O’Melveny Worldwide

Maritime Environmental Law Update (June 2019 Edition)

June 28, 2019

We are providing this update on significant developments in international environmental maritime law and regulation. Our prior update was issued in November 2018, and can be found here. As the deadline to comply with the reduced limit of 0.5 percent sulfur content in fuel looms, shippers and suppliers are taking steps to prepare for this significant change. Reducing emissions remains a crucial goal for the industry, and shipping and cruise lines continue to invest in new technologies, including alternative energy power sources, in their efforts to reduce emissions.

International Developments

January 2020 Deadline for 0.5 Percent Sulfur Content Looms

Many shippers and suppliers are behind pace for meeting the 2020 deadline to reduce the sulfur content in marine fuel from its current level of 3.5 percent to 0.5 percent. The International Maritime Organization (“IMO”) shows no signs of delaying implementation, with the regulations set to come into effect on January 1, 2020.

The new sulfur regulations are expected to increase the costs of shipping fuel by approximately $250 per ton, increasing aggregate industry costs by an estimated $100 billion annually. While larger ports appear to have enough low-sulfur fuel on hand to meet demand, it is less clear if smaller, regional ports are similarly prepared.

The reduction in the sulfur content of fuel is expected to improve air quality and reduce human health impacts; however, experts warn that the new fuel standards could lead to the use of higher sulfur content fuel by ships equipped with “scrubbers,” which remove sulfur emissions from the exhaust train. Experts estimate that the sulfur content in higher sulfur shipping fuel could increase from 2.6 percent to 3 percent, posing increased damage risk where such fuels are accidentally discharged.

Shippers Urge IMO to Institute Top Speed Limits to Reduce Carbon Emissions

One hundred shipping companies signed an open letter to the IMO asking to implement maximum speed limits. The measure, supported by both the shipping industry as well as environmental groups such as Greenpeace and the World Wildlife Fund, is a way to reduce fuel use and emissions. No container shipping lines were represented among the 100 signatories. Container ship operators are concerned that reducing speed limits will require adding more ships to remain on schedule.

IMO Sets More Stringent Efficiency Goals for Some Ships

While the IMO has had a long-term goal of cutting emissions by 50 percent by 2050, it recently proposed even more stringent regulations at its last meeting. The IMO’s Energy Efficiency Design Index sets higher standards for certain types of ships: the Phase III stage, which required that ships reduce their carbon emissions by 30 percent by 2025, has been moved up to 2022 for several classes of ships. The proposed draft amendments require up to a 50 percent reduction in carbon emissions for new containerships 200,000 deadweight tons and above, and set standards for ships running on liquefied natural gas (“LNG”). The draft amendments were introduced at the IMO’s Environment Protection Committee meeting in May, and are expected to be finalized at the next meeting in spring of 2020.

IMO Seeks to Reduce the Spread of Invasive Species

In March, the IMO kicked off a five-year project to reduce the spread of invasive species that hitch rides around the globe by attaching themselves to ship hulls. The GloFouling Partnership is a collaboration between the IMO, Global Environment Facility (“GEF”), and the United Nations Development Program (“UNDP”). The goal of the project is to reduce the introduction of invasive species among developing and island countries, including Brazil, Ecuador, Fiji, Indonesia, Jordan, Madagascar, Mauritius, Mexico, Peru, the Philippines, Sri Lanka and Tonga. The GloFouling Partnership is the first global partnership to address the risks of biofouling, and is unique in that it addresses biofouling relating to all marine sectors, not just shipping.

Risk Increases for Oil Tankers Sailing Through Persian Gulf

The Joint War Committee of London’s Lloyd’s Market Association announced it would expand its “listed areas” to include the Persian Gulf. The Joint War Committee represents underwriters who insure vessels against damage sustained during acts of war. The listed areas are regions that are considered the most dangerous for shippers, and could mean potentially higher insurance costs. These areas include the Persian Gulf and the Strait of Hormuz, which connects the Persian Gulf and the Gulf of Oman and is considered the world’s biggest chokepoint for oil. Up to 40 percent of the world’s oil passes through the Persian Gulf. Increased tension between Iran and Saudi Arabia, as well as the prospect of war between the United States and Iran, are to blame for the risk increase. The area was last listed in 2005, during the height of the Iraq War. A rise in insurance premiums could lead to oil price increases.

Tensions Rise in the South China Sea

In May, Australian navy helicopter pilots were hit with lasers from fishing boats in the South China Sea. The pilots were involved in military training exercises and were believed to be followed by Chinese warships. This incident comes as tensions in the South China Sea are rising: US navy ships have been engaged in exercises in the South China Sea throughout the month of May, and Acting Secretary of Defense Patrick Shanahan has denounced China’s aggressive presence in the area.

The hotly contested region is subject to competing land and fishing claims from China, Taiwan, Vietnam, Malaysia and the Philippines, and is one of the most valuable waterways in the world. Approximately one-third of international shipping travels through the area. China currently claims almost all of the 1.3 million square mile sea as part of its sovereign territory.

US Developments

New Ballast Water Regulations Create Uniformity

The Vessel Incidental Discharge Act (“VIDA”), signed into law in December 2018, has the goal of creating more uniform ballast water discharge regulations. VIDA repeals the US Environmental Protection Agency’s (“EPA”) 2014 Small Vessel General Permit (“SVGP”), amends the Clean Water Act to establish “Uniform National Standards for Discharges Incidental to Normal Operation of Vessels,” and authorizes the EPA to promulgate new regulations to establish federal standards of performance for marine pollution control devices for each type of discharge incidental to the normal operation of covered vessels, including ballast water and graywater. EPA has two years to promulgate the new regulations, and the United States Coast Guard will administer and enforce the new regulations.

VIDA reforms the current regulation of incidental discharges by adding a new section to the Clean Water Act, section 312(p), Uniform National Standards for Discharges. Incidental discharges are discharges originating from a vessel during its normal course of operation, and encompass approximately thirty different types of discharges for ships, including ballast water.

Instead of having individual states enforce their own ballast water standards under the Clean Water Act and state versions thereof, VIDA will set nation-wide standards with the goal of bringing standards more in line with international standards set by the IMO. Currently, the US Coast Guard, the EPA, and individual states work to enforce a patchwork of standards. Prior to the passage of VIDA, vessels over 79 feet had to comply with the discharge regulations set by the 2013 Vessel General Permit (“VGP”), and commercial vessels under 79 feet had to comply with regulations set by the SVGP.

VIDA will ultimately remove ballast water discharges from the National Pollution Discharge Elimination System (“NPDES”) permitting system and repeal the VGP. VIDA will proceed in a multi-stage process, and will not replace the 2013 VGP until both the EPA and US Coast Guard set new standards. Until new standards come into effect, vessels over 79 feet must still comply with the 2013 VGP. Because VIDA repealed the SVGP, small vessels under 79 feet are now exempt from complying with SVGP discharge standards except for ballast water. Ballast water discharges by small vessels must still comply with the ballast water discharge standards of the VGP. The new VIDA standards are expected to be at least as stringent as those in place under the 2013 VGP. The standards will be technology-based, requiring vessels to use the best treatment system that is economically feasible. VIDA updates the definition of “living” for organisms found in ballast water, adopting the IMO’s definition, which defines living organisms as those capable of reproducing. VIDA will also require that any vessels travelling from international ports do a complete flush and exchange of untreated ballast water 200 miles offshore. Ships using a Coast Guard-approved ballast water treatment system would not need to flush and exchange ballast water. VIDA does allow for some regional variation for ballast water standards: stricter standards will be in place for the Pacific Region and the Great Lakes. VIDA also provides a mechanism for states to petition for new standards or request a moratorium on ballast water discharges. The ability for states to request specific changes does not come into effect until the new VIDA regulations are fully implemented.

The Jones Act Revisited

In March, Utah Senator Mike Lee proposed the Open America’s Waters Act of 2019, which would repeal the 1920 Merchant Marine Act, better known as the Jones Act. The Jones Act requires that vessels carrying cargo or passengers between US ports be US-flagged, built in the United States, and be at least 75 percent owned by US companies.

The Jones Act has been heavily criticized as a protectionist measure that increases the shipping costs between US ports—in many areas, goods move via truck or even plane because complying with the Jones Act can be so expensive. Residents of Alaska, Hawaii, and Puerto Rico, who get most of their goods shipped from the continental United States, are particularly hard-hit.

The Open America’s Waters Act would also open intra-US shipping to foreign-owned vessels. Proponents claim that repealing the Jones Act would reduce shipping costs and increase competition. Defenders of the Jones Act claim that it’s necessary to protect the dwindling US merchant marine fleet and the United States’ national security interests.

Reports Shed Light on State of the US Shipping Industry

A report issued by the Bureau of Transportation Statistics (“BTS”) shows that the number of US ports handling more than 250,000 tons of cargo per year fell between 2005 and 2015. The report also showed that the average age of US ships was creeping up, with 41 percent of US commercial vessels 21 years old or older. A report issued by the Department of Transportation’s (“DOT”) Maritime Administration (“MARAD”) found that the number of US-flagged vessels involved in international trade fell by over 50 percent since 1990, from 199 vessels down to only 82 by the end of 2017. A lack of cohesion among US maritime shipping interests could be a contributing factor, in that there is no unifying voice to advocate for the US maritime sector. The Government Accountability Office issued a report calling on the DOT to create a national strategy to sustain the US-flagged fleet, citing national security concerns.

Detecting When LED Navigation Lights No Longer Meet Standards

As LEDs replace incandescent lights for navigation, new issues arise for monitoring the performance and compliance of LED navigation lights. The Convention on the International Regulations for Preventing Collisions at Sea (“COLREGS”) are regulations published by the IMO and set out navigation rules, including governing the standards for navigation lights. COLREGS requires that navigation lights maintain a certain luminous intensity, a measure of brightness.

COLREGS Resolution MSC.253 (83) 4.3 provides two options for monitoring compliance of LED lights: ships can either install an alarm system that will alert the Officer of the Watch when intensity falls out of compliance, or LEDs can only be used for a set “lifespan” before being replaced. Due to the difficulties in monitoring intensity of LEDs compared to traditional incandescent bulbs, most manufacturers and vessel operators use the second standard, and replace LED navigation lights after 50,000 hours. However, using lifespan standards does not actually guarantee that LEDs are compliant with COLREGS, as an LED can diminish in its intensity while still within its lifespan. An LED developed by Signal Mate is able to self-monitor its intensity and set off a warning when it falls out of compliance.

This development is particularly timely in the United States, where the US Coast Guard and American Boat and Yacht Council (“ABYC”) are in the process of updating standards for navigation lights used by inspected commercial vessels in US waters and may require that LED navigation lights set off a warning when intensity drops below COLREGS standards. Further discussion of updating the American standard will continue at the next ABYC Standards Meeting in January 2020.

New Maritime Technologies

Shipping Lines Invest in Alternative Energy Sources

As the shipping industry strives to reduce emissions, shippers and cruise lines are continuing to invest in alternative energy sources to power vessels. The use of hydrogen fuel cells, which generate zero carbon emissions, is one such option: a company has explored the possibility of using ferries running on hydrogen fuel cells in the San Francisco Bay area. Norway is also considering developing fuel cell-powered high-speed ferries and short-sea freighters.

LNG-fueled ships are also on the rise. LNG-burning ships generate much lower levels of sulfur, nitrogen oxide, and particulate matter emissions compared to ships burning traditional bunker fuel. In December 2018, Carnival’s AIDAnova, the first cruise ship powered solely by LNG, completed its maiden voyage. In January, maritime shipper Crowley added a second LNG-powered vessel to its fleet. The Taino joined its sister-vessel the El Coqui, which launched in 2018, and is also powered by LNG. Shipping behemoth Hapag-Lloyd is converting one of its 15,000 TEU container vessels to run on methane, also referred to as natural gas. The project is the first in the world to convert a container ship of this size to run on natural gas.

Others are thinking even more outside the box in terms of alternative energy sources. Hurtigruten, an expedition cruise company, is developing ships that will be powered by organic waste, including byproducts from rotten fish. Maersk is also experimenting with biofuels. In March, the Mette Maersk set off on a voyage from Rotterdam to Shanghai using fuel that was 20 percent biofuel generated from plant waste.

Norway Uses Drones to “Sniff-Out” Emissions Violations

In preparation for the new 0.5 percent sulfur content standards, Norway is pioneering the use of new drone technology that will be able to fly within a safe distance of ships and measure the content of their emissions. These drones act as “breathalyzers” of ships and use sensors that sample a ship’s exhaust to identify ships whose emissions exceed the limits for sulfur content. A test can be completed in five minutes. While the sensors are currently only being used to test for sulfur content, Norwegian officials are looking at adding tests for other emissions in the future.

Cruise Lines Continue to Embrace Sustainability

Cruise ships continue to embrace sustainability measures. In Norway, a new law is coming into effect in 2026 that will require all ships travelling through fjords designated as UNESCO Heritage Sites be battery powered or hybrids. Cruise lines are experimenting with hybrids: in February, Hurtigruten tested the world’s first hybrid cruise ship, the MS Roald Amundsen. Another option being explored is utilizing battery-powered tugboats to tow cruise ships through the fjords.


Supreme Court to Review Oil Spill Liability Case

The US Supreme Court is set to hear Citgo’s appeal of the Third Circuit’s ruling in an oil spill case. The long-running saga began in 2004, when Citgo chartered a ship from Frescati to transport oil originating in Venezuela. The ship hit a submerged anchor 900 meters from its berth and spilled approximately 264,000 gallons of crude oil into the Delaware River. Under the Oil Pollution Act, Frescati was deemed responsible for the spill and paid $143 million to clean up the river. The United States reimbursed Frescati $88 million for the clean-up. Both Frescati and the United States sued Citgo to recover the unreimbursed costs of the cleanup.

The Third Circuit held for Frescati, finding that the term in the contract that Citgo provide a “safe berth” was an express warranty, and that Citgo breached that provision by failing to account for the abandoned anchor. Citgo claims that it should not be liable since there was no way for it to have known that the submerged anchor was in the navigation channel nor could it have done anything to avoid the collision. Citgo argued that the Third Circuit’s decision imposed a strict liability standard on Citgo, creating a circuit split between the Second and Third Circuits and the Fifth Circuit. The split stems from a differing interpretation of a safe-berth clause in maritime law: the Fifth Circuit holds that such a clause only requires that a charterer use due diligence in selecting a port.

The Court granted certiorari in April, and is scheduled to hear the case in the October 2019 term.

Supreme Court Sets New Standard for Maritime Asbestos Cases

The US Supreme Court revised the standard for finding manufacturers of ship parts liable for sailors’ asbestos exposure. In Air and Liquid Systems Corp. v. DeVries, 139 S. Ct. 386 (2019), the Court held that manufacturers of turbines, pumps, and valves could be liable for the mesothelioma deaths of two Navy sailors who were exposed to asbestos while they worked on Navy vessels. One sailor served in the late 1950s, and the other during the late 1970s and early 1980s. While the manufacturers did not install the asbestos, the Court found them liable because they knew that the parts would require the addition of other asbestos-containing components to function properly and failed to provide a warning. This case rejects the “bare metal” defense used by manufacturers in California in maritime tort cases. The Court stated “[m]aritime law’s longstanding solicitude for sailors reinforces our decision to require a warning in these circumstances.”

State AG Can Intervene in Case Against US Navy

A federal court held that the Washington State Attorney General could intervene in a lawsuit against the US Navy for allegedly polluting the Sinclair Inlet in the Puget Sound. The Attorney General claims that the Navy violated the US Clean Water Act when it dumped chemicals and marine growth generated during the cleaning of a decommissioned aircraft carrier in the inlet. The lawsuit was first brought against the Navy by environmentalists and the Suquamish tribe.

Claims by Cleanup Workers Against BP Dismissed

The Fifth Circuit affirmed the dismissal of 800 cleanup workers’ claims against BP for injuries and medical conditions allegedly caused by cleanup operations of 2010’s Deepwater Horizon oil spill. In Graham v. BP Exploration & Production, 922 F.3d 660 (5th Cir. 2019), the court held dismissal was appropriate because the cleanup workers failed to meet a filing deadline for individual suits after the district court judge issued an order requiring that plaintiffs file individual suits against BP or file a sworn statement stating they had done so.

Enforcement Actions and Civil Penalties

Cruise Line Fined $20 Million for Violating Terms of Bilge Water Settlement Agreement

Carnival Cruise Lines agreed to pay a $20 million fine for violating the terms of a 2016 settlement agreement. In 2016, Carnival agreed to pay a $40 million fine under the terms of the original settlement for a years-long practice of illegally dumping bilge water contaminated with oil and chemicals. As part of the settlement, a court-appointed monitor supervised Carnival’s environmental compliance efforts. The monitor found that only a fraction of the money devoted to compliance was actually spent on improving Carnival’s environmental practices; the bulk of it went to legal fees. Carnival pleaded guilty to six counts and agreed to pay a $20 million fine and restructure their environmental compliance plans. Carnival was spurred to action after a federal court considered blocking Carnival ships from docking in US ports.

Seafood Company Hit with $900,000 Penalty

Trident Sea Food received a $900,000 civil penalty for violating the US Clean Air Act. Trident Sea Food was found liable for leaking 200,000 pounds of ozone-depleting refrigerant into the atmosphere. Besides depleting the ozone, refrigerants are also potent greenhouse gases: one kilogram of a refrigerant has a global warming potential equal to hundreds or even thousands of kilograms of CO2, depending on the refrigerant used. Under the settlement with the EPA, Trident will spend $23 million to retrofit its vessels to reduce leaks.

Crewmember Turns Ship In for Illegal Dumping

The Navimax Corporation was fined $2 million for illegally discharging oil-contaminated water and for obstructing a US Coast Guard investigation. In 2017, a crewmember handed over a thumb drive containing videos depicting illegal discharges of oily water to the Coast Guard. The Coast Guard investigated the incident and found the illegal discharge occurred in international waters and that the ship failed to follow protocol by not recording the discharge in the Oil Record Book as required by law. In December 2018, a district court imposed the $2 million fine and put the company on probation for four years.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Eric Rothenberg, an O’Melveny partner licensed to practice law in Missouri and New York, Bob Nicksin, an O’Melveny counsel licensed to practice law in California, and Katie Sinclair, a law clerk, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2019 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.

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