by David Tong
CALIFORNIA’S CONTINUED REGULATION OF LOW-SULFUR USE: HOW DID WE GET HERE?
The United States has ratified MARPOL, including Annex VI’s low-sulfur use require¬ments for vessels. Congress has implemented MARPOL as federal law. Annex VI is codified in the Code of Federal Regulations. Despite the existence of this robust international and federal regime requiring vessels to use low sulfur fuels when trading in United States waters, since 2009 the State of California, by and through the California Air Resources Board (“CARB”), has enforced its own low-sulfur fuel use regulations (the “CARB Regulations”). The CARB Regulations apply to vessels calling at Californian ports and apply equally to owners, operators, and charterers of such vessels – regardless of any contractual agreements between such parties.
Since 1 January 2014, the CARB Regulations have required the use of distillate fuel with a sulfur content of 0.1% (1,000 ppm) or less for operating main engines, auxiliary engines, and boilers within 24 nautical miles of the California coast (“Regulated California Waters”). The CARB regulations contain a “Sunset Provision” which was hoped to be triggered when Annex VI’s heightened requirement that vessels use fuel with a sulfur content of 0.1% when transiting the North American Emission Control Area (the “ECA”) came into effect on 1 January 2015. The ECA extends 200 nautical miles off the United States’ west coast and thus encompasses Regulated California Waters.
However, on 7 April 2016, CARB announced its decision not to repeal the CARB Regulations. Consequently, CARB decided to continue its enforcement of the CARB Regulations for at least the next two years. Those subject to the CARB Regulations should be prepared to comply with them for at least that time period and, perhaps, indefinitely.
THE SUN NEVER SETS IN CALIFORNIA: CARB’S DECISION NOT TO REPEAL THE CARB REGULATIONS
CARB’s decision not to repeal the CARB Regulations was based on three primary findings:
Distillate fuel requirement. The CARB Regulations specifically require the use of low-sulfur marine gas or diesel oil that meets all the specifications for DMB grades as defined in Table I of ISO 8217. Annex VI only requires the use of fuel with a sulfur content of 0.1%. Thus, in theory, compliance with Annex VI could be achieved through the use of low-sulfur, heavy fuel oil. Notwithstanding the commercial non-availability of such product, CARB appears to take issue with even the possibility of achieving compliance under Annex VI through the use of low-sulfur heavy-fuel oil. CARB maintains low-sulfur fuel would be ineffective at reducing sulfur oxide (SOx) and diesel particulate matter (DPM) emissions.
Alternative emission control technologies. Annex VI permits the use of fuel with a sulfur content exceeding 0.1% provided the vessel uses methods resulting in equivalent emission reductions. CARB does not currently believe such methods (namely, scrubber systems) are as effective at reducing SOx and DPM emissions as low-sulfur distillate fuels.
Fuel sampling: It’s not what you buy, it’s what you burn. A USCG vessel inspection will focus primarily on Annex VI’s record keeping requirements. The USCG does not currently engage in mandatory fuel sampling during such inspections. The USCG will sample fuel only when the records indicate an Annex VI violation has occurred.
Conversely, CARB engages in mandatory fuel sampling. CARB’s concern is not just that compliant fuel is bought, but that compliant fuel is burned. A bunker delivery note may prove compliant fuel was purchased, but it does not prove that compliant fuel was not contaminated. CARB believes contamination can be caught only through fuel sampling. Until the USCG implements a mandatory fuel sampling policy, CARB will likely continue to lack confidence in the efficacy of federal enforcement of Annex VI
CARB’S CONTINUED ENFORCEMENT OF THE CARB REGULATIONS
The penalties and fines CARB has the authority to seek increase based on the magnitude of the violator’s conduct. At the low end, penalties ranging from $1,000 to $10,000 per day apply to “strict liability” offenses, i.e., those for which the intent or negligence of the violator is irrelevant. On the high end, penalties and fines applicable to those who willfully violate the CARB Regulations can reach $1,000,000 per day for corporate violators.
CARB follows a five-step approach in its enforcement of the CARB Regulations: (1) detect violations, (2) notify the violator, (3) engage in a discussion with violator regarding the violation, (4) determine the penalty amount, and (5) resolve the case through a settlement, which will be made publically available.
Fuel testing and notice of violation. CARB tests all fuel samples its inspectors take at its own laboratory. CARB has made its testing procedures based on ISO 8754 which is publically available. If CARB’s test concludes a sample’s sulfur content is non-compliant, it will issue a notice of violation which must state the legal basis for the penalty and how the penalty was determined, including mitigating or aggravating factors. Although CARB typically includes the sulfur content of the tested sample it does not, as a matter of practice, share its laboratory’s reports and analysis of the sample.
Settlement discussions. Violators are given an opportunity to engage CARB in settlement discussions. If CARB cannot settle the case, it will be referred to the State Attorney General’s office, which will commence litigation.
Mitigating factors. When determining penalty amounts, California law specifically requires CARB to consider:
- The extent of the harm to public health;
- The nature and persistence of the violation;
- The length of time over which the violation occurred;
- The compliance history of the violator, including the frequency of past violations;
- The preventative efforts taken by the defendant, including the record of maintenance and any program to ensure compliance;
- The unproven or innovative nature of control equipment; including the efforts of the violator to attain, or provide for, compliance.
- Actions taken by violator including nature, extent, and time of response of any cleanup and construction to mitigate violation;
- Cooperation of violator; and
- The financial burden to violator, including the financial condition of violator.
It is no surprise CARB considers whether or not it is dealing with a repeat violator, the extent of the air pollution caused by the violation, the steps taken by the violator to address the pollution once it has occurred, and the violator’s level of cooperation with CARB. However, with respect to the highlighted factors, CARB will give a violator credit for the “installation, operation, and maintenance of equipment specifically intended to prevent, identify, and correct violations” and when the violator has undertaken “creative methods” or “unusual efforts” to achieve compliance, CARB does not provide specific examples of such equipment, methods, or efforts. These factors do not require CARB to give violators credit for conduct that simply meets the industry standard of care, or which is required by law. To achieve mitigation, such policies and procedures must exceed those standards.
For example, CARB may decide to reduce a penalty if a violator has implemented a “voluntary disclosure program.” A voluntary disclosure program is a documented systematic, objective, and periodic set of measures specifically intended to prevent, detect, disclose, and correct low sulfur fuel violations.
PROACTIVE MEASURES SHIPOWNERS CAN CONSIDER TAKING TO BEST DEFEND AGAINST ENFORCEMENT OF CARB REGULATIONS
Here are some examples of measures that could be implemented, in whole or in part, with these principles in mind.
Heightened bunker specification requirements. Given the incredibly small difference between compliant and non-compliant fuel, consider sourcing and purchasing distillate fuels as far below the 0.1% content threshold as possible.
Bunker delivery samples and testing. Do not just rely on the bunker supplier’s delivery notes, samples, and analysis as evidence that compliant fuel was purchased. At the time of delivery, ensure that the vessel takes its own samples of the bunkers as they are delivered. Have those samples tested by a reputable shore side laboratory for compliance. If the testing results state the bunkers are non-compliant, attempt to deviate to another port where compliant bunkers are available before entering Regulated California Waters.
Increased tank cleaning. CARB has recommended that before each bunkering of low sulfur fuel, “…vessel operators may want to thoroughly clean storage, settling, and service tanks of any higher sulfur residual fuels or sludge.” If this is not achievable, assess whether the number of tank cleanings can nevertheless be increased beyond current practices.
Line flushing. If a vessel’s fuel transfer system is designed such that compliant, low-sulfur fuel is transferred from the storage tanks to the settling tanks and from settling tanks to the service tanks by using the same line as the heavy fuel oil when it is transferred, CARB has suggested that the engineering department “…may want to flush those lines into a HFO settling [and service] tank for a prescribed amount of time to be sure [any low-sulfur fuel] contaminated with HFO is flushed before beginning transfer” of the low sulfur fuel.
Dedicated sampling points. CARB inspectors will either identify with the assistance of the engineering department, or by themselves, the last possible point in a vessel’s fuel transfer system where they can safely take a sample before the fuel enters the main or auxiliary engines. Frequently, this point, such as a purifier or injector, is not designed for the purpose of fuel sampling. For example, filters at such locations can collect residue and sludge which might result in a “false positive” result for samples taken from them. Consequently, consideration should be given to fitting a dedicated, downstream sampling location at a reasonable point before the fuel enters the engines for consumption. Short of that, the engineers should identify the point from which CARB will most likely take its fuel samples. In either case, this “CARB dedicated” sampling point should be regularly inspected and cleaned by the engineering department – especially before calling at a Californian port.
Onboard sampling and testing. The engineering department should take samples from the dedicated sampling point when the vessel is within regulated California waters so that those samples can be tested. Onboard samples should be sent to a reputable shore side laboratory for testing.
Inspections of possible contamination points. Establish a schedule for inspection of possible points within the fuel transfer system for contamination of low-sulfur fuel with non-compliant fuel. Log these inspections, including whether any conditions are discovered that may cause contamination, and all measures taken to correct and repair those conditions.
Sampling at time CARB conducts its inspection. CARB’s inspectors will be among the first people to board a vessel once it is alongside. The vessel will not likely be able to secure the attendance of an independent surveyor or local P&I correspondent in time for the CARB inspector’s fuel-sampling. Therefore, the engineering department should request a cut of CARB’s fuel samples. If CARB refuses, the engineers should provide the CARB inspector with a letter of protest documenting the inspector’s refusal, and keep a copy of that letter for the vessel. The engineering department should then take its own fuel sample as contemporaneously as possible to the time the CARB inspector takes its own (i.e., either immediately before or after). If the vessel receives a notice of violation based on CARB’s sample, samples obtained by the vessel under either of these scenarios will enable the company to conduct a test on the same, or essentially the same, fuel tested by CARB. If the vessel’s test results show the fuel is compliant, vessel interests will be in the best position possible to argue that no violation occurred. Compliant fuel samples taken by a local correspondent or surveyor even just hours after CARB has taken its samples, will not have the same credibility as test results on a cut of CARB’s own sample or samples taken immediately before or after CARB took its sample.
Random third-party audits. Retain third-party auditors to conduct random onboard audits of compliance with any of the foregoing measures, or variation of the same, which are implemented.
In light of the significant differences that exist between CARB’s and the USCG’s enforcement of low-sulfur fuel use regulations, those subject to CARB’s regulations should prepare themselves for the possibility that CARB’s enforcement of them will be indefinite. Those seeking to best position themselves to avoid violations, challenge notices of violations, or mitigate penalties sought by CARB should consider proactive measures, to one degree or another, similar to those recommended in this article.