CLOSING
THE GOLDEN GATES:
CALIFORNIA'S ULTIMATUM ON AIR EMISSIONS FROM SHIPS
(Published March 2008)
Indisputably, California has serious air pollution problems. There is also little debate that harmful emissions from stationary and mobile sources cause serious health problems and are responsible for many illnesses and premature deaths each year. In October 2006, California’s Air Resources Board (“CARB”), as part of a broad and aggressive attack on the problem, promulgated “Marine Vessel Rules” (Rules). These Rules were designed to reduce dramatically air pollution in California’s ports including, in particular, the ports of Los Angeles and Long Beach where air pollution resulting from commerce related activity is particularly acute. Effective January 1, 2007, the rules require “ocean going vessels” (including foreign flag ships) to use diesel fuel for auxiliary engines and diesel electric main engines having a maximum sulfur content of 0.5% by weight. On January 1, 2010, ocean going vessels will be required to utilize only marine gas oil with a sulfur content of 0.1% by weight.
The Legal Dispute
It was perhaps inevitable the regulations would be quickly challenged and they were. Compliance is costly to vessels already operating within the MARPOL Annex VI requirements. The Pacific Merchant Shipping Association (“PMSA”) filed an action against CARB in federal court in Sacramento seeking a preliminary and permanent injunction against the enforcement of the Rules. Two environmental groups, the City of Long Beach and the South Coast Air Quality Management District all intervened supporting the Rules.
The basis of PMSA’s claim is that the Rules were preempted by the federal Clean Air Act, and that California lacked the power to regulate beyond three nautical miles. The case is now pending and the outcome of this legal challenge will dramatically affect California’s announced efforts to regulate and control all sources of emissions from marine vessels and other mobile and non-road sources.
Kaye, Rose and Partners participated as amicus in the U.S. District Court on behalf of a group of affected industries, vessel owners and operators. The firm was instrumental in assisting the court to understand the IMO and MARPOL Annex VI regulatory scheme for control of air pollution from ships, as well as the actions of the EPA consistent with Annex VI. The State of California lost the first round in the District Court. The State also lost in the Ninth Circuit Court of Appeals which determined the regulations were preempted by the Clean Air Act. Appeal to the U.S. Supreme Court is quite likely. The outcome of the case will determine the limits of California’s powers under the federal Clean Air Act, its ability to regulate emissions from ocean going vessels engaged in international commerce, and the nautical limits of its regulatory powers.
The Relationship Between California and the EPA Under the Clean Air Act
CARB is California’s air pollution control agency. (Health & Safety Code § 39602). CARB, in conjunction with the local air pollution control districts, is authorized under state law to regulate nearly all air pollution sources having any potential impact upon California’s environment or upon the public health of its citizens. (Id., §§ 39001, 39602, and 4000). The California legislature required CARB to reduce air pollution emissions in order to meet state air quality standards as soon as possible.
To carry out this mandate, CARB has aggressively sought to regulate all sources of emissions. Apparently CARB views its power as encompassing mobile sources of pollution outside its territorial waters but which have potential effects within the state. Its watchword seems to be: “If it emits pollutants having the potential to be carried into the state and adversely affect California’s citizens, prohibit it or regulate it.” However, the power of California to regulate mobile sources of air pollution is not unlimited legally.
The federal Clean Air Act, 42 U.S.C. § § 7401-7671q, Pub. L. No. 84-159, 69 Stat. 322, (“CAA”) “makes the states and the federal government partners in the struggle against air pollution.” Gen. Motors Corp. v. U.S., 496 U.S. 530, 532 (1990). Back in 1967 the states were required to set ambient air quality standards. However, the 1970 CAA amendments transferred authority to set National Ambient Air Quality Standards (“NAAQS”) from the states to the EPA. To achieve these NAAQS by regulating sources of air pollution, each state is required to submit a state implementation plan (“SIP”) to the EPA for approval. The CAA scheme contemplated the states would carry out their responsibilities by regulating primarily stationary sources. These include, for example, factories and power plants. Many of the SIP requirements related to the regulation of stationary sources. The CAA penalties for failing to attain NAAQS focused on stationary sources.
Regulation of motor vehicles and mobile sources has been primarily a federal responsibility. The underlying reason was that control by the states could lead to the possibility of a patchwork of state and federal regulation over mobile sources--- and a resulting large burden on interstate and foreign commerce. In 1967, Congress expressly preempted the states from regulating automobile emissions. However, there is an important exception to the broad federal preemption of motor vehicle regulation– the State of California. Since California was the leader in establishing regulation of automotive pollutant emissions, Congress granted California an exemption from preemption and permitted California standards for new vehicles sold in California, provided the EPA approved the standards.
Prior to 1990, nonroad vehicle emissions were not specifically mentioned in any of the legislation or regulations.. Some states, however, sought to regulate some nonroad sources in their attempts to meet the NAAQS. In 1990, Congress amended the CAA to define and regulate nonroad sources. 42 U.S.C. § 7543(e). Section 213 was added, which authorized the EPA to establish emissions standards for "nonroad engines and nonroad vehicles." Id. § 7547(a)(1). Section 213(a)(1) and (2) of the CAA requires the EPA to determine whether the emissions from "new and existing nonroad engines or nonroad vehicles" are "significant contributors" to air pollution in areas with air quality problems. 42 U.S.C. § 7547(a)(1) & (2). Section 213(a)(3), in turn, requires the EPA to promulgate emissions standards for all "new nonroad engines. . . which in the Administrator's judgment cause, or contribute to, such air pollution." Id. § 7547(a)(3).
The Pollution Problem from the “Goods Movement System”
Under California’s view, to attain NAAQS compliance and to reduce local pollution, the state needed to focus upon all sources of air pollution, mobile or stationary, involved in the “goods movement system.” This system is comprised of the network of ships, vehicles, trucks, trains and other equipment that move goods in domestic and international commerce, particularly those involved in the movement of goods in the South Coast Air Basin which encompasses the ports of Los Angeles and Long Beach.
California considers ocean going vessels as having little or no emissions control. In addition, according to the state, these vessels run on high pollution emitting fuel. Ship engines utilizing fuel with higher sulfur content produce more pollution including diesel particulate mater (PM), oxides of nitrogen (NOx) and sulfur oxides (SOx). Each of these chemicals are known to cause premature death, cancer, aggravated asthma and other respiratory illnesses and increase the risk of heart disease.
In 2006 CARB reported that pollution from California’s goods movement system was responsible for 2,400 premature deaths annually and over 1.1 million school absences every year. CARB estimated the cost resulting from the impact of such emissions will reach approximately $200 billion between 2005 and 2020. While air quality in the South Coast Air Basin has improved significantly over the past three decades, the Basin is not in compliance with federal standards for ozone (smog) or for particulate matter (PM). It has the worst air quality in the nation.
California has taken aggressive action targeting the entire goods movement system. Its position in the litigation is that the Rules are critical to protecting the public health and in attaining federal and state air quality standards. CARB apparently feels the EPA is moving too slowly in adopting nonroad diesel engine standards and applying them to foreign flag vessels. California’s regulations relating to the sulfur content of diesel fuel for ocean going vessels are one of several planned efforts by California to address air pollution from ocean going ships.
Ocean-going ships transport 80% by weight of all goods moved into and out of the United States. In 2005, foreign-flag vessels made 53,302 vessel calls at U.S. ports (87.3%) with 2,662 million DWT/TEU capacity (87.1%) cargoes, while U.S. flag vessels made 7,745 calls (12.7%) with 395 million DWT/TEU capacity (12.89%) cargoes. According to the U.S. Department of Transportation, Maritime Administration, Vessel Calls at U.S. and World Ports 2005, Office of Statistical and Economic Analysis (April 2006); www.marad.dot.gov/maradstatistics, foreign-flag vessels account for 87% of the port calls and cargo volume in the U.S. The same report indicates the Pacific Southwest ports account for approximately 10.5 % of the port calls and 19.1% of the DWT/TEU cargo capacity of all U.S. ports.
Summary of the Marine Vessel Rules
The Rules were adopted in October, 2006 and became effective January 1, 2007. Their purpose is to reduce emissions of diesel particulate matter (PM), Nitrogen Oxides (NOx), and Sulfur Oxides (SOx) from the use of auxiliary diesel engines and diesel-electric engines operated on ocean-going vessels subject to the regulation. They apply to U.S. and to foreign “ocean going ships” in California waters and out to 24 nautical miles offshore1. Covered vessels must use either marine gas oil or marine diesel oil at or below 0.5% sulfur content. Alternatively, the vessels may use other control measures to reduce their emissions to the same level or, in certain situations, the vessel may pay a non-compliance fee. The vessel is required to maintain records showing its entry into and departure from California waters, when it switched fuels, and the sulfur content of fuel purchases.
An “ocean going vessel” is defined as any commercial, government or military vessel (a) with a “registry” (foreign trade) endorsement on its U.S. Coast Guard document or a vessel registered under the flag of a country other than the United States; (b) equal to or greater than 400 feet in length overall (LOA); (c) greater than or equal to 10,000 gross tons according to its international tonnage certificate; or (d) propelled by a marine compression engine with a per-cylinder displacement of greater than or equal to 30 liters.
The crux of the Rules is to prohibit the operation of any auxiliary diesel engine which emits levels of PM, NOx or SOx “in exceedance [sic]of the emissions rates of those pollutants that would result had the engine used...(1) marine gas oil... or (2) marine diesel oil with a sulfur content of no more than 0.5 % by weight.... Beginning January 1, 2010 ocean going vessels must use only marine gas oil with a sulfur content of no more than 0.1% by weight. 13 C.C.R. § 2299.1(e). Interestingly, in addition to applying to any foreign flag vessel, the Rules apply only to U.S. flag vessels of any size or tonnage engaged in foreign trade. They do not apply to those vessels engaged in the coastwise trade unless they satisfy either the length or tonnage requirement.
The Legal Arguments
The dispute has boiled down to an interpretation of that portion of the CAA dealing with nonroad vehicles and engines, whether the Act applied to both new and non-new nonroad engines, and whether the EPA interpretation of the CAA that states may regulate the sulfur content of fuel for nonroad engines should be upheld.
Industry’s argument for federal preemption of the state’s Rules on diesel engine emissions from ships begins with an examination how vessels and their engines are regulated by the EPA under the CAA. Diesel engines on vessels are specifically defined as nonroad engines and vehicles under the CAA. Vessels are also nonroad vehicles within the meaning of the Act. Pursuant to section 209(e)(2) of the CAA, states are precluded from imposing “standards relating to the control of emissions” for nonroad vehicles and engines without an EPA waiver based upon demonstration of a compelling necessity. However, the CAA does permits states to impose “in use” regulations without any EPA waiver. These “in use” provisions permit the states to regulate the “use, operation or movement” of registered or licensed vehicles.” Examples include car pool lanes, restrictions on use in urban areas and programs to control extended idling of vehicles.
Even the EPA interpreted the state’s ability to impose sulfur limits on fuel for on road vehicles as applicable to nonroad vehicles and engines. Apparently, that was all the opening CARB needed. In promulgating the Rules, California neither sought nor obtained any EPA waiver because it asserted it was not imposing “standards.” A prior federal appellate decision, Engine Manufacturers Association v. EPA, 88 F.3d 1075 (D.C. Cir. 1996), approved an interpretation of the CAA extending the state’s ability to provide “in use” regulation to nonroad sources. Therefore, California maintains, it never sought EPA approval because the Rules do not seek to impose “standards” for diesel emissions on ocean going vessels. Instead, by characterizing the Rules as imposing only permitted “in use” requirements upon ocean going vessels; i.e., by imposing sulfur limits on fuel, they are not prohibited “standards.” In addition, California has sought to justify the regulations under Section 211 of the CAA. Fuel quality characteristics (for motor vehicles) are permitted under section 211 of the CAA, which permits California to regulate motor vehicle fuels without an EPA waiver. California claims it is permitted to regulate fuel quality of ocean going vessels as well.
The Rules were drafted such that a vessel is presumed to be in compliance if it is using the specified fuels. However, the regulations do not require the use of those fuels and allow for alternative compliance strategies. These alternative “compliance strategies” would necessarily include payment of a noncompliance fee or replacement or modification of the engines. The regulation does not specifically set a quantitative limit of a given pollutant. However, this level may be calculated for each vessel’s engines by determining the level of emissions that would be emitted using 0.5% sulfur fuel.
Under the regulation, the shipowner faces three choices: (a) use the specified fuel and receive the benefit of a presumption that the prohibited level of emissions is not met; (b) replace or modify the engines by installing additional equipment to achieve the calculated level of emissions; or (c) incur substantial financial penalties for noncompliance. These noncompliance fees for (a) diesel - electric and (b) other vessels begin at $32,500 and $13,000, respectively for the first port visit. They increase in $32,500 and $13,000 increments respectively for each subsequent port visit. The maximum “fees” are $162,500 and $65,000 respectively for five or more port visits. Of course, the regulations do not, on their face, require retrofitting the vessel’s emissions equipment or engine replacement.
Unlike § 209(e)(1) of the CAA, which expressly preempts state standards relating to emissions for new road vehicles, § 209(e)(2), applicable to non-road vehicles and engines, does not expressly preempt state regulation. However, the leading case addressing the issue, Engine Mfrs. Ass’n v. EPA, 88 F.3d 1075, 1078 (D.C. Cir. 1996) held § 209(e)(2) implies that state standards are preempted for nonroad vehicles. The Engine Mfrs. Ass’n court also determined that the scope of the implied preemption for nonroad vehicles and engines is broader than the express preemption provisions for road vehicles and engines under 209(a), the latter applying only to new sources. The U.S. District Court Judge in the PMSA case, relying on the Engine Mfrs. case, concluded that California cannot promulgate any “standards or other requirements relating to emissions” for nonroad engines unless approved by the EPA. 42 U.S.C. § 7543(e)(2)(A).
The legal dispute then turned to the issue whether the California CARB Rules setting forth maximum emission levels from ocean going vessels were “standards” within the meaning of the CAA–prohibited without the consent of the EPA--or, instead, were “in use” requirements permitted under the Act even without EPA approval. Since no numerical standards or levels of pollutant are specified in the Rules, California maintained they are permitted local “in use” requirements relating to the quality of fuel used in ocean going vessels, and not standards. California argued it has a right to impose sulfur limits on fuel under its police power and pursuant to the EPA interpretation extending the state’s ability to regulate fuel quality for road vehicles to nonroad sources.
The counter-argument is that despite the lack of "numbers" or levels of pollutant, the regulations meet the test for “standards” set by the U.S. Supreme Court because they "provide criteria.. relating to emissions characteristic of. . . an engine [such as a requirement ] the. . . engine emit not more than a certain amount of a given pollutant." EMA v. S. Coast Air Quality Mgmt, 541 U.S. at 252 53 (2004). Because California failed to seek the approval of the EPA, the regulations must fail. CAA § 209(e)(2)(A) (42 USC § 7543).
The U.S. District Court judge determined the CARB Rules on fuel were prohibited “standards” for the reason, on their face, they required a limitation on emissions of diesel engines on ocean going vessels but provide vessel owners with various mechanisms to comply with the emissions limitation. While it is true the standards did not require a strict numerical test, nevertheless the numerical reductions required of specific engines set “standards” for that particular engine. The Rules adopted quantifiable maximum levels of emissions for each engine based upon the emission rates and characteristics of each engine, so the effect was the same as an operating standard.
Status of the Litigation
The District Court ruled in favor of industry and permanently enjoined enforcement of the Rules. California immediately appealed to the Ninth U.S. Circuit Court of Appeals. The State also requested the appellate court to stay enforcement of the lower court’s injunction pending the appeal. On October 12, 2007, the Court of Appeals stayed enforcement of the injunction pending determination by the three judge panel to which the case was assigned. In staying the injunction, the Court of Appeals determined the demonstrated public health risks to Californians outweighed the cost to the vessel owners and operators of compliance with the low sulfur fuel requirements in the interim. The Court set an expedited briefing schedule and oral argument was held during the second week of February, 2008. The court’s questions and each parties’ replies were pointed and direct.
On February 27, 2008, the U.S. Ninth Circuit Court of Appeals affirmed the judgment of the U.S. District Court holding the California Air Resources Board Marine Vessel Rules requiring marine diesel fuel not to exceed 0.5% sulfur content by weight were impermissible standards preempted by the Clean Air Act. Since California failed to seek authorization from the EPA to adopt "standards and other requirements relating to the control of emissions," the rules were invalid. The Ninth Circuit joined the D.C. Circuit in holding the implied preemption of Section 209(e)(2) of the Clean Air Act applied to both new and non-new non-road engines (which included vessels). As a result, the court vacated the stay of the district court's injunction prohibiting enforcement of the regulations.
While the Ninth Circuit decision appears clear and well reasoned, we do not believe the state of California will simply roll over. The Attorney General's office has a history of pursuing environmental cases through the courts in order to test the limits of state power. A motion for reconsideration by the court en banc and a petition for certiorari to the Supreme Court are anticipated.
Outlook for the Future
There can be no question that California is testing the extent of its power to regulate emissions from all stationary and mobile sources including ocean going vessels, whether U.S. or foreign flagged. California’s characterization of the impact of these Rules on foreign commerce is they have a minimal effect, are consistent with the achievement of control of air pollution, and a legitimate local concern of the state. The district court disagreed and determined they had a substantial effect upon foreign commerce.
CARB plans to address in future rulemaking emissions from main engines, boilers, gas or steam turbine engines and auxiliary engines on military vessels which are presently exempted from the requirements of the Rules. Moreover, California has pressed the EPA to establish standards for global warming. Clearly the extent of additional regulation of these mobile sources of emissions from vessels will depend on the outcome of the appeal and the determination ultimately by the U.S. Supreme Court, of the reach of the Clean Air Act and the limits upon California’s power to regulate these mobile sources. And unless those limits are determined and established by the courts, we can anticipate additional and even more stringent regulation by California of as many mobile sources the state may embrace within its perceived power to regulate. A second related question involves the geographic scope of California’s power to regulate beyond three miles.
Finally, much of the confusion and uncertainty surrounding the regulations could easily be eliminated upon passage by Congress of legislation implementing MARPOL Annex VI, which has already been ratified by the U.S. Senate in April, 2006. The South Coast Air Basin (indeed all of California) could be designated a Sulfur Emissions Control Area (“SECA”) under Annex VI. The EPA and California should work together to achieve this designation. The Senate, in ratifying Annex VI, reserved the right to the federal government to impose more stringent limits than presently set under Annex VI and the EPA is already working within the International Maritime Organization (“IMO”) to adopt and implement such standards based upon new technologies. Alternatively, the EPA could adopt and extend its diesel emissions regulations for certain engines to foreign flag vessels. California’s actions clearly indicate CARB is not waiting for EPA or Congressional action.
