The Future of Shipping: Navigating the Transition to Zero-Emission Technologies
As the global shipping industry faces stricter GHG regulations and transitions towards a low-carbon energy system, a new report from UCL’s Energy Institute Shipping and Oceans Research Group highlights the financial risks associated with stranded assets. The report warns that a rapid transition could result in the premature scrapping of over a third of the global fleet, valued at over $400 billion, unless vessels undergo costly retrofits to remain competitive.
With over 40% of ships globally involved in transporting fossil fuels and nearly all ships relying on fossil fuels for propulsion, the shipping sector is at a critical juncture. To align with shipping’s share of the carbon budget, ships representing more than one third of the existing and ordered fleet value would need to transition quickly to zero-emission technologies or face obsolescence.
Marie Fricaudet, a PhD Student at the UCL Energy Institute, emphasizes the importance of retrofitting existing ships to zero/near-zero technologies to avoid stranding assets. However, she notes that this transition comes at a cost and may lead to asset devaluation in the short term.
Dr Nishatabbas Rehmatulla, Principal Research Fellow at the UCL Energy Institute, cautions that a ‘watch and wait’ investment strategy is risky for shipping stakeholders. The report underscores the need for proactive management to address supply-side risks and avoid unanticipated write-downs and losses.
Shipowners and financiers can mitigate demand-side risks by investing in segments with stable transport demand, exploring optionality for repurposing vessels, and factoring risk into expected returns. Retrofitting and repurposing ships offer a solution to reduce stranded assets, although the process can be costly.
Investing in energy efficiency is identified as a key strategy to enhance resilience in all scenarios. By enabling fossil-fuel-powered ships to comply with climate regulations and reduce emissions, energy efficiency measures buy time for the industry to stabilize its fuel mix and adapt to changing regulations.
The transition to zero-emission technologies in the shipping industry presents both challenges and opportunities. By embracing innovation, investing in retrofitting and energy efficiency, and proactively managing risks, stakeholders can navigate the transition successfully and build a sustainable future for the maritime sector.
Conclusion
The report from UCL’s Energy Institute sheds light on the urgent need for the shipping industry to transition towards zero-emission technologies. By addressing financial risks associated with stranded assets, stakeholders can pave the way for a sustainable and competitive maritime sector in the face of evolving regulations and global energy transitions.