Federal Appellate Court Stays Initial Date for Meeting New Ballast Water Discharge Limits – But Only for Canadian Shipowners Association Members

by K&L Gates LLP
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On April 9, 2014, the United States Court of Appeals for the Second Circuit granted a stay of the January 1, 2014 deadline for installation of ballast water treatment technology required by the U.S. Environmental Protection Agency’s (“EPA’s”) 2013 Vessel General Permit (the “VGP”). The stay only applies to vessels owned or operated by members of the Canadian Shipowners Association (“CSA”). This Order partially eases the predicament vessel operators face because the U.S. Coast Guard has granted legally enforceable extensions to well over a hundred vessels operating in waters of the United States, but EPA has not, leaving operators exposed to significant potential liability. See our prior publication on this topic.

Before EPA issued the VGP, the U.S. Coast Guard (the “Coast Guard”) identified certain ballast water treatment technologies as appropriate for installation under the National Invasive Species Act. When it issued the 2013 VGP, EPA determined that these technologies constituted the Best Available Technology Economically Achievable (“BAT”) under the Clean Water Act and required vessel owners and operators to install BAT on all appropriate vessels on the same schedule as adopted by the Coast Guard.

On December 19, 2013, CSA filed a petition seeking to reopen the VGP, challenging the EPA’s BAT determination on the grounds that the technology was not yet type-approved in the United States, and, therefore, could not constitute BAT (the “Administrative Petition”). [1] Since that time, the Coast Guard has not type-approved a single system as adequate under their regulations, and instead has granted extensions of its deadlines. [2] Despite the absence of type-approved technology, EPA has declined to extend its deadlines. CSA then filed a lawsuit challenging the validity of EPA’s BAT finding given the lack of any type-approved systems for use in the United States (the “Judicial Petition”). EPA countered that the Court should disregard CSA’s Judicial Petition because CSA filed it too late. CSA asked the Court to stay the VGP requirements until it could rule on the Judicial Petition, [3] and the Court agreed to stay the VGP until a merits panel resolved the question of whether the Judicial Petition was timely.

CSA submitted the request for a stay because it claimed several of its members’ vessels would not be able to operate lawfully in U.S. waters under the VGP’s deadlines. Specifically, the VGP requires vessels to comply with certain technology-based effluent limits, which they may achieve through (1) onboard treatment systems, (2) onshore treatment systems, (3) use of water from public water supplies, or (4) not discharging ballast water.

CSA argued that, as both EPA and the Coast Guard concede, there simply are no onboard technologies currently available that CSA’s members could install to comply with the VGP by the applicable deadline. [4] Likewise, since CSA’s members ship on the Great Lakes, there are no onshore facilities or onshore sources of public water in that region that CSA’s members could use to meet the standards.  Lastly, simply not discharging ballast water ignores the realities of shipping and is akin to telling vessel operators to stop operating to avoid violating the VGP. CSA repeatedly brought these issues to EPA’s attention, [5] yet EPA failed to respond or amend the compliance deadlines, even though the Coast Guard extended deadlines required by their parallel regulations and EPA knew compliance was more or less impossible.

CSA also argued that the VGP requirements were not economically achievable, which is part of the BAT analysis required before EPA may impose new obligations under the Clean Water Act. [6] EPA assumed that the VGP would not impose additional costs on shipping because of preexisting Coast Guard ballast treatment requirements. CSA argued that EPA failed to consider, however, that the Coast Guard extended the deadlines for its standards, leaving the VGP as the only standard requiring near-term expenditures. Additionally, it asserted that EPA radically underestimated the cost of installation at between $444,730 and $526,525 per vessel. In contrast, the Coast Guard estimated installation costs between $3.5 million to $11.7 million per vessel. [7]

In short, CSA claimed that the VGP forced its members to choose between (1) terminating all operations in U.S. waters; or (2) operating in knowing violation of the Clean Water Act. Choosing the first option would require operators to breach or suspend shipping contracts, lose significant revenue, and suffer injury to their professional reputations. As CSA argued, such injuries would irreparably harm CSA’s members, while a stay of the VGP would in no way harm EPA or the general public, since a stay would merely maintain the status quo. [8]

EPA opposed CSA’s motion for stay and simultaneously moved to dismiss CSA’s Judicial Petition on the grounds that it was untimely. [9] EPA argued that interested parties had 120 days to challenge the VGP, and that the window for such challenges closed on August 26, 2013. CSA filed its Judicial Petition on January 1, 2014 (when the ballast water treatment standards took effect) and its motion for stay on January 16, 2014.

The Second Circuit issued a narrow ruling, referring EPA’s motion to dismiss CSA’s Judicial Petition to a merits panel. Pending the merits panel’s decision, the Court stayed application of the VGP only as to CSA member vessels. The parties will have a revised schedule for briefing, and the case will be assigned to the first merits panel after May 23, 2014. [10] The most significant aspect of the ruling is the Court’s apparent view — as is always the case with injunctions — that EPA is not acting fairly to the regulated community by not addressing this issue.

What’s Next?
In addition to CSA’s Judicial Petition, which the Second Circuit has now referred to a merits panel (as noted above), CSA also filed an Administrative Petition, requesting that EPA reopen the VGP for review and change the dates of compliance for the same reasons it noted in its Judicial Petition. EPA has taken no public action on the Administrative Petition. The situation raises a number of issues for the maritime industry.

  • How will the Court’s stay affect how EPA views the Administrative Petition?
  • How will EPA react to the Court’s apparent view that it is not acting fairly to the regulated community?
  • Will EPA take the initiative to stay the VGP requirements while it considers the Administrative Petition?
  • Will EPA be willing to stay the VGP deadlines as to other vessels elsewhere in the United States — including the U.S. domestic fleet, which is in the same predicament — or will it do nothing to address this unless a Court orders it to?

The Court is likely to rule on whether CSA’s petition is timely this fall. At that point, the 2015 compliance deadlines will be looming. Most agree that obtaining type approval for ballast water technology will take at least a year. Even when type-approved, commercial production must follow, and capacity is limited. If the Court dismisses CSA’s Judicial Petition as untimely, the stay will be lifted and even CSA members will face the compliance conundrum again. Either way, the rest of the maritime industry remains in limbo.

Notes:
[1] CSA, Petition to the U.S. EPA to Postpone and Modify Certain Requirements of the 2013 Vessel General Permit (Dec. 19, 2013).

[2] Because of the uncertainty regarding the criteria for type approval, and the cost of seeking type approval, to date only one company has even sought that approval.

[3] Petitioner’s Memorandum of Law in Support of Its Motion for Stay, or in the Alternative, Preliminary Injunction or Postponement, Canadian Shipowners Ass’n v. EPA, No. 14-0039 (2nd Cir. Jan. 16, 2014) (“Mot. to Stay”).

[4] Mot. to Stay at 5.

[5] Id. at 3-5; see also Ltr. from Robert Lewis-Manning, President, CSA, to Dr. Ryan Albert, Office of Water, EPA (Sept. 13, 2013).

[6] Mot. to Stay at 17.

[7] Id. at 19.

[8] Id.

[9] CSA’s Judicial Petition was consolidated with three cases in which environmental groups challenged the final VGP, largely on grounds that the ballast water discharge requirements are too lenient. Those cases are still pending. CSA and the Lake Carriers’ Association intervened with EPA in defending the VGP’s discharge levels. This means CSA is on both sides of the case. CSA thinks the IMO ballast water discharge standards are appropriate, but disagrees with the VGP’s timing for installation.

[10] Order at 1, NRDC v. EPA, No. 13-1745 (2nd Cir. April 9, 2014) (“Order to Stay”).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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