On December 22, 2009, the U.S. Environmental Protection Agency (EPA) announced that it had finalized the new emission and fuel standards for Category 3 marine diesel engines proposed last summer.1 Because they have been harmonized to the October 2008 amendments to Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL), the new standards also will apply to non-U.S. vessels in U.S. waters once the U.S.-Canadian application to the International Maritime Organization (IMO) for an amendment to MARPOL Annex VI is approved. The amendment would designate an area up to 200 nautical miles off the U.S. coast as an emissions control area (ECA).

The new rule is part of EPA’s coordinated strategy to reduce emissions from marine diesel engines and, in particular, from larger marine diesels such as those installed on tankers, cargo ships and cruise ships. Compliance obligations for newly built engines will be phased in beginning in 2011, with the most stringent emission standards becoming effective in 2016; the new fuel standards will be effective for all Category 3 vessels by January 1, 2015.

The New Standards

The new rules have two components: (1) emissions standards that will apply to newly built Category 3 marine engines (i.e., those with cylinder displacement at or above 30 liters) installed on vessels flagged or registered in the U.S.; and (2) fuel standards that will limit the sulfur content of fuel sold for use in most Category 3 marine engines.

Emissions

The new engine standards will be implemented in two phases, each of which represents an incremental increase in controls over the existing Tier 1 standards for Category 3 marine engines enacted in 2003. Tier 2 standards, which will be applicable to new engines beginning with the 2011 model year, represent a 20 percent reduction in NOx levels, while Tier 3 standards, which will be applicable to new engines beginning in the 2016 model year, represent an 80 percent reduction in allowable NOx emissions. Standards are also set for hydrocarbons (HC) and carbon monoxide (CO). According to EPA, the Tier 2 emission control levels can be achieved by more efficient use of existing technologies, while the Tier 3 levels “will require use of more advanced technology such as selective catalytic reduction.”2

Although the new rule does not set emission limits for particulate matter (PM) for Category 3 marine engines, relying instead on regulation of sulfur content in fuel, manufacturers of U.S. engines will be required to test and report PM emissions to EPA.

Fuel

The new fuel limit stipulated for Category 3 marine engines is 1,000 ppm (0.1 percent) sulfur for all vessels by January 1, 2015.3 Exceptions are available for vessels using an alternative method (e.g., scrubbers) that achieve equivalent emissions reductions; vessels operating exclusively in the Great Lakes; and certain vessels granted temporary relief for serious economic hardship. As EPA recognizes, fuel that can achieve the 1,000 ppm (0.1 percent) sulfur limit likely will be lighter (and more expensive) distillate fuel, rather than the heavier residual fuel most often used on larger marine vessels. As a result, vessels with Category 3 marine engines will likely be required to install alternate fuel delivery and storage systems to accommodate the low sulfur content fuel for use within the ECA, and switch to the higher sulphur content fuel in waters outside the regulated ECA. To the extent that vessels with Category 3 propulsion engines have auxiliary Category 2 or Category 1 engines aboard, the EPA regulation will permit these vessels to use the Category 3 diesel fuel in their Category 1 and Category 2 auxiliary marine engines rather than the more stringently regulated diesel distillate fuel that would otherwise be required for these engines under EPA’s existing marine diesel fuel regulations.

Effect on Non-U.S. flagged vessels

A central feature of the new regulation is EPA’s harmonization of its new Category 3 marine engine controls with standards under MARPOL’s Annex VI. The new EPA Tier 3 engine and sulfur fuel content standards applicable to Category 3 marine engines, and their effective dates, correspond to the most stringent of MARPOL’s Annex VI Tier III controls. These controls govern in waters within an approved Emissions Control Area (ECA) designated under MARPOL. As reported in Holland & Knight’s April 10, 2009 alert EPA Proposes Emission Control Areas Along U.S. Coastline, the U.S. and Canada have formally requested the IMO to approve an amendment to MARPOL to designate the waters extending 200 miles from most of the U.S. continental coastline (and portions of Alaska and Hawaii) as a North American ECA.4 The IMO approved the proposal in principle on July 17, 2009, and EPA is hopeful that the formal amendment adopting this ECA will be approved by the requisite number of MARPOL member states at the upcoming meeting of the IMO Marine Environment Protection Committee (MEPC) in March 2010.

Following final action by the IMO, the ECA could enter into force as early as 2012. From the effective date of the ECA until 2015, fuel used by all Category 3 vessels (with some limited exceptions) operating in the ECA will have to comply with the then effective Annex VI engine emission and fuel standards for ECAs.5 Approval of the proposed North American ECA is the mechanism on which EPA is currently relying to ensure that the same emission control standards now approved for U.S. Category 3 marine engines will also apply to non-U.S. flagged vessels with Category 3 marine engines when operating in U.S. coastal waters.6 Notably, the final regulation also applies these standards to vessels with Category 3 marine engines that are flagged in countries that are not parties to MARPOL.7

California and the European Union (EU) have already issued rules requiring vessels to use reduced sulfur content fuel in certain areas. As of July 1, 2009, California requires that, subject to specified exceptions, all oceangoing vessels, both U.S. and foreign flagged, use reduced sulfur content fuel of 1.5 percent (marine gas oil) or 0.5 percent (marine diesel oil) when operating within 24 nautical miles of California’s coastline. As of January 1, 2012, these limits will both drop to 0.1 percent sulfur content.8 As of January 1, 2010, ships at berth in EU ports are limited to fuels with a 0.1 percent maximum sulfur content (or shoreside electricity).9

Absent approval of the proposed ECA, the less restrictive MARPOL Tier III global standards would apply to non-U.S. ships in U.S. coastal waters. However, EPA states that if the ECA proposal is not approved “in a timely manner,” presumably in time to meet the 2015/2016 EPA Tier 3 and MARPOL Annex VI Tier III deadlines, then EPA intends “to take supplemental action to control emissions from vessels that affect U.S. air quality.”10

The final regulation represents a significant effort to reduce air pollution from large marine vessels in U.S. coastal waters. Harmonizing its standards to the most stringent of existing international marine pollution standards, EPA is also signaling its acknowledgement of comments from both industry and public interest commenters that the same standards should be applied to all Category 3 vessels in U.S. waters. At the same time, the final regulations do contain certain testing, recordkeeping, reporting requirements and technical operating requirements that will be applicable only to U.S. flagged vessels or to manufacturers of engines destined for the United States or for U.S.-flagged vessels. Accordingly, both manufacturers of Category 3 marine engines and owners of vessels with Category 3 marine engines, whether U.S. flagged11 or foreign flagged, that operate in U.S. coastal waters will want to carefully review the new regulations as they plan future fleet maintenance and acquisition programs, regulatory compliance programs, and operating costs.