Action Item: Violators of Emission Control Area requirements face hefty penalties under the Environmental Protection Agency's new penalty policy. Owners and operators of vessels operating in the North American and U.S. Caribbean Sea Emission Control Areas are encouraged to review their procedures and operations to ensure compliance with MARPOL Annex VI and the Act to Prevent Pollution from Ships.
The Environmental Protection Agency ("EPA") published a policy for assessing civil penalties for violations of the North American and U.S. Caribbean Sea Emission Control Area ("ECA") fuel sulfur standards on January 15, 2015. The policy is effective immediately and will be used by the EPA in calculating penalties in enforcement actions for violations of ECA fuel sulfur standards under the Act to Prevent Pollution from Ships ("APPS"), which implements Annex VI of the International Convention for the Prevention of Pollution from Ships ("MARPOL"). The policy can be found at www2.epa.gov/sites/production/files/2015-01/documents/marinepenaltypolicy.pdf.
Vessels subject to MARPOL Annex VI are required to comply with fuel oil sulfur limits while operating in any of the four ECAs worldwide, including the North American and U.S. Caribbean Sea ECAs. Effective January 1, 2015, the maximum fuel oil sulfur limit was reduced from 1.00% (10,000 ppm) to 0.10% (1,000 ppm) in all four ECAs. As described in our recent article, www.blankrome.com/siteFiles/Mainbrace-Jan15.pdf#page=9, the EPA and U.S. Coast Guard have been ramping up their coordinated inspection and enforcement efforts to monitor compliance with the sulfur emissions restrictions and we expect to see significant and costly investigations and penalties in the future.
Pursuant to APPS, the EPA may impose a civil penalty of up to $25,000 per violation, per day. However, the EPA must consider the nature, circumstances, extent, and gravity of the violation, as well as the culpability and history of the violator, in calculating penalties. The EPA's latest policy outlines how the EPA will review violations of both the fuel sulfur limit and related recordkeeping requirements and how penalties for such violations will be calculated.
Penalty calculations under the EPA's policy include a preliminary deterrence amount and necessary adjustments to the preliminary deterrence amount based on various factors, including culpability and history. The preliminary deterrence amount is comprised of an economic benefit component and a gravity component. In most situations, the economic benefit is the avoided cost of purchasing compliant fuel. For the purposes of this portion of the calculation, the EPA will use the world-wide average price for compliant marine gas oil ("MGO") as the cost of compliant fuel after January 1, 2015. The EPA will then use the vessel's records to best calculate or estimate the cost of the non-compliant fuel burned and the quantity of non-compliant fuel burned in the ECA. In addition, economic benefits may be calculated for recordkeeping violations, the time value of the money saved, and any profit or illegal competitive advantage the violator obtained.
The gravity component of the preliminary deterrence amount reflects the seriousness of the violation. For fuel sulfur limit violations, a chart in the policy sets additional penalty amounts based on the sulfur content of the non-compliant fuel. The gravity component for recordkeeping violations is set at $2,500 to $25,000 per violation, per day. Examples of recordkeeping violations include failure to maintain a current International Air Pollution Prevention Certificate, failure to maintain written fuel change over procedures, failure to maintain a log of fuel change over operations, failure to maintain bunker delivery notes, and failure to maintain fuel oil samples.
To ensure equitable treatment and provide the flexibility to address the unique facts of each situation, the preliminary deterrence amount may then be adjusted based on: degree of willfulness or negligence, cooperation, history of noncompliance, litigation risk, ability to pay, and performance of a supplemental environmental project in accordance with the EPA's Supplemental Environmental Project Policy.
The EPA policy raises the bar with respect to future enforcement of ECA violations. The policy establishes a specific methodology to issue penalties with a view towards deterrence, which can result in significant penalties depending on the economic benefit inuring to a violator and the gravity of the violation. Owners and operators of vessels operating in the North American and U.S. Caribbean Sea ECAs should review their Annex VI compliance and documentation procedures and ensure no gaps exist.
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