Do the economic and environmental benefits of marine scrubbers stand up to scrutiny?
24 Jun 2019 - Matthew Kenney
The popularity of scrubber installation as a sulphur cap compliance option has risen exponentially over the last 18 months, with recent figures suggesting around 3250 ships are already fitted with an EGC system - 80% of them being open-loop. But shipping remains divided over their efficacy both in terms of commercial advantage and environmental protection. Matt Kenney asks whether commercial motives are veiling a dirty secret, or is the environmental case for scrubbers really getting stronger?
Recent evidence presented to the IMO Marine Environmental Protection Committee suggests that Exhaust Gas Cleaning Systems (EGCS), commonly - ‘scrubbers’, appear to be doing ‘near zero harm’ to harbour water quality. Yet concurrently, some industry players are vocally rallying against their use. So what is the environmental reality of scrubbers as a compliance option, and if commercial motivations are an incipient perversion of the scientific process, how can we scrub the wheat from the chaff and make sure we are not throwing the baby out with the wash water?
On the 14th June 2019, US supply chain management company Hudson Shipping Lines, who utilise around 70 chartered-in bulk carriers, vowed ‘not to employ vessels that use ocean-polluting scrubbers’, citing objections to the use of ‘harsh chemical additives’ in scrubber systems, which Hudson’s CEO Avi Eilon claims merely transfers the problem from the air and into the ocean. In a fine example of corporate do-goodedness, Eilon pressed his scrubber assault home by resolving only to ‘support organizations that promote the use of compliant fuels’.
Mr Eilon has indeed taken a decisive viewpoint by claiming that scrubbers would do nothing to reduce his fleet’s environmental impact and suggesting they fall short of Hudson’s sense of corporate responsibility. But how can he know this to be true and is there enough evidence to support this view?
A certain solution to an uncertain problem
From the outset, the issue of 2020 sulphur cap compliance options has been floating in turbid waters. Early iterations of the regulations left tempting loopholes for would-be flouters, making the ‘do nothing’ approach potentially feasible. But a subsequent carriage ban and tighter guidelines around port state enforcement, alongside rumours of mid-ocean sniffer drones doling out hefty fines soon began stitching the seams.
Arguably, it was then that scrubbers really gained traction. From March 1st 2020, just 2 months beyond the global enforcement date, ships not equipped with an EGCS would be banned from carrying non-compliant fuels; stifling any argument about bunker non-availability and making tank sampling the simple measure of compliance (with Fuel Oil Non Availability Reports or FONARs, attempting to mop up any remaining outliers). That meant carriers had fewer cards to play. If very low sulphur fuel oil (VLSFO) ended up as expensive as forecasted in comparison to high sulphur heavy fuel oils (HSHFO), then there would be some serious cost base differentiators on the horizon. Ships competing for the same cargo on the same routes, may end up paying bunker rates that differed by up to 100% - VLSFO futures suggesting a cost twice that of HSHFO. The result for the poor sap paying twice the bunker overhead of her competitor could be catastrophic.
Further, there was (and still is) the complex technical issues which scrubber proponents look set to avoid: According to the IMO, the main engines and boilers of most ships operating outside of existing Emission Control Areas (ECAs) are optimised to run on heavy fuel oils. They argue that switching from residual oil to distillates induces critical implications for machinery operation. For example, the comparatively low viscosity of VLSFO risks causing internal fuel leaks, starting problems and (perhaps most worryingly) fuel starvation and engine failures (See Sec 3.1.1 - 3 of this doc), which may prove most likely to occur during transitional engine phases coming in to or out of port.
So there are additional modification and maintenance costs for those switching to compliant fuels and some older or less-suitable ships risk paying the ultimate price of machinery failure at sea, or terminal lay fees, cargo fines and demurrage claims arising from a failure to start the main engine at the berth.
Mitigating cost is king
Some think that the scrubber solution has proven so popular as a hedge against bunker prices, that not only will the IMO no longer recognise their original ambitions for the regulations in the post-2020 era, but the factors ship owners have considered in their decision to fit scrubbers might be significantly degraded or entirely nullified by the level of uptake among their competitors. When considering scrubbers as a compliance option, if mitigating fuel cost is king, a usurper might be lurking in the shadows. It is easy to see that if scrubber-equipped vessels becoming the norm in a given spot market, the cost base differentials fade and HSFO prices rise. Bunker suppliers could even end up charging premiums for HSFO in smaller ports where the capacity of bunkering infrastructure is limited and demand for compliant fuels remains strong.
Despite this uncertainty however, there has been little ambiguity among analysts that the 2020 sulphur cap is unprecedented in the fuel markets. Earlier this year, Stillwater Associates described it as ‘the most impactful refined product specification change ever’ and concluded that the roll out of the 2020 sulphur cap would be a ‘bumpy ride from a price differentials perspective’ So, any diligent strategic plan for fleet compliance became obliged to acknowledge that scrubbers offered the most certainty for a non-distinct outlook. If HSFO prices prove attractive, then scrubber capex could be recovered in just a few short years for most vessels and since they would not be subject to the carriage ban, they would enjoy maximum flexibility and choice. A commercial no-brainer emerged.
The Green View
But what about the environmental case? The short answer is that it is still uncertain.
In 2015, the German federal bureau for the environment produced a report on the impact of scrubbers on port and coastal waters, which may have been instrumental in encouraging some territorial jurisdictions to announce a pre-emptive ban on open loop scrubbers in port limits. Despite the report finding that the wash water quality from the study group fell well within existing water quality standards, it makes the somewhat surprising conclusion that because the accumulative effect on sea water quality was not calculated, compliant fuels would be the preferred compliance method because wash water might induce an additional and unquantified environmental stressor on an already fragile coastal ecosystem. That is a bit like saying that out of A or B, B is the preferred option because there was insufficient data to make a firm determination between them.
Jump to 2019 and MEPC 74 has resolved to commission the next phase of impact assessments on scrubber use, with a particular focus on wash water effluent, following a submission from the European Union calling for a scientifically-informed global policy harmonisation. However, the same committee also heard evidence from CE Delft and the Japanese Transport Ministry which suggests that, following extensive trials, the environmental impacts from accumulated wash water effluent discharged from open-loop scrubbers in harbour limits appears to have a negligible environmental impact. Notably, the studies focused on the impact of nine heavy metals and sixteen polycyclic Aromatic Hydrocarbons (PAH) present in wash water but appear not to have considered temperature, acidity (pH) or turbidity. Also, the resultant effects on the seawater were derived from computational modelling rather than empirical measurements. Nonetheless, the results are encouraging because the wash water quality was measured from real ship samples taken upstream of any onboard pre-treatment, meaning they were worst-case levels, and despite this, the results were all well below regulation limits.
The commercial case for scrubber installation, especially for larger ships, older ships and ships plying their trade outside of existing ECAs remains compelling, despite the surprising popularity of the option threatening to dilute the cost-benefit calculations post 2020.
The environmental case for scrubbers remains a contentious issue and the EU and IMO are now in agreement that the scientific record on the impact of wash water effluent needs to be bolstered to inform a harmonised global policy on scrubber discharge in port. There is existing evidence to suggest that wash water effluent is well within water quality standards at the point of discharge and this view has since been reinforced with new data that suggests the accumulative effect of untreated wash water has a negligible effect on harbour water quality - at least in two out of the five regulated parameters.
Shipping companies as business entities have a duty to operate their fleets in the most commercially astute way and the scrubber option continues to cause a great deal of uncertainty in this respect, despite (or perhaps even because of) the greater-than-expected uptake.
Ultimately, the headline reason for the IMO adopting strict emissions regulations and thus hailing the most impactful change to fuel specifications the world has ever seen, is to tackle global acknowledgement that ship stack emissions cause real and continued harm to the health and life span of coastal communities and to the greater marine environment.
Therefore, if scrubbers can pass muster convincingly during the next phase of scientific scrutiny and if HFO futures remain weak and the commercial upsides do not erode into negative territory through competitive dilution, then their employment looks set to compete for a favourable position at the top of the options pile. But, if Mr Eilon’s doubts are proved correct around the net efficacy of scrubbers as a bona fide environmental solution, the industry may well be kicking a costly and time-consuming can down shipping’s road to a sustainable future. The science needs to become clear - and fast.