Nearly 18 months have passed since enforcement of the North American Emission Control Area (the “North American ECA”, which encompasses roughly 200 miles around the contiguous U.S. and Canadian coasts) began on August 1, 2012. Since then, vessels subject to Annex VI of the International Convention for the Prevention of Pollution from Ships (“MARPOL VI”) and operating in the North American ECA have seemingly operated within that area without interference from the U.S. Coast Guard (the “USCG”) and the Environmental Protection Agency (the “EPA”) insofar as air emissions are concerned.

However, with the EPA’s recent issuance of four subpoenas requesting detailed information concerning potential violations of MARPOL VI, the USCG and the EPA have signaled that air emissions from vessels will be scrutinized carefully.

In this Alert, we summarize the applicable statutory scheme; the government’s recently ramped-up enforcement initiative; and the consequences befalling vessels and companies running afoul of the applicable requirements.

Background

MARPOL VI regulates air pollution and the resulting emission levels of sulfur and nitrogen oxides (“SOx” and “NOx”, respectively) from ships. The North American ECA was established in 2009, and implemented domestically through The Act to Prevent Pollution from Ships (“APPS”). As of August 1, 2012, it requires all vessels operating in the North American ECA to utilize fuel oil with a sulfur content not exceeding 1% (with stricter standards to be effectuated in subsequent years).

In June 2011, well in advance of the August 1, 2012 enforcement date, the USCG and the EPA entered a Memorandum of Understanding explaining the overlapping jurisdiction between the two agencies in enforcing APPS, and outlining the substantial coordination between them in investigating alleged violations of APPS. At the same time, the agencies issued a joint letter to the maritime industry (including ship owners, ship operators and maritime fuel suppliers), setting forth relevant compliance requirements, including the need to: (1) secure engine and vessel certifications; (2) maintain detailed records; and (3) adhere to specific SOx and NOx emission limits.

On June 26, 2012, in connection with the looming August 1, 2012 enforcement date, the EPA published “Interim Guidance on the Non-Availability of Compliant Fuel for the North American Emission Control Area,” in recognition that compliant fuel may not always be readily accessible when traversing the North American ECA.

According to that guidance, whenever a vessel is unable to obtain compliant fuel oil prior to entering the North American ECA, the vessel must electronically file a fuel non-availability report (“FONAR”) with the EPA — no later than four days before entering the ECA. These reports enable vessels to explain why compliant fuel could not be obtained for particular vessels on particular days. Significantly, however, the EPA explained that filing of FONAR reports does not afford vessels immunity from civil or criminal proceedings. In fact, the explanations offered by the vessels in these reports are considered by the EPA in making enforcement decisions.

EPA Enforcement Actions

There is no public record of the EPA bringing any enforcement actions under APPS with respect to vessels operating in the North American ECA between August 1, 2012 and February 2014. However, on February 21, 2014, the USCG and the EPA released a protocol that focused on the agencies’ handling of referrals of violations of MARPOL VI. A week later, INTERTANKO reported that four companies were under government investigation. Each company reportedly received subpoenas from the EPA “requesting an extensive amount of information” to determine their compliance with MARPOL VI. As evidenced by recent media accounts, the EPA is, in fact, considering the contents of the FONAR reports as the impetus for further investigation.

The Implications

Companies with vessels operating in the North American ECA must seriously consider the repercussions of using non-compliant fuel and ensure the accuracy of the information provided to the EPA in related FONARs. Not surprisingly, the penalties for violating APPS are prohibitive: $25,000/day for each violation and, in egregious cases, referral to the Department of Justice for criminal prosecution under APPS and other statutes, including those pertaining to the filing of false statements to government agencies. Such costs do not include legal expenses and remediation efforts.

If you have any questions concerning this, please contact Bruce G. Paulsen (212-574-1533) or Michael Considine (212-574-1334) at Seward & Kissel LLP.