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EPA Releases Policy Letter on Violations of Sulfur in Fuel Requirements

As of January 1, 2015, ships trading in designated control areas are required to use fuel oil with a sulfur content of no more than 0.10% (and no more than 3.5% outside of emission control areas). The industry has been preparing for these stricter rules and requirements under MARPOL Annex VI, Regulation 14, which were adopted in October 2008 and entered into force in July 2010, but it has remained an open question as to how the United States would handle enforcement. On January 15, 2015, the Environmental Protection Agency ("EPA") released its Penalty Policy Letter which sets forth the manner in which the agency intends to assess civil penalties for violations of the fuel sulfur standards in Emission Control Areas ("ECA") under MARPOL Annex VI and the United States implementation of MARPOL, the "Act to Prevent Pollution from Ships" (APPS), 33 U.S.C. 1901, Ā§ et seq. Under APPS, the EPA may assess civil penalties up to USD 25,000 per day, per violation. The policy letter sets forth the EPA's methodology for how violations will be reviewed and evaluated, describing the agency's plans to achieve deterrence through penalties that remove economic benefit of noncompliance and discussing the adjustment factors which will be taken into consideration to obtain a fair and equitable penalty. The policy letter provides information about how the agency will be treating a variety of scenarios including: (1) Evaluating the economic benefit obtained. (2) Assessing the gravity component of the noncompliance, for both actual fuel sulfur violations in the North American ECA and record keeping violations. (3) Adjustments to the penalty amount based on a variety of fact specific characteristics, including but not limited to, degree of willfulness or negligence, history of cooperation, history of non-compliance, litigation risk, ability to pay, and performance of a supplemental environmental project (SEP).

The methodologies and stated goals of the EPA Policy Letter are nothing new, and in fact follow the structure of previous EPA policy letters on civil penalties and statute-specific approaches to penalties which have been in force at the agency since 1984. However, there are some interesting legal issues and questions which should be kept in mind going forward. First, who is going to be the target of potential penalties? The Owner, Operator, and even Charterers may all be in the potential crosshairs. An evolving area of law is whether there is personal jurisdiction over the Operator/ISM Manager of the vessel at all for alleged violations pursued by the government, as commercial civil case law has developed in such a way that makes it clear that the Courts of the United States do not have personal jurisdiction over these foreign entities that have no connection to the United States. In addition, the EPA makes clear in the first footnote that it is only addressing the civil penalty component of APPS, and specifically reserves the right of the Coast Guard to make and enforce its own penalty policies and regulations for matters not referred to the EPA. The Coast Guard regularly refers alleged violations of MARPOL Annex I and APPS for criminal prosecution and it remains to be seen whether the Coast Guard will take a similar approach with sulfur content fuel violations. Only time will tell.

A copy of the EPA January 15, 2015 Policy Letter can be accessed [here].

For more information about MARPOL, the Act to Prevent Pollution from Ships, and/or Environmental Protection Agency / Coast Guard regulations and rules enforcing same, and how these laws and regulations may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

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