Tuesday, March 29, 2011

Appeals Court Upholds California's Low-Sulfur Maritime Fuel Regs

A federal appeals panel on Monday upheld a lower court ruling that allowed California air quality regulators in 2009 to impose regulations requiring commercial maritime vessels headed for California ports to use low-sulfur fuel within 24 miles of the state's coast.

The Ninth Circuit Court of Appeals ruled that despite California only having legal jurisdiction over coastal waters out to three miles, the California Air Resources Board (CARB) maritime fuel-use regulations that were approved April 19, 2009 – designed to dramatically reduce air pollution from ocean going vessels – can legally be enforced by the state out to 24 miles.

"In the end, we acknowledge the unusual characteristics and circumstances of the [CARB regulations]," the Ninth Circuit said in its ruling. "We are clearly dealing with an expansive and even possibly unprecedented state regulatory scheme. However, the severe environmental problems confronting California – especially Southern California – are themselves unusual and even unprecedented."

The 2009 regulations were a rewrite of 2007 CARB regulations that sought to address marine-generated diesel emissions by setting specific emission levels permitted by ocean-going vessels. The 2007 regulations were challenged in court by the Pacific Merchant Shipping Association (PMSA) and eventually determined by the courts to be preempted by the federal Clean Air Act.

In an effort to work around the court ruling, CARB rewrote the regulations to specify the type of fuel to be used by ocean-going vessels, instead of specifying set emission standards as it did in 2007.

The PMSA, which represents nearly all of the shipping lines calling at North American West Coast ports, sued CARB again in late-April 2009 to block implementation of the newly rewritten fuel regulations arguing that the state does not have jurisdiction beyond the three-mile coastal zone. While not objecting to the environmental goals of the regulations, the PMSA also argued that more universal nationwide and international regulations were the more appropriate way to tackle ocean-going vessel pollution and prevent, in the PMSA's opinion, a patchwork of regulations that differ from state to state.

The day before the CARB regulations were set to go into effect on July 1, 2009, the US District Court for the Eastern District of California turned down the PMSA request for an injunction and request for summary judgment. CARB subsequently implemented the regulations as planned.

In mid-July, 2009, the PMSA filed with the District Court seeking to modify the court's ruling and allow the trade group to seek an immediate appeal. The lower court approved the PMSA modification, citing that there was "substantial ground for difference of opinion" within the case. After nearly a year of preparatory legal action, the Ninth Circuit heard arguments on the appeal from both sides in early December 2010.

In their ruling issued Monday, the appellate panel found that the PMSA failed to support its two main points: that the 2009 CARB regulations are preempted by the federal Submerged Lands Act of 1953, and that the regulations are preempted by the US Constitution's Commerce Clause, as well as, general maritime law.

In response to the Ninth Circuit ruling, PMSA President John McLaurin expressed his disappointment with the ruling.

"The state’s requirements on how vessels must be operated 24 nautical miles off-shore, when the state’s jurisdiction ends only three miles beyond the coastline, remains a unique attempt to expand its authority. The ruling handed down today by the Ninth Circuit panel is without precedent and only reaffirms that this is a novel application of state authority."

McLaurin added that the maritime industry will meet all state, federal and international laws and will continue "working in earnest" to reduce environmental impacts.

"Even after this ruling," McLaurin said, "it is only through the application of consistent and harmonized federal and international standards that meaningful and sustainable emission reductions from ships engaged in international trade on the high seas will be obtained.”

In the end, though, the nearly four-year effort to impose California-specific standards on ocean-going vessels may be somewhat of a short-lived victory.

Almost a year to the day before Monday's ruling, the International Maritime Organization (IMO) approved a Canada/US joint proposal to set up an Emissions Control Area (ECA) along the East and West coasts of both countries under Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL). This treaty, among other things, specifies fuel sulfur-content for ocean-going vessels. MARPOL Annex VI regulations are now accepted as the base minimum for permissible vessel fuel quality and air emissions by 136 signatory countries representing 98 percent of the world’s shipping tonnage. The Annex VI regulations apply to all vessels traveling into MARPOL signatory-member waters and to all vessels flying under signatory nation flags. Even a non-signatory nation’s vessel entering the national waters of a MARPOL signatory state are required to adhere to the Annex VI regulations.

The 2009 CARB regulations upheld Monday currently require ocean-going vessels headed to California ports to use fuel with sulfur content between 0.3 percent and 1.5 percent when within 24 miles of the coast. This standard drops to 0.1 percent as of January 1, 2012. The CARB regulations also do not apply to vessels transiting within 24 miles of the coast that are not calling at California ports.

When the IMO's North American ECA goes into effect in August 2012, all ocean-going vessels within the 200-mile ECA will be required to use fuel with no more than 1 percent sulfur. This drops to 0.1 percent on January 1, 2015.

Even the Ninth Circuit noted in its ruling that the CARB regulations are most likely to be superseded by the kind of universal solution originally argued for by the PMSA.

"The [CARB regulations] also contain a sunset clause, and it is reasonable to predict," said the court, "that once the heightened standards established by the ECA go into effect, the [CARB regulations] will be terminated."

While the aggregate costs to the shipping industry to comply with the CARB rules will be large, the Ninth Circuit pointed out that there was no dispute among the litigants that the health benefits to the residents of the state will also be dramatic.

During testimony, CARB estimated that compliance with the CARB fuel standards would cost vessel operators $30,000 per California port “call,” amounting to an industry-wide aggregate incremental cost of approximately $360 million annually and $1.5 billion through the end of 2014. The court noted, however, that CARB found that individual cost per container would amount to about $6 per TEU.

On the other hand, CARB also testified that their fuel regulations would prevent 300 premature deaths each year in the state and 150,000 cases of respiratory illness.