As part of a concerted move by the shipping industry community to reduce the environmental impact of shipping, the International Maritime Organization (IMO) has introduced regulations to reduce sulphur oxides emissions. These regulations require ships operating outside designated emission control areas to burn marine fuel with a limit of up to 0.5 per cent sulphur content by January 1, 2020, or install scrubber units into exhaust stacks to continue to burn High Sulphur Fuel Oil (HSFO) bunkers. As a result, the financing of scrubber units alongside other emissions technology is an increasingly important topic and this blog sets out some of the key issues in what remains a relatively novel asset class for financing.
Scrubber units are one of the more prominent emissions technology options that aim to reduce component gases such as nitrogen and sulphur oxide in exhaust emissions from vessels. Marine scrubber units remove sulphur oxides from exhaust emissions in part by mixing these exhaust emissions with a water-based solution. Generally, scrubber units come in one of three forms: open, closed and hybrid. Open systems take on and discharge seawater. Closed systems use a freshwater solution in the ‘scrubbing’ process before discharge into the sea. Hybrid systems have both capabilities. In the process of treating the solution, prior to discharge, sludge is created and this sludge must be retained onboard before disposal onshore.
The cost of fitting scrubber units will vary based on whether they are retrofitted or installed onto newbuilds, but most analysts expect these costs to be recouped within several years of fitting. An important consideration for these assumptions will be the availability of HSFO bunkers and the price spread of high and low sulfate bunkers, which will be a key factor for the expected returns on scrubber units. As scrubber unit technology becomes more cost efficient and improves over time, the installation of scrubber units may become an increasingly attractive option.