UCL develops new climate risk model for shipping

Researchers from the UCL Shipping and Oceanography group have developed a new climate risk model for shipping aimed at overcoming a key limitation of current financial and regulatory tools.

The model reportedly analyzes vessels across 384 internally consistent scenarios, combining various assumptions about regulation, fuel prices, and technology costs. It was initially applied to over 2000 commercial vessels from the Clarksons Global Fleet Register, producing an assessment that reflects how exposed each vessel is to risks under potential future transitions.

The approach is based on the concept of 'stranded assets' but uses real options theory, considering flexibility, such as retrofitting or switching fuels, as a source of value. A key implication is that vessels ready for retrofitting and those with adaptive fuel usage pathways tend to be more resilient, while traditional vessels that cannot be retrofitted may face higher transition risks.

"Until now, there has been no unified way in the industry to compare transition risks between individual vessels or portfolios. We wanted to create something that owners, charterers, and financiers could realistically use to identify which assets are at risk and what characteristics make a vessel more resilient," said Dr. Marie Frikaudet, senior researcher in the UCL Shipping and Oceanography group and lead author of the study.

Key characteristics of vessel resilience

• Age: The age of a vessel is the most significant transition risk factor. Older vessels have shorter lifespans, meaning that a smaller portion of their operation occurs during the strictest phases of the energy transition. Other things being equal, a 15-year-old vessel has a transition risk rating 63% lower than a new vessel.
• Energy efficiency: Vessels with low designed energy intensity are consistently more resilient. Efficient vessels save on fuel and face lower compliance costs, especially in the most adverse scenarios.
• Optionality: The ability of a vessel to switch between fuel types, retrofit for alternative technologies, or defer investment decisions until uncertainty is resolved. In uncertain conditions, optionality becomes a source of economic value.

The analysis also shows that under the current uncertainty of IMO policies, relatively efficient older vessels, particularly those with wind-assist technologies or dual-fuel capabilities (LNG), may appear less risky than expected, as they maintain flexibility in the absence of clear long-term policy signals.