Maritime Environmental Law Update – July 2017

July 25, 2017

As we pass the half-way point in 2017, we are providing this update on significant developments in regard to international environmental maritime laws and regulations, including increasingly stringent limits on air emissions and other discharges, innovation in environmental controls technology, maritime enforcement cases, and related issues.  Our prior update was issued in January 2017 and can be found here.

International Developments

IMO Sulfur Restrictions Will Spur Industry Changes

With the new International Maritime Organization (IMO) fuel sulfur standard of 0.5 per cent or less to take effect in 2020 (replacing the current 3.5 per cent standard), many operators are switching to lower-sulfur fuels, a change that will avoid capital expenditures for sulfur scrubbers, but which will incur greater operating costs as a result of higher fuel costs.

Scrubbers are expected to cost about $10 million for large container ships and $5 million for medium-sized ships (exclusive of ongoing operation expense), but would allow continued use of cheaper bunker fuel.

Canadian Ban On Tanker Traffic Being Considered

The Canadian Parliament is considering legislation that would prohibit oil tankers carrying crude oil and other persistent oils as cargo from stopping, loading, or unloading at ports or marine installations in northern British Columbia. 

The ban would apply to tankers carrying such cargos in quantities greater than 12,500 metric tons, and would apply to such products as partially upgraded bitumen (produced from oil sands mines), synthetic crude oil, petroleum pitch, slack wax, and Bunker C fuel oil.

The ban, if adopted, could significantly impact logistics, including the ability to move products from the Alberta oil sands region to overseas markets.

China Imposes Sulfur Restrictions

The Chinese government has imposed emission control areas (ECAs) at several major shipping ports, along with a sulfur cap of 0.5 per cent (in line with above-described IMO standard).  The regulation applies to all ships navigating, anchoring, and operating within the ECAs with the exception of military ships, fishing boats, and ships and boats used for sporting purposes.

Eleven ports within the ECAs are designated “key ports,” including Shenzhen, Guangzhou and Zhuhai in the Pearl River Delta, Shanghai, Ningbo-Zhoushan, Suzhou and Nantong in the Yangtze River Delta, Tianjin, Qinhuangdao, Tangshan and Huanghua in the Bohai-rim Waters.  Starting in 2017, ships calling at the eleven key ports must use fuel with a sulfur content not exceeding 0.5 per cent while at berth.  Starting in 2018, the requirement will be extended to all ports located within the ECAs, and to all other areas within the ECAs in 2019.

Ships are required to switch to compliant fuel within one hour of arriving at their berth and burn compliant fuel until not more than one hour prior to departure. 

During 2019, authorities will evaluate the impact of the ECA requirements and may implement additional emission reduction measures, including a limitation on sulfur in fuel of 0.1 per cent, an enlargement of the emission control areas, or other measures and initiatives.

Although the three regions are designated domestic ECAs, there is no link between the Chinese regulation and the MARPOL Annex VI requirements for ECAs.

Ship Breaking News

Ship owners worldwide sent 862 large ocean-going vessels for scrapping in 2016, with 668 ending up in Bangladeshi, Indian or Pakistani yards, despite international efforts to restrict unsafe ship breaking practices, according to figures the NGO Shipbreaking Platform published Feb. 1, 2017.

German and Greek ship owners were among the most frequent users of Asian breaking yards, according to the publication.  Of 100 German-owned ships sold for scrap in 2016, 98 were beached in south Asia, as were 104 of 113 obsolete Greek-owned vessels.

Under the 2013 European Union (EU) Ship Recycling Regulation No. 1257/2013, obsolete vessels bearing the flags of member countries should be broken up only in approved yards that meet minimum environmental and worker safety standards.  The European Commission, the EU’s executive arm, has published a list of approved yards, but that list only covered yards within the EU.  The commission is expected to publish a follow-up list of non-EU yards during 2017.

Loss of Sea Ice Means Opportunities and Challenges

Recent acceleration in air and sea temperatures has caused scientists to rethink estimates of sea-ice loss.  Previously, scientists targeted 2070 as the year the Arctic Ocean might be ice‑free during the summer months.  However, current estimates have moved that date up to as early as 2040.

An ice-free Arctic ocean would allow merchant vessels to transit between the North Atlantic and the North Pacific via the Arctic, saving time and money.  On the other hand, while the melting of free-floating sea ice may not have a significant impact on ocean levels, the loss of the Greenland ice cap, and ice on other islands, could cause sea levels to rise about 20 feet, dramatically impacting or closing ports and inland waterways.  The insurance industry is evaluating coverage implications

US Developments

US Congress Considers Maritime Legislation

The Commercial Vessel Incidental Discharge Act (S.168/H.R. 1154), a bill that would authorize the US Coast Guard to set national ballast water standards based on the National Invasive Species Act, rather than under the Clean Water Act, has been introduced in both houses of Congress.  The bill would relegate the US Environmental Protection Agency (EPA) to an advisory role in setting limits for all incidental discharges.

The bill is supported by maritime interests, who would prefer a regulatory scheme established by one federal agency, and not two federal agencies and a variety of states with potentially conflicting requirements, as currently exists. 

Under the bills, the Coast Guard regulations would supersede existing ballast water discharge limits set by the EPA under the National Pollutant Discharge Elimination System permitting program for vessels that are at least 79 feet long, and more stringent standards that some states like California, Washington, and Oregon have imposed.  The bills also would completely exempt recreational and fishing vessels that are less than 79 feet in length.  If passed and signed by the President, it is expected that about 58,000 vessels would be affected.

Attorneys general from ten states—New York, California, Illinois, Maine, Massachusetts, Michigan, Oregon, Rhode Island, Vermont, and Washington—have spoken out against the legislation, which they say preempts state authority and takes away the permitting authority previously delegated to them by the EPA under the Clean Water Act.

The bills have been referred to committees for consideration, with no action having taken place for nearly four months. 

New Maritime Technologies

Ballast Water Treatment

The US Coast Guard has announced its first approval of ballast water treatment systems (BWTS).  Progress on such approvals has been slow, and has made ship owners and operators reluctant to install expensive equipment without knowing if the same would be ultimately approved by the Coast Guard.  It is expected that the pace of BWTS installations will increase now that the approved systems are available.

However, selection of a BWTS is still dependent on vessel size, the trade involved, the operational waters, and several other variables.  As more BWTS are approved, ship owners and operators will have more options and fewer reasons for delaying installations.

Use of LNG as a Maritime Fuel Increases

Hyundai Heavy Industries Group reported a $240 million order for the world’s first liquefied natural gas (LNG) fueled Aframax tankers.

The order is to build four 114,000 DWT Ice-Class IA Aframax tankers for Sovcomflot, Russia’s state-owned shipping company.  The vessels are said to be the world’s first LNG-fueled Aframax tankers, and will measure 250 meters in length, 44 meters in width and 21 meters in height.  They are scheduled to be delivered by the third quarter of 2018, and to be chartered to Shell.

According to the shipbuilder, by running on LNG, the tankers can emit 90 per cent less sulfur oxides (SOx), 80 per cent less nitrogen oxides (NOx), 15 per cent less carbon dioxide (CO2) along with 50 per cent reduced engine noise.

In other LNG-related news, ports in Vancouver, Los Angeles, and Tacoma are all studying whether they can profit from supplying liquefied natural gas to ships, to replace bunker fuel that is expected to become more expensive in coming years due to sulfur limits.  About 97 ships worldwide are now powered by LNG with an additional 91 on order.  By 2020, the number may rise to around 250, excluding LNG carriers and inland waterway vessels.

Most LNG-fueled ships now in use travel shorter routes, such as in the Baltics or between Florida and Puerto Rico.  However, investment by the ports in heftier infrastructure will allow deep-sea ships to obtain the fuel they require for longer trips. 

The International Gas Union (IGU) has released a report stressing the need for LNG‑fueled vessels and highlighting the role that national governments can play in supporting operators in the shift towards cleaner burning fuel.  Future fuel price uncertainty, difficulty securing financing and the costs involved in adopting new technologies are among the main issues concerning the IGU, which is advocating clear and consistent governmental policies toward LNG research and development funding. and more available investment financing.

Risk of Cyber Attacks

The maritime industry is uniquely susceptible to risk of cyber attacks on vessels at sea.  Publicized incidents include the hacking of a French naval contractor resulting in release of design specifications for a submarine under construction, and release of more than 134,000 personnel records of Navy sailors.  Future attacks may be aimed at determining the existence of sensitive or valuable cargoes—down to the container number and location—and even taking over control of the ship itself.  Military and government maritime contracts have increasingly mandated greater protection for shipboard computers and databases.

Enforcement Actions and Civil Penalties

Oceanic Ilsabe Limited and Oceanfleet Shipping Limited

Two Greek companies must pay $2.7 million for their roles in dumping oily waste into the Atlantic Ocean off the US Southeast coast and covering up the illegal activity, according to the Justice Department.  Oceanic Ilsabe Limited and Oceanfleet Shipping Limited were the owner and operator, respectively, of the M/V Ocean Hope, from which illegal discharges occurred in July 2015. 

Two of the ship’s officers, Rustico Yabut Ignacio and Cassius Flores Samson, were sentenced to jail for their roles in dumping the waste into the ocean and making false statements to the US Coast Guard.  Ignacio, the chief engineer, was sentenced to nine months in jail, followed by a year of supervised release.  Samson, the second engineer, received a 12-month sentence, followed by a year of supervised release.  Oceanic Ilsabe was fined $650,000 and must pay another $250,000 to Gray’s Reef National Marine Sanctuary Foundation in Savannah, Georgia.  Oceanfleet Shipping was fined $1.35 million and must pay the same foundation $450,000.

Oil Shipping Co. Loses Appeal of $20M Spill Case

The US Fifth Circuit Court of Appeals backed a lower court’s decision allowing one vessel owner to obtain contribution from another vessel owner to pay for cleanup under the Oil Pollution Act (OPA).

The case resulted from the collision of two barges in the Mississippi River.  The M/V Hannah C. Settoon was towing crude oil tank barges and the M/V Lindsay Ann Erickson was towing loaded grain barges.  Although the barges were in radio contact, a collision occurred and caused an oil spill that closed a portion of the river for two days.

The Court said that OPA grants to an OPA responsible party the right to receive contribution from other entities that were partially at fault for an oil discharge.  Settoon was named the strictly liable “responsible party” by the Coast Guard pursuant to the OPA, and it carried out its statutory responsibilities related to cleanup, remediation, and third-party claims for damages.  Settoon subsequently filed limitation of liability proceedings in the Eastern District of Louisiana, after which Marquette also filed a claim.  Settoon brought a counterclaim against Marquette seeking contribution.

The District Court determined that both parties were at fault.  The Court apportioned 65 per cent of the fault for the collision to Marquette, and 35 per cent to Settoon, a decision subsequently ratified by the Appellate Court.

US Government Seeks Reimbursement Of $1.6 Million In Response Costs

The US is suing Sound Developer owner John Mehelich to recover the $1,657,085.53 cost incurred by the government in salvage and cleanup costs associated with the ship’s discharge of oil into the waters of the Cordova Small Boat Harbor.  The suit comes partially under the Oil Pollution Act of 1990, a strict liability statute under which defenses are limited to acts of God, solely by an act of war, or solely by the act or omission of a third party.

The government alleges that although Mehelich initially took steps to address the oil release, he later “abandoned the effort and, despite repeated requests from the United States Coast Guard, refused to cooperate and complete the salvage and cleanup operation,” meaning the Coast Guard was forced to fund salvage and cleanup itself, according to the government.

Mehelich bought the 117 feet-long Sound Developer, a steel-hulled landing craft, at an auction in 2004, and moored it in the Cordova Small Boat Harbor.  The ship later became a disposal location for allegedly illegal dumping of waste oil and other debris.  In 2009, the ship sank and spilled oil into the harbor, according to the government.  When Mehelich failed to address the oil spill, the Coast Guard hired a salvage company to address the situation. 

Engineers for T/V Green Sky Convicted

Two chief engineers for the vessel T/V Green Sky received felony convictions for their role in illegally discharging oily bilge waste water.  Herbert Julian was convicted of two felony counts under the Act to Prevent Pollution from Ships (APPS) and for obstruction of justice.  Panagiotis Koutoukakis was convicted of two felony counts, one under the APPS and the other for falsifying records.  The jury heard evidence that oily bilge waste water was regularly pumped directly overboard, and none of the discharges were disclosed as required.  The oil record book was falsified to cover up the illegal discharges.  While several of the discharges took place in international waters, at least two discharges occurred within the Exclusive Economic Zone of the United States.

Princess Cruise Lines Pays Penalty

Princess Cruise Lines was sentenced to pay a $40 million penalty for crimes involving intentional vessel pollution, including illegal dumping of oil contaminated waste and falsification of official logs.  This is believed to be the largest-ever penalty for such crimes in the US.  A newly hired on-board engineer became a whistleblower after discovering evidence of a magic pipe used to facilitate the oil discharge.  During subsequent inspections by both the British Maritime and Coastguard Agency and the US Coast Guard, certain crew members attempted to conceal the illegal practices by lying to investigators.  Princess Cruise Lines will be on probation for five years.  The whistleblower was awarded $1 million by the US District Judge.

Owners And Operators Of The M/T Etc Mena Plead Guilty

Ship manager Thome Ship Management PTE Ltd. and owner Egyptian Tanker Co. pled guilty to violating the Act to Prevent Pollution from Ships and obstructing justice, and will pay a $1.9 million penalty.  In addition to the penalty, the companies will perform certain coastal and marine restoration efforts at three National Wildlife Refuges along the Gulf of Mexico in East Texas.

The US Coast Guard became aware that dirty water and garbage had been dumped from the M/T Etc Mena in April 2016, due to a tip from a crew member.  The Coast Guard also determined that false documents were provided during a subsequent inspection in Port Arthur, Texas.

The companies will be on probation for four years and will be required to adhere to an auditor-implemented and court-monitored compliance plan.

In addition to paying the penalty, the companies will undertake coastal and marine restoration efforts at three National Wildlife Refuges along the Gulf of Mexico in East Texas, near where the ship stopped at ports.

California Agency Levies Fines

The California Air Resources Board has fined three shipping companies for violations of the state’s air quality regulations.

Fines of approximately three-quarters of a million dollars were imposed on Seaside Transportation Services, Penny Newman Grain Co., and CEMEX Construction Materials Pacific for violations of state regulations governing diesel emissions from on-shore, heavy-duty cargo moving equipment.  About forty per cent of the fines will be used to reduce emissions from school buses, with the rest going to the state’s general air pollution control fund.

Shell Oil’s Drilling Contractor Pleads Guilty

Noble Corp. was sentenced to pay $12.2 million in fines and community payments and serve four years’ probation for violations of environmental laws involving its drilling ship Discoverer

Numerous operations problems plagued the Discoverer during the 2012 drilling season, including an inoperable oil-water separator.  As a result, the crew used a bucket and hose system to discharge oily water overboard, a situation that was discovered when an oil sheen appeared around the ship while in port in Unalaska.

Other violations involved improper operation of the Discoverer’s engine and propulsion systems.  A portion of the penalty, $512,000, will go to the whistleblower who provided evidence to the investigators. 

Russia Ordered to Pay Penalty

A five-member tribunal of the Permanent Court of Arbitration has ordered Russia to pay the Netherlands $6.2 million for seizing a Greenpeace ship that was protesting a Russian oil platform in the Arctic Ocean.

The Arctic Sunrise was seized by Russian authorities while flying the Dutch flag in September 2013, after the crew sailed to Russian commercial waters and tried to scale the Prirazlomnaya offshore Russian oil platform in the Barents Sea.  Russia boarded the Arctic Sunrise and arrested 28 Greenpeace activists and two freelance journalists.

Russia initially challenged whether binding decisions on disputes could be imposed under the United Nations Convention on the Law of the Sea, but the tribunal ruled that it had jurisdiction to bring mandatory settlement procedures.

There has been no word on whether the Russian government intends to pay amount specified by the tribunal.    Unsubscribe

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. Bob Nicksin, an O’Melveny counsel licensed to practice law in California, and Eric Rothenberg, an O’Melveny partner licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2017 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.