CHAMBER OF SHIPPING OF AMERICA

MONTHLY REPORT FOR THE INTERNATIONAL CHAMBER OF SHIPPING

FOR THE MONTH ENDING DECEMBER 30, 2007

THE 2008 POLITICAL LANDSCAPE

As most are aware, 2008 is a presidential election year. While the election cycle typically has little effect on regulatory programs planned by the Executive Branch of government, the election cycle has significant impacts on what we expect will be accomplished by the US Congress. Aside from the simple fact that Congressional leadership will be focused on securing party victories in the upcoming elections at all levels, any legislative initiatives will be viewed from a perspective as to how any particular initiative will be perceived by the American public. Since maritime issues are rarely at the top of the political agenda, progressing maritime issues in Congress becomes more difficult in the period leading up to the election, since the more visible issues of the war on terrorism, fiscal management, health care and a number of other social issues will occupy a majority of the Congress’s time. With this in mind, current maritime issues being addressed in Congress are likely to take a back seat to these other issues seen by politicians and the American public as more significant. In spite of this situation, we do expect to see continued action on ballast water management legislation, legislative responses to the Cosco Busan oil spill in San Francisco and air emissions from marine vessels principally due to the interest of Sen. Barbara Boxer (D-California) in these issues. It is uncertain at this time as to whether Sen. Boxer’s involvement in these issues will create significant momentum to move action by the full Congress although she has publically stated her intent to address these issues in the coming year.

BALLAST WATER MANAGEMENT LEGISLATION

In an attempt to break the log jam in moving the ballast water proposals in both the House and the Senate, a small contingent of the industry ballast water coalition met with Sen. Boxer and her committee and personal staff in mid-December to discuss her stated concerns and industry concerns with the two issues which are the mostsignificant points of contention – preemption and exclusion of ballast water discharges from the Clean Water Act’s NPDES permitting program. Industry again reiterated our commitment to Sen. Boxer and her staff to work with them to find an acceptable middle ground which will address both sets of concerns and thus enable a bill to move to the floor of the Senate for a vote. While this has been done repeatedly in the past through discussions with staff, the key difference in these discussions is that both staff and industry were in the room when the Senator commanded her staff to work with industry to find a suitable compromise. Prior to this meeting, her staff had been unwilling to discuss compromises of any significance and it is hoped that this meeting will set the stage for further discussions not only with her staff but also between her staff and other Congressional staffers who have worked hard on the legislative proposal which was reported out of the Senate Commerce Committee last fall (S 1578). From the perspective of the House, it appears that if the Senate bill can be successfully passed out, the two proposals (House and Senate) will be in a position to go to a conference committee to resolve the differences in the two bills which, if successful, would result in an enacted ballast water management program.

AIR EMISSIONS FROM MARINE VESSELS LEGISLATION

As reported in an earlier update, Sen. Boxer had proposed an air emissions bill which generally reflects the US proposal to IMO, although some sections of this proposal suggest the possibility that more stringent requirements could be required in a shorter timeframe than those proposed by the US in the current IMO discussions. Sen. Boxer has publically stated that she expects to hold hearings on this issue in the near future to move this issue along in Congress and by default, shape the US discussions at IMO.

OIL POLLUTION AND RESPONSE LEGISLATION

A number of proposals from last year prior to the Cosco Busan incident are left for further discussion in this Congressional session. The most comprehensive proposal was proposed by Sen. Cantwell and includes a number of provisions relating to enhanced inspections for single hull tank vessels, alignment of OPA 90 provisions to address the oil spill threats from non-tank vessels and certain regional programs which would require escort tugs in particular areas. Shortly after the Cosco Busan, Senators Boxer and Feinstein (both from California) introduced a proposal which would allow (but not mandate) the Coast Guard to take affirmative control over a vessel in a vessel traffic system in circumstances where it appears that the vessel is not taking appropriate action to avoid a casualty. While this proposal stems directly from the as yet unconfirmed information that the San Francisco VTS had advised the pilot on the Cosco Busan that the observed vessel track was taking the vessel too close to the bridge structure which was eventually hit, CSA opposes this proposal based on our concerns that a remote electronic assessment of a vessel maneuvering situation is never as accurate as that being made from the bridge of a vessel. Further, CSA has concerns that a potentially less experienced individual operating from the confines of a VTS control center would have the ability to override the decisions of a seasoned vessel Master and licensed pilot that would likely have far more experience. Finally, the proposed legislation would shield any decisions made by the VTS controller in this situation from liability should an incident occur, a situation which begs the question of how the P&I Clubs would possibly agree to cover an incident which stemmed from action taken based order of the VTS.

US ENVIRONMENTAL PROTECTION AGENCY – ADVANCE NOTICE OF PROPOSED RULEMAKING (ANPRM) ADDRESSING AIR EMISSIONS OF CATEGORY 3 MARINE ENGINES

Federal Register, December 7, 2007 (Pg. 69522 - 69552)

Docket ID Number: EPA-HQ-OAR-2007-0121

This ANPRM is the official notice that the US EPA intends to initiate rulemaking in the near future relative to Category 3 marine diesel engines (per cylinder displacement at or above 30 liters per cylinder). Comments on this ANPRM are due by March 6, 2008. As a result of a number of factors, including the current application of stringent emissions reductions requirements to land based sources and the expected increase in international trade, emissions from large marine vessels now and in the future make up a significant percentage of total emissions inventories in US coastal areas and ports. If these emissions estimates are to be agreed, it is only logical that their impacts on public health and other environmental impacts will continue to increase from what are already unacceptable levels as defined in the US Clean Air Act.

Historically, EPA has followed a long path to arrive at today’s ANPRM publication. Earlier in the 40 year history of the Clean Air Act, EPA created a program of ever increasingly more stringent air emissions for standards for land based stationary sources and on road mobile sources. In its next iteration, a program of ever increasing emissions standards was created for off road mobile sources, the last step in that program being the final rule for locomotive and Category 2 marine engines which is expected to go final in the very near future. Acknowledging the current contribution of Category 3 marine engines to current emissions inventories, the fact that current regulations addressing these emissions are consistent with the current MARPOL Annex VI requirements, the importance of foreign trade to the US economy, and the benefits from aligning US requirements with international requirements, this EPA proposal reflects the US proposal which is currently under discussion within various IMO fora. IMO decision on the current MARPOL Annex VI amendment discussions is expected to be concluded at the October 2008 meeting of the IMO Marine Environment Protection Committee.

The EPA proposal here creates performance based standards for new and existing Category 3 engines for NOx, Sox and PM emissions. Relative to the specifics proposed within this document, the following summary is provided for quick review.

New Category 3 Engines – NOx (Tier 2)

What? 15 – 20% reduction from current MARPOL Annex VI NOx limits (Tier 1)

When? 2011

Where? Everywhere

How? In-cylinder controls including electronically controlled high pressure common rail fuel systems, turbocharger optimization, compression-ratio changes, electronically controlled exhaust valves and water-based technologies including water emulsification, direct water injection, intake-air humidification, exhaust gas recirculation

New Category 3 Engines – NOx (Tier 3)

What? 80% reduction from Tier 2 limits

When? 2016

Where? Defined geographical areas (US ports and designated coastal waters)

How? Selective catalytic reduction with or without use of low sulfur fuels (use of lower sulfur fuels allows for optimization of the SCR relative to size, efficiency, cost and ease of operation)

Existing Category 3 Engines – NOx (Tier 1 or 20%)

What? MARPOL Annex VI Tier 1 limit or 20% reduction from existing baseline

When? 2012

Where? Everywhere

How? Slide valve fuel injectors, injection timing retard and/or other manufacturer specific in engine retrofits for post-1985 engines; doubtful if retrofits are feasible for pre-1985 engines

New and Existing Category 3 Engines – PM and SOx

What? PM = 0.5 g/kW-hr (approx. 50-70% reduction from current levels)

SOx = 0.4 g/kW-hr (over 90% reduction from current levels)

When? 2011

Where? Defined geographical areas (US ports and designated coastal areas)

How? Use of low sulfur distillate fuels and/or exhaust gas scrubbing technology (vessel option to select optimum method of compliance)

Specific Comments Requested: (suggested positions and need for additional information included in bold text following each issue)

  1. Page 69526/1st column – NOx emission controls beginning in 2011 could be set by either (1) establishment of performance standards allowing shipowners the discretion on how best to meet or (2) mandate a specific action acknowledging that a specific action will result in varying emissions reductions across engine types but allows for a simplified compliance verification. Which is preferred? Suggest (1) is preferred because it maximizes flexibility of the shipowner to select from a menu of alternatives and results in measureable emissions reductions across all engine types.
  1. Page 69537, 2nd column –Do we support proposed Tier 2 NOx standard for new engines in 2011 which would result in a 15-25% reduction from Tier 1 standard? Need technical input on this including technical feasibility and cost.
  1. Page 69537, 2nd column - Do we support proposed Tier 3 NOx standard for new engines in 2016 which would result in an 80% reduction from Tier 2 standard? Need technical input on this including technical feasibility and cost.
  1. Page 69537, 3rd column - Do we support proposed Tier 1 NOx standard for existing engines in 2011 which would result in an approximately 20% reduction from existing levels e.g. existing vessels would have to meet current Annex VI emissions standards? Need technical input on this including technical feasibility and cost.
  1. Page 69537, 3rd column (same as 1. above) - NOx emission controls beginning in 2011 could be set by either (1) establishment of performance standards allowing shipowners the discretion on how best to meet or (2) mandate a specific action acknowledging that a specific action will result in varying emissions reductions across engine types but allows for a simplified compliance verification. Which is preferred? Suggest (1) is preferred because it maximizes flexibility of the shipowner to select from a menu of alternatives and results in measureable emissions reductions across all engine types.
  1. Page 69538, 1st column – relative to application of Tier 1 NOx controls to existing engines, what is the appropriate cut off for engines manufactured before which the Tier 1 NOx controls would not apply? EPA is suggesting 1985 as the cutoff point, but needs information on “retrofit-ability” of older engines, technological availability to achieve these reductions and the costs associated with these strategies. Need technical input on this issue including technical feasibility and cost.
  1. Page 69538, 1st column – relative to regulation PM and SOx emissions, is it appropriate to set performance based standards which will allow vessel owners the flexibility to choose the most economical and technologically feasible compliance mechanisms (but would require field verification that such mechanisms do in fact meet the requirements) or should EPA establish specific actions which vessel owners must take and which when taken would evidence compliance with the requirements e.g. use of distillate fuels with a specific allowable sulfur level? Suggest that we should support the former e.g. performance based standards which will allow vessel owners the choice of compliance mechanisms even though this will require post-installation verification of compliance with the requirements. Performance based standards effective in 2011 of 0.5 g/kW-hr for PM and 0.4 g/kW-hr for SOx are suggested. Are these standards and the 2011 time frame achievable/realistic? Need technical input on this sub-issue including technical feasibility and cost.
  1. Page 69538, 3rd column – relative to Tier 2 NOx reductions for new engines, what are the potential NOx reductions achievable from implementation of in-cylinder technology and what would be the impact of these designs on fuel consumption, maintenance, and on PM emissions? Need technical input on this issue.
  1. Page 69538, 3rd column – relative to application of Tier 1 NOx reductions for existing engines, what are the costs and other business impacts of retrofitting existing engines built before 2000 with these in-cylinder technologies e.g. fuel injection timing, high compression ratio, modified valve timing (4 strokes), late exhaust valve closing (2 strokes), optimized fuel injection system and combustion chamber? Need technical input on this issue including technical feasibility and cost.
  1. Page 69539, 1st column – relative to application of water based technologies (introduction of water into the combustion process) in combination with in-cylinder controls, what are the potential NOx reductions achievable from use of these technologies and what are the expected impacts of the use of these technologies on other pollutants and fuel consumption? Need technical input on this issue.
  1. Page 69539, 2nd column – recognizing that use of water based technologies may require water volumes which can range from 50% of fuel volume to 300% of fuel volume depending on the technology used, is their sufficient onboard capability to generate sufficient fresh water to support these systems? An alternate scenario which could be applicable to vessels on shorter voyages would be storage of fresh water onboard for this purpose. What would be the physical capability of vessels to store sufficient volumes of fresh water on board, the availability of this water from shore sources and the costs associated with this option (cost, if any, of fresh water supply and operating costs onboard). Need technical input on this issue.
  1. Page 69540, 1st column – recognizing that selective catalytic reduction (SCR) has been successfully used in certain marine applications, more information is needed on the emissions reductions achieved by existing systems and the durability, packaging and cost of these systems. Need technical input on this issue.
  1. Page 69540, 2nd column – recognizing that use of higher sulfur fuels in an SCR based system will result in higher exhaust gas temperatures due to need for a less reactive oxidation catalyst, comment is requested on the actual relationship of SCR operating temperatures and fuel quality based on currently operating systems. Need technical input on this issue.
  1. Page 69540, 2nd and 3rd columns – recognizing the potential for loss in emissions reductions efficiencies of SCR based systems at lower operating speeds, comment is requested on the relationship between engine power levels and exhaust temperature profiles for vessels with these systems while operating at low speeds and other engaged in other near shore operations resulting in less than optimum power levels. Need technical input on this issue.
  1. Page 69540, 3rd column – recognizing that SCR grade urea is a widely used industrial chemical globally and thus no supply issues are anticipated with the increased demand that would result in the requirement for SCR based systems aboard ships, comment is requested on any additional information relating to the use of urea or any other reducing agent aboard vessels including costs, storage requirements and supply infrastructure. Need technical input on this issue including technical feasibility and cost.
  1. Page 69541, 3rd column – relative to emissions reductions solely from the use of fuel quality requirements, comment is requested as to the potential PM and SOx reductions achievable through the use of lower sulfur residual fuel or through the use of distillate fuel.