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Maritime Environmental Law Update (November 2018 Edition)

November 28, 2018

As we near the end of 2018, we are providing this annual update on significant developments in regard to international environmental maritime laws and regulations. Our prior update was issued in November 2017, and can be found here. Emission reduction efforts have taken center stage during the past year, with numerous legal and technological developments to report.

International Developments

Worries About Fuel Availability Increase

The global shipping industry is bracing for a period of uncertainty following the January 1, 2020, phase in of a 0.5 per cent cap on sulfur in fuel. Analysts suggest that bunker fuel prices could spike by more than 50 percent as a result of the International Maritime Organization’s (IMO) new requirements. IMO rules currently limit the sulfur content in ships to 3.5 percent outside of areas that have tighter controls (primarily Emission Control Areas or “ECAs”). Inside the ECAs, which include the Baltic and North Seas and US and Canadian waters, a 0.1 percent limit applies. The new sulfur limit of 0.5 will take effect starting January 1, 2020, with a goal of reducing sulfur emissions from shipping by more than 80 percent.

Looking beyond 2020, the next significant step towards reducing the impact of maritime shipping on the environment likely will include the adoption of a low-carbon marine fuel standard in 2023. Such a standard is expected to present new challenges for fuel makers, including cylinder lubrication, and prevention of corrosion and excessive wear.

Many ship owners have accelerated installations of engine emissions cleaning systems ahead of stringent new sulfur rules. Vessel operators can either switch to cleaner, but more expensive, marine gasoil or install scrubbers to filter sulfur from dirtier fuel oil. Scrubber equipment can cost between one and six million dollars per ship.

It is estimated that around 700 scrubbers were installed or confirmed this year, which is nearly double the 368 reported in 2017. The number is forecast to increase to 1,735 in 2019 and remain at similar rates into 2020.

IMO Adopts Greenhouse Gas Emission Limits Goal

The IMO’s Environmental Protection Committee members have agreed to develop a multi-phase requirement to reduce greenhouse gas (GHG) emissions by 50 percent by the year 2050. The newly adopted GHG strategy provides the following targets:

  • Reduce CO2 emissions per “transport work” (tonnes times miles) by at least 40 percent by 2030, aiming for a 70 percent reduction by 2050.
  • Reduce total CO2 emissions from shipping by at least 50 percent by 2050.

These targets are intended to be consistent with the Paris Agreement, as adopted by the United Nations Framework Convention on Climate Change in 2015. The overall IMO vision includes a phase out of GHG emissions from shipping as soon as possible within this century.

Ports and Navigation Threatened by Sea Ice Melt

New research from a team of American and European scientists finds that the Antarctic ice sheet can’t endure the current pace of global warming, leading to a threefold increase since 2012 in its impact on rising seas worldwide. How quickly the Antarctic ice sheet thaws—and how much that contributes to rising seas—remains one of the biggest questions about future ocean levels, and the research finds that recent changes in the region’s ice loss are surprisingly large, with immediate impacts on ports and sea routes.

Until 2012, the Antarctic’s contribution to sea level rise had been consistent with lower-end estimates by the Intergovernmental Panel on Climate Change (IPCC), driving only minimal sea level change. However, the new research shows a realistic possibility that the Antarctic’s contribution to sea level rise will reach the upper end of global projections. That scenario projects an extra 15 centimeters (about six inches) of sea level rise on top of the IPCC’s central estimate of 60 cm (about two feet) of global sea level rise by the end of the century.

Sunken Oil Tanker Continues to Threaten East China Sea

The Iranian tanker Sanchi sank on January 14 while carrying more than 136,000 metric tons of ultralight crude oil after a collision with a Chinese cargo ship. The Sanchi burned for eight days prior to sinking in 115 meters of water. Authorities do not know how much of the cargo or its supply of bunker fuel burned up or evaporated, nor how much is leaking into surrounding waters.

US Developments

Southern California Ports Push for Greater Emission Reductions

California ports look to further burnish their emissions control strategies as they face the difficult challenge of the state’s new “zero emissions” goal. With the most feasible, cost-effective technologies having already been deployed, two paths exist to further emission reductions. One is incremental through the use of near-zero emission technologies. This would entail achieving additional reductions on top of a previous 90 percent reduction in emissions from on-road and off-road equipment. The other path is a move to zero-emissions technologies. The main hurdle here is the extreme expense of replacing current equipment, and the availability of replacement technologies. The California Air Resources Board has voiced support for transitioning to zero-emission mobile cargo handling equipment by 2030.

New Efforts Underway to Reduce Emissions at US Ports

EPA’s Office of Transportation Air Quality recently issued a report titled, “EPA and Port Everglades Partnership: Emission Inventories and Reduction Strategies,” which comes as a follow-up to the EPA’s 2016 “National Port Strategy Assessment: Reducing Air Pollution and Greenhouse Gases at U.S. Ports.” Together, the reports establish a framework for implementing air pollution emission-reduction initiatives at ports. The report also provides options to inform voluntary emission-reduction actions.

New Maritime Technologies

Hydrogen Fuel Research Efforts Continue

The use of hydrogen fuel cells in maritime power applications continues to show promise. A feasibility study conducted by Sandia National Laboratories showed that high speed ferries fitted with hydrogen fuel cells are technically possible, with no regulatory showstoppers, while providing significant benefits for operators, passengers, and the environment. New gas-based fuel systems appear to be safe; however, vessel designs will have to consider shipboard hazardous zones, structural fire protection, and fire suppression systems. Challenges remain for builders and naval architects to produce safe and viable designs that will win approval from regulatory bodies.

First Unmanned Ship Wins Approval

The UK Ship Register has signed its first-ever unmanned vessel to the flag, showing how it is adapting to the changes of the maritime industry. ASV’s C-Worker 7 will be used for work such as subsea positioning, surveying, and environmental monitoring. It can be used under direct control, semi-manned, or completely unmanned. Although such autonomous vessels are now being introduced to many fleets in both commercial and military sectors across the world, they are still relatively new in the maritime sector. ASV has designed and built more than 80 vessels that are now deployed in the service of the oil and gas, scientific, and defense sectors.

LNG Handysize Bulk Carrier Introduced

The first liquefied natural gas (LNG) powered handysize bulk carrier (with a capacity between 15,000 and 35,000 deadweight tonnage) was recently launched at Nanjing, China. Besides its environmentally friendly power plant, design, new features also include optimized hull shape, advanced coating, engine waste heat recovery, and LED lighting, resulting in 50 percent lower emissions than similar ships of the previous generation. The ship is equipped to take advantage of shore power when loading and unloading.

World’s Largest Construction Vessel Planned

Swiss offshore services firm Allseas is planning to build a vessel big enough to be able to remove the world’s largest oil and gas platforms when they reach the end of their production lives. The vessel, to be called Amazing Grace, is designed to remove the heaviest platforms in a single lift and could reduce decommissioning costs for global oil and gas producers, according to an Allseas statement. The ship would be a bigger version of Allseas’ Pioneering Spirit, which removed Shell’s Brent Delta platform in the North Sea, and would cost about $3 billion. Its length will reach 160 meters, making it about one-third longer than Pioneering Spirit.

Cruise Lines Embrace Greater Sustainability

With the rise in popularity of remote and environmentally delicate destinations such as the Galapagos, Norway, Greenland, and the Polar regions, the cruise industry is feeling added pressure to adopt sustainable practices.

Carnival is heavily investing in LNG as one of their solutions. By the end of 2018, Carnival will be the first cruise company to use LNG on the open sea and in port. Hurtigruten will be launching two next-generation explorer ships within the next two years, set to be the world’s first battery-hybrid-powered vessels.

While maritime electric power shows promise, battery energy density has tended to limit battery-hybrid systems to smaller vessels and to use in environmentally sensitive areas, and while traveling into ports. For example, the largest ferry operator in Norway has recently commissioned a new ship, Future of the Fjords, that will be powered by a diesel-hybrid system and will feature a hull that minimizes wake, minimizing shoreline erosion.

For larger ocean-going cruise vessels, battery packs are currently too big to use as a main power supply. Overall, solutions will likely need to be tailored to different cruise market segments and vessel types, as not one technology today offers a solution for environmental concerns.

Water Safety Plans Can Help Prevent Legionella

The bacterium that causes Legionella pneumonia was first identified in water circulated through shore-side air conditioning systems. However, shipboard water systems can also harbor the disease. A thorough risk assessment and a Water Safety Plan as recommended by World Health Organization’s Water Safety Guidelines can help prevent maritime outbreaks of this strain of pneumonia.

The Legionella bacterium can lie dormant in shipboard water systems for years, particularly where water is held between 20 degrees Centigrade and 50 degrees Centigrade. Transmission to humans usually results from breathing small droplets of contaminated water, usually in showers but also in whirlpools and Jacuzzis. Even the spray from decorative fountains or water features can transmit the disease. Flu-like symptoms are common, but Legionella can cause death, particularly among older people with pre-existing respiratory issues.

Ship owners can help protect themselves from Legionella exposure claims by passengers or crew by making sure they have appropriate water management controls in place, that inspection and other records are maintained, and by regularly commissioning an independent audit by a reputable marine specialist.

Security and Insurance

Generally, shipboard information technology and operational technology systems can be hacked as easily as those on shore. Security breaches have the potential to impact the safety and security of ships, ports, marine facilities, and other elements of maritime transportation systems. The IMO, through its Maritime Safety and Facilitation Committees, has prepared guidance on cyber security, with the intention of making the guidance living documents that are updated as necessary to respond to new threats. In addition, there are several new products in the marketplace that address cyber security on a variety of levels, including training and cyber security drills; cyber security incident response focused on investigation and risk minimization; risk analyses for vessels, fleets, and facilities; and secure connectivity products.

In this age of cybercrime, 3-D printers are now being used to copy security devices and cover tracks by replicating locks and seals. Because of the evolving nature of maritime crime, all-risk insurance policies (as opposed to named peril coverage) are increasingly becoming the industry choice. Cargos can be stolen by pirates and thieves, but they can also simply vanish without a trace. Courts in the US are generally loathe to impose exclusions on all-risk policies, holding that insurers should name the particular exclusion in the policy or they may waive the argument at a later date.

Litigation Developments: Tugboats, Not the Barges They Tow, Are Liable for Releases

Two dumb barges owned by Third Coast Towing were under tow of a tug owned by Nature’s Way Marine when the barges allided with a bridge, resulting in the spill of 7,000 gallons of oil into the Mississippi River. Nature’s Way spent over $2.99 million on cleanup, and the government entities spent over an additional $792,000 and then sought recovery from Nature’s Way. Nature’s Way requested that it be relieved of any obligation to reimburse the government. However, those claims were denied by the National Pollution Funds Center (NPFC) based upon its determination that Nature’s Way was an “operator” of both the tugboat and the oil-discharging dumb barge at the time of the collision.

The case ended up in federal court, where a Fifth Circuit panel held that the ordinary and natural meaning of an “operator” of a vessel under the federal Oil Pollution Act would include someone who directs, manages, or conducts the affairs of the vessel. Since Nature’s Way had exclusive navigational control over the barges, it was “operating” the barges, based on the ordinary and natural meaning of the term.

Enforcement Actions and Civil Penalties

Interpol Conduct First Global, Mult-Agency Enforcement Effort

On November 13, 2018, INTERPOL announced that it had concluded a month-long enforcement swing with over 5,200 inspections by 276 participating agencies across 58 countries, leading to charges against over 500 corporate entities primarily for discharge events and air emissions in excess of applicable limits. The “30 Days at Sea” enforcement effort was devised by the UN Environment Program and INTERPOL’s Pollution Crime Working Group, which includes environmental, maritime, national police force, Coast Guard, and customs and border control officials who share surveillance and other data to improve detection of maritime crimes, especially in remote and poorly monitored areas. It is expected that the use of such join inspection efforts will increase over the coming decade.

$2 Million Penalty for False Records, Oil Disposal

Sea World Management & Trading Inc. pleaded guilty to felony allegations that oil cargo residue and other substances were dumped illegally from the vessel Sea Faith into the Caribbean Sea and Gulf of Mexico. In addition to the fines, the company was placed on three years’ probation.

The ship’s master is alleged to have ordered crews to dispose of a number of pollutants improperly and without correct documentation. He also ordered crew members to illegally discharge oily waste from various locations on the vessel’s cargo/deck spaces. The ship’s master was sentenced to six months in prison and two years’ probation, and ordered to pay a $2,000 fine.

In addition to the total fine, the company must implement an Environmental Compliance Plan on vessels it operates.

Japanese Shipper to Pay $1 Million for Ocean Dumping

A Japanese shipping company has been sentenced for obstruction of justice and falsifying records, and was forced to pay $1 million over allegations it improperly dumped oily wastes into the ocean, according to the US Department of Justice.

Nitta Kisen Kaisha Ltd. operated the Atlantic Oasis, which was inspected by the US Coast Guard in May 2017. During that inspection, a junior crew member informed officials that hoses used to improperly discharge the waste had been hidden. The company was later accused of falsifying the Oil Record Book.

Allegedly, the ship’s master instructed crew members to “install hoses on the [waste oil tanks] and to drain a mixture of water, oil and sludge from the tanks into buckets.” Those buckets were then dumped overboard, according to court filings. About 2,000 liters of the pollutant mixture were thrown into the Pacific Ocean.

In addition to the fine, Nitta was placed on probation for three years, with requirements to implement a comprehensive compliance plan. The chief engineer was placed on probation for one year and ordered to pay a fine of $5,500.

US Government Sues Fish Processor

The owner of a damaged ship full of fuel, oily wastewater, and 130,000 pounds of contaminated fish has been sued in Alaska federal court, with the US government claiming the fish processor illegally risked discharging pollutants in Captain’s Bay in the Aleutian Islands.

Klawock Oceanside Inc., which operated the floating seafood processing ship known as the M/V Akutan, allegedly walked away from its environmental and financial responsibilities, and forced the US Coast Guard to sink the ship after it paid outside contractors at least $1.5 million to alleviate the “substantial” threat of discharge of fuel and oily water from the vessel into the navigable waters of the bay, according to the government.

The suit also names Safe Harbor Pollution Insurance Group, part of the Falvey Insurance Group headquartered in North Kingstown, Rhode Island, saying it has insured the ship and provided evidence of financial responsibility and guarantees related to the Akutan’s marine oil pollution liabilities.

The government brought the suit on behalf of the Oil Spill Liability Trust Fund, pursuant to the OPA, to recover removal costs and damages incurred. The US is seeking declaratory judgment against the Akutan defendants for removal costs and damages, plus interest and attorneys’ fees.

Oil Bilge Discharges Result in $400,000 Penalty

The US Department of Justice entered into a consent decree with Challenge Fisheries, LLC, Quinn Fisheries, Inc., Charles Quinn II, and Charles Quinn III, under which the company will pay $414,000 in penalties and improvements to resolve federal Clean Water Act claims stemming from bilge water and fuel oil discharges from the commercial fishing vessel Challenge.

The defendants will be required to repair their vessels to reduce the generation of oily bilge water and provide crew and management training on the proper handling of oily wastes, including proper documentation.

$4 Million Fine for Ballast Water Dumping

Avin International Ltd. and Nicos I.V. Special Maritime Enterprises were fined $4 million after pleading pleaded guilty to dumping oil in the waters of two Texas ports. The companies will serve a four-year probation term, and will be required to establish an environmental compliance plan and have an independent auditor inspect the companies’ vessels.

Both companies also pleaded guilty to one count of obstruction of an agency proceeding, one count of failure to report discharge of oil under the Clean Water Act, and three counts of negligent discharge of oil under the Clean Water Act.

In addition, the master of the ship and the chief officer each pleaded guilty to one count of making a material false statement, and each face up to five years in prison when sentenced. A sentencing date has not been set.

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 New York, and Bob Nicksin, an O’Melveny counsel 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.

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