into expected returns.
The report suggests that many shipowners and financiers are not fully anticipating an ambitious low-carbon transition. This lack of preparation, particularly regarding policy, litigation, and technology risks, has led to insufficient incorporation of these factors into investment decisions, further exacerbating transition risks. For example, the study found that a ship’s carbon intensity does not significantly influence its financing costs, reflecting the industry’s limited adaptation to emerging challenges.
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.
… said Marie Fricaudet, PhD Student at the UCL Energy Institute
To address demand-side risks, the report recommends avoiding investment in uncertain market segments, planning for repurposing ships for alternative uses, and factoring these risks into return expectations.

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
… explained Dr Nishatabbas Rehmatulla, Principal Research Fellow at the UCL Energy Institute
Supply-side risks can be mitigated through measures like retrofitting ships, though this can be expensive, or investing in dual-fuel vessels for flexibility in future technology use. Improving energy efficiency is also identified as a key strategy to comply with evolving climate regulations while maintaining operational flexibility.
These steps can help extend the operational lifespan of fossil-fuel-powered ships, allowing time for new low-carbon fuel technologies to stabilize and reducing the financial burden of transitioning to a low-emission future.
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.
… commented Dr Tristan Smith, Professor of Energy and Transport at the UCL Energy Institute.