Happy New Year: IMO 2020 is Here
A new year is right around the corner, which means IMO 2020 is finally here. Effective January 1, 2020, Annex VI of MARPOL, which is the international treaty governing pollution on the high seas, will mandate a significant decrease in sulfur emissions from vessels—reducing the current permitted level of 35,000 ppm to 5,000 ppm. Compliance with this new standard will primarily be achieved through the burning of low-sulfur fuel, although compliance choices include other methods like the use of scrubbers and liquid natural gas (“LNG”) as fuel. Under this regime, the primary responsible party in the freight market will be the vessel owner or operator.
It is estimated that 10-20 percent of vessels after January 1, 2020, simply will not comply with the new IMO 2020 sulfur standard. Furthermore, because there is no industry standard specification for bunker fuel, there is an increased risk of fuel quality issues that lead to suboptimal performance and engine damage, which may give rise to inadvertent non-compliance. As a result, the industry should expect significant enforcement efforts of this new standard.
The IMO does not have a global enforcement body. Instead, IMO member states pass laws implementing the provisions of Annex VI, which are enforced by bodies analogous to the US Coast Guard and US Environmental Protection Agency (“EPA”). In particular, port states can enforce compliance within their coastal waters while flag states may enforce the standard on vessels flagged in their countries. Both port states and flag states have the authority to arrest vessels, and issue fines, penalties and prison sentences.
Historically, the United States has been a lead enforcer of MARPOL, and the industry should expect robust enforcement in the United States regardless of whether the non-compliance occurs in US or non-US waters. It is likely that US authorities will seek to enforce IMO 2020 through whether the vessel is maintaining true and accurate records, specifically its bunker delivery notes (“BDNs”) and fuel changeover logbook. Any listing of noncompliant fuel or false or inaccurate statements in those records could result in the US Coast Guard detaining the vessel and prosecuting the vessel owner, operator, bunker fuel supplier or other responsible party. Although the likelihood of direct non-compliance in US waters is low, even indirect non-compliance can still be enforced if the vessel’s records are false or inaccurate.
Prior enforcement of IMO treaties—which includes multimillion-dollar fines and criminal penalties for captains and vessels—further demonstrates the likelihood of a robust US response to non-compliance. Similarly, whistleblower provisions will likely also bolster US enforcement of IMO 2020. Under US law, whistleblowers who report non-compliance can receive up to 50% of the monetary penalties levied against the owner, operator or vessel. With penalties in these cases exceeding tens of millions of dollars, the whistleblower provisions provide crew with a significant incentive to report non-compliance to US authorities.
While direct liability of the owner and operator of the vessel is a primary concern, there are also varieties of implications non-compliance may have on other parties involved in the freight industry. For example, the detention of vessels and its owners or operators for non-compliance can also lead to delays in the shipment of goods and present significant obstacles and other logistical issues in getting a vessel released from US authorities. Moreover, the reputational harm that comes with non-compliance may also have a lasting effect on a shipper’s business.
With IMO 2020 just around the corner, it is essential that all parties seek to implement robust compliance plans and due diligence of their counterparties—including charterparties, fellow shippers, vessel owners and operator and bunker fuel sale counterparties.
David McCullough is a partner in the Energy & Infrastructure practice group at the New York office of Eversheds Sutherland (US) LLP. Nicholas Hillman, with Eversheds Sutherland (US) LLP in Washington DC, is not yet admitted to practice.