O’Melveny Worldwide

Maritime Environmental Law Update (March 2023 Edition)

March 13, 2023

We continue to follow significant new developments in international and US environmental maritime law and technology, including Environmental, Social and Governance (ESG) policy and regulatory developments. The following updates our September 2022 alert, which can be found here.

International Developments

EU Regulators Continue to Focus on Maritime Sector Emissions

In October 2022, the European Parliament adopted the “Fit for 55 in 2030 package,” which aims to reduce greenhouse gas (GHG) emissions in the transportation sector by at least 55% by 2030 compared to 1990 levels. The package includes the European Union’s (EU) first concrete emissions targets for large ships. Ships weighing more than 5,000 gross tons will be required to reduce GHG emissions 2% by 2025, 20% by 2035, and 80% by 2050 compared to 2020 levels. By 2030, large container and passenger ships will also be required to use on-shore power supply while at berth in EU ports. While the package does not contain penalties for noncompliance, the EU Parliament indicated that it favors introducing penalties in the future.

Additionally, in December 2022, the European Parliament, the Council of the European Union, and the European Commission reached an agreement on including the maritime transport sector in the EU’s Emissions Trading System (ETS). The proposal, which has not been formally approved, would require ships weighing more than 5,000 gross tons to purchase and surrender emissions allowances equivalent to emissions for all or a half of a covered voyage, depending on whether the voyage was between two EU ports or an EU and a non-EU port. The requirements are proposed to be phased in from 2024 to 2026. Beginning in 2024, covered vessels would be required to surrender allowances equivalent to 40% of their verified emissions, with the amount increasing to 70% in 2025 and 100% in 2026.

ESG Reporting Obligations Ramp Up

The EU Corporate Sustainability Reporting Directive, which will become fully effective next year, will require most large maritime shipping companies to report on GHG emissions and a host of other ESG factors. A comparable reporting regime is already in effect for firms with offices in German ports and at least 3,000 employees in Germany, with a focus on key environmental and labor stewardship down the company supply chain. The German law, called the Act on Corporate Due Diligence Obligations in Supply Chains, is subject to both governmental and citizen enforcement and will become applicable to small companies (with at least 1,000 employees in Germany) in 2024.

Major shipping companies also continue to strengthen their ESG commitments. In its 2022 Sustainability Report, shipping giant Maersk described its progress toward achieving emissions targets of 50% reduction by 2030 (compared to 2020 levels) and net-zero emissions by 2050. Last year, Maersk participated in developing the Science Based Targets initiative (SBTi) guidance for the maritime transport sector, which established a 1.5°C pathway to guide short-term emissions targets in the industry. Maersk and other industry participants will submit proposed emissions targets for validation with the SBTi later this year. Maersk’s Sustainability Report also includes targets to achieve 100% supplier commitment to Maersk’s Supplier Code of Conduct by 2024, 40% of management and leadership positions held by women by 2025, and 30% of executive positions held by persons of diverse nationality by 2025.

IMO Moves Closer to a Zero Emissions Target

The latest meeting of the International Maritime Organization’s (IMO) Marine Environmental Protection Committee (MEPC79) took place in London in December 2022. At the meeting, a large majority of countries spoke in favor of adopting a target of zero emissions in the global shipping industry by 2050 (the “Zero by 2050” goal). Out of 175 member states at MEPC79, only 10 opposed strengthening the IMO’s current climate targets, which aim for a 50% emissions reduction by 2050. The MEPC will develop and issue a revised set of climate targets at its 80th meeting (MEPC80) in July 2023. The new targets will likely include the Zero by 2050 goal. Questions remain about whether the IMO will also enact more stringent shorter-term targets for 2030 and 2040, which could be critical for incentivizing the continued development and deployment of emissions reduction technologies across the industry.

US Developments

Biden Administration Publishes Maritime Decarbonization Strategy

In January 2023, the US Department of Energy published an updated decarbonization strategy, which includes policy measures aimed at reducing GHG emissions from the maritime sector. The strategy focuses on incentivizing research and development activities for zero-emission shipping technology, including alternative fuels and propulsion systems. It also calls for subsidies for vessel conversions and assistance for ports to install needed infrastructure, including the Port Infrastructure Development Program for funding cold-ironing and charging facilities. Other priorities include promoting electric and hybrid options for small vessels, operational efficiency improvements, and onboard carbon capture systems. The strategy acknowledges that the maritime sector accounts for only 3% of the total US transportation sector emissions, but the maritime industry’s unique operational requirements make it especially challenging to decarbonize.

Environmental Groups Sue EPA Over Ship Discharge Regulations

In February 2023, the Center for Biological Diversity and Friends of the Earth sued the US Environmental Protection Agency (EPA) on claims that EPA failed to timely establish discharge regulations for oceangoing vessels. The plaintiffs argue that EPA violated the Vessel Incidental Discharge Act of 2018, which required EPA to establish standards for ballast water and other incidental discharges by December 4, 2020. The complaint focuses on invasive species, arguing that the regulations are needed to prevent the introduction of non-native plants and animals and harmful algae from ships’ ballast tanks, which often carry water for thousands of miles. EPA previously said that it would publish the required regulations in March 2021, but after multiple delays, the agency now predicts that the regulations will not be published until late 2024. The lawsuit seeks an order directing EPA to implement the final regulations within 60 days. The case is Center For Biological Diversity et al. v. Regan et al., case number 3:23-cv-00535, in the US District Court for the Northern District of California.

New Maritime Technologies

Norwegian Shipping Company Commissions Two Hydrogen Ferries

Norwegian shipping company Torghatten Nord recently commissioned two hydrogen ferries from The Norwegian Ship Design Company. The ferries, which are expected to be delivered at the end of 2024, will serve Norway’s longest ferry route across the Vestfjord. They will each carry 599 passengers, 120 cars, and 12 trucks, and will be powered by PowerCell’s Marine System 200 fuel cells. The deal comes in the wake of Norway’s new requirement that all new ferries across the Vestfjord be emission-free and run predominately on hydrogen. PowerCell expects that the demand for hydrogen-powered vessels will further increase as the EU ETS begins to apply to the maritime sector.

UK Ports Group Unveils US$2.4 Billion Sustainability Plan

Associated British Ports (ABP), which owns 21 ports around England, Wales, and Scotland, unveiled a new green growth and sustainability plan. ABP will invest US$2.4 billion in green infrastructure and equipment, including US$724 million to decarbonize existing infrastructure and equipment and US$1.6 billion to develop new infrastructure and facilities to support customers transitioning to zero emissions technology. ABP reports that it reduced its carbon footprint by 38% between 2014 and 2021, and the new sustainability plan will help it achieve net zero emissions by 2040. Goods worth approximately US$180 billion pass through ABP’s ports each year, including the Port of Southampton, which is the UK’s largest export port.

Singapore Issues New Emissions Rules for Harbor Craft

Beginning in 2030, all new harbor craft operating in Singapore’s port must be fully electric, capable of using B100 biofuel, or compatible with net-zero fuels such as hydrogen. By 2050, the Maritime & Port Authority of Singapore (MPA Singapore) will require that all harbor craft operate with net-zero emissions. MPA Singapore is also supporting a pilot program for the port’s first fully-electric ferry and will launch a charging station plan to support electric vessel operations by 2025. Many modern diesel engines are already capable of using B100 biofuel, so Singapore’s 2030 standards may not require significant operational changes, but the shift to net-zero emissions by 2050 will push vessel operators toward electric vessels and vessels using alternative net-zero fuels like hydrogen.

Italian Shipbuilder Fincantieri Floats its First LNG Cruise Ship

On March 8, 2023, Italian shipbuilder Fincantieri floated the under-construction Sun Princess, a 1,133-foot cruise ship to be fueled by liquefied natural gas (LNG), in Monfalcone, Italy. The vessel is the first of two cruise ships being built by Fincantieri for Carnival Corporation’s Princess Cruises, and will be followed by a sister ship due for delivery in 2025. The Sun Princess will have an LNG capacity of 4,000 cubic meters, allowing for nearly nine days of continuous sailing. Carnival Corporation was the first cruise line to introduce large LNG-fueled cruise ships under its Aida brand in 2018, and it continues to build out its LNG fleet with this most recent order. Disney Cruise Line and MSC Cruises have also begun using LNG-fueled vessels built by Meyer Werft and Chantiers de l’Atlantique, respectively.

California's First Electric Ferry Scheduled to Begin Operation in 2024

California-based Green Yachts has been commissioned to transform the Angel Island, a 65-foot ferry operating in the San Francisco Bay, into the first zero-emission electric ferry in California. The vessel carries up to 400 passengers between the city of Tiburon and Angel Island, and its conversion to electric propulsion is expected to be complete by 2024. California’s Pacific Gas and Electric Company, through its Electric Vehicle Fleet Program, has partnered with the project to increase electricity transmission to support the installation of charging infrastructure at the ferry terminal. Last year, the California Air Resources Board (CARB) revised its Commercial Harbor Craft (CHC) Regulation, which will impose new emissions requirements for certain vessels operating in the state’s harbors. We discussed the CHC Regulation in our prior alert.

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. John Rousakis, an O'Melveny partner licensed to practice law in New York, Eric Rothenberg, an O'Melveny of counsel licensed to practice law in New York and Missouri, and Chris Bowman, an O’Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2023 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.