© 2018 American Bureau of Shipping. All rights reserved

Stamatis Fradelos / January 2019

2020 Compliance Enforcement

Regulatory Framework: SOX Emissions

IMO 2020 Impact on Shipping IndustryM

PT

A

• A new work program included in thePPR S/C agenda for 2018-2019:- Verification/control actions to ensure compliance

- Standard format for reporting fuel oil non-availability

- Guidance to assist stakeholders in assessing the sulphur content of fuel oil delivered to the ship

- Any consequential regulatory amendments and/or guidelines needed to address the above issues

• MARPOL amendments for prohibition of carriage for use of non-compliant fuel oil.

• Sanctions are established by individual Parties to MARPOL, as flag and port States.

• Flag States that have ratified Annex VI may revoke or, at least, suspend vessels’ MARPOL certificates, if they do not comply with the Regulation.

IMO: The compliance enforcement challenge

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• MARPOL Article 4(1): Sanctions shall be established under the law of the ship’s Administration.

• MARPOL Article 4(2): Jurisdiction Party shall either: - cause proceedings to be taken

- furnish to the ship’s Administration information and evidence

• MARPOL Article 4(4): The penalties specified shall be:- adequate in severity to discourage violations ...

- equally severe irrespective of where the violations occur.

• EU Sulphur Directive requires MSs to impose penalties:- effective, proportionate and dissuasive

- deprive of the economic benefits derived and gradually increase for repeated infringements.

• Certain Port States may pursue and arrest vessels under local rules and regulations.

Sanctions and fines

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Fines for Non-Compliance in Selected Countries

Country Maximum financial penalty

Belgium Eur 6 million

Canada CAD 25,000

Denmark No maximum

Finland Eur 800,000

France Eur 200,000

Germany Eur 22,000

Latvia Eur 2,900

Lithuania Eur 14,481

Netherlands Eur 81,000 + gains

Norway No maximum

Sweden SEK 10 million

UK GBP 3 million

USA USD 25,000/dSource: Trident Alliance

• EPA has the authority to take enforcement action for violations which have been referred to the EPA by the US Coast Guard

• Section 1908(b) of APPS, EPA may assess a civil penalty of $25,000 per violation per day.- “Day” considered to be one calendar day.

• Penalty Policy was developed primarily to address violations of the fuel sulfur standard contained in Regulation 14.4 of Annex VI

• The “preliminary deterrence amount” includes two components:

- Economic benefit component (resulting from noncompliance)

- Gravity component (reflecting the seriousness of the violation)

EPA Penalty Policy for Violations by Ships

• Economic benefit of noncomplianceB=(Fe-Fw)*U

• Where:

- Fe: cost per MT of compliant fuel

- Fw: cost per MT of the non-compliant fuel

- U is the amount (MT) of non-compliant fuel burned

• Two methods for determining the cost of fuel:

- Direct reporting of fuel cost by ship’s records

- Estimation as the average world-wide fuel costs

• Two methods for determining the amount of noncompliant fuel burned (U):

- Direct reporting of fuel used by ship’s records with supporting calculations

- Estimation based on fleet characteristics and fuel consumption assumptions

The Economic Benefit Component

• For a Suezmax tanker, the MV “Bonum Caeli”:

• Appendix 1 → Speed is 13.2 knots, M/E daily FC is 52.8 MT, A/E daily FC is 5.6 MT

• The time (T) to travel the ECA distance is: Distance/Speed = 200 nm/13.2 knots = 15.1 hrs

• The hourly fuel (HF) consumption is: M/E+ A/E daily consumption/24hours = (52.8 + 5.6)/24 = 2.4 MT/h

• Therefore, the total fuel consumed (U) while traveling in the ECA is calculated : U = T*HF = 15.1 hrs * 2.4 MT/h = 36.2 MT

• The economic benefit (B) is: B= (Fe-Fw)*U = ($675-$328)*36.2 = $12,561

Example of Economic Benefit Component

• The gravity component for record keeping violations is $2,500 to $15,000 per violation, per day. Record keeping violations include:

- Failure to maintain a current International Air Pollution Prevention Certificate

- Failure to maintain a written fuel change-over procedures (Regulation 14.6)

- Failure to keep record in a log book ( Regulation 14.6)

- Failure to maintain BDN for a period of three years (Regulation 18.6)

- Failure to maintain a representative fuel sample for 12 months (Reg. 18.8.1)

• Assuming fuel used by “MV Bonum Caeli” contained 1.25% sulfur

• The gravity component is $500*U, where U is 36.2 MT:

$500*36.2 = $18,100

• The ship did not have a written fuel change-over procedure for first time violations, lower end of the range (i.e., $2,500).

• Total gravity component is $18,100+$2,500=$20,600

Example of Gravity Component

Actual S Content (%) Penalty

3.5 or higher $750*U

3.0 $700*U

2.5 $650*U

2.0 $600*U

1.5 $550*U

1.25 $500*U

1.10 $450*U

1.00 $400*U

0.80 $350*U

0.60 $300*U

0.40 $250*U

0.20 $200*U

• Adjustment factors applied to obtain a fair and equitable penalty

• The adjustment factors are:

- Degree of willfulness or negligence (aggravated by as much as 20%)

- Degree of cooperation (may be aggravated or mitigated up to 10%)

- History of noncompliance of the ECA requirements;

• One prior violation – increase the gravity component up to 30%

• Two or more prior violations– increase the gravity component by up to 70%

- History of noncompliance of other environmental laws

- Litigation risk and other unique factors (mitigated up to 10% or aggravated)

- Ability to pay (mitigation based on sufficient financial information)

- Performance of a Supplemental Environmental Project (mitigation)

• Demonstrated inability to pay, litigation risk and SEP adjustment factors may be applied to the economic benefit component as well

Adjustments to the Gravity Component

• The Master was not aware of the sulfur requirements or owner has a history of noncompliance, increase the gravity by 20%:

$20,600x20% = $4,120

• Prior violation with non-compliant fuel thus demonstrating a history of noncompliance, increase the gravity by 30%:

$20,600x30% = $6,180

• Owner signed the settlement agreement within 30days thus demonstrating cooperation, decrease the gravity by 10%:

$20,600x10% = $2,060

• Gravity after adjustments is: $28,840

• Overall (EB + Gravity) = $12,561 + $28,840 = $41,401

Example of Adjusted Gravity Calculation

Summary of Penalty Adjustment Factors

Component Adjustment Factor(s)

EconomicBenefit : $12,561 None

Gravity: $20,600

Degree of willfulness or

negligence$4,120

Degree ofcooperation -$2,060

History ofnoncompliance $6,180

Overall (EB + Gravity)

$12,561 + $28,840 =

$41,401

Litigation risk The overall penaltymust be less than or

equal to thestatutory maximum which is calculated as $25,000 x (days

of violation) x(number ofviolations) =

$25,000 x 1 x 2 = $50.000

Ability to pay

Supplemental environmental

projects

Statutory maximum

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