This article is part of a series by Holland & Knight’s Transportation & Infrastructure Industry Sector Group leading up to President-elect Biden’s Jan. 20, 2021 inauguration, with insights into the likely impacts on industry segments including Aviation, Construction, Maritime, Freight Rail, Motor Carriers, Transit and Autonomous Transportation.
By Sean T. Pribyl (Holland & Knight) –
As the new Biden Administration takes the helm in January 2021, there are great expectations for the next year in terms of consistency and stability at the federal level. Generally, industry can expect the U.S. Coast Guard (USCG) to stay true to its core missions with support from the highest levels of the U.S. Department of Homeland Security (DHS), its parent agency. In this article, Holland & Knight takes a closer look at what to expect from the USCG in the coming year, including three key issues to watch.
1. Environmental Stewardship: It’s Not Easy Being Green
A hallmark of the USCG is to serve as steward of the nation’s maritime environment. Expect this to continue with an increased emphasis on industry compliance and efforts toward innovative solutions for a more sustainable economy that serves to reduce greenhouse gas carbon emissions across the shipping sector. With Democratic control of Congress, the Biden Administration seems ready to welcome innovative technologies that support a clean energy economy and treat climate change as a national security threat. Specifically, it is expected that President-Elect Joe Biden will rejoin the Paris Agreement in his early days of the presidency as a signal of his intentions to combat climate change with a so-called “New Green Deal.” Other reports indicate he is interested a clean energy and infrastructure plan costing potentially in the trillions of dollars, which would likely have a significant impact on the U.S. maritime market.
So, what would aspects of a New Green Deal mean for the USCG? Expect the USCG to play a supporting role by ensuring a level playing field across the marine sector through continued (and perhaps enhanced) environmental compliance measures, such as those related to stack emissions, ballast water, hull biofouling and use of low-sulfur fuel. In fact, stakeholders should expect the USCG to continue its enforcement of environmental crimes, a posture that did not fade during the Trump Administration. Also, expect increased efforts by the USCG’s Port State Control Division toward monitoring, reporting and verification systems in ports to track emissions and hold polluters accountable, efforts that congressional or executive action could also bolster.
As always, USCG environmental issues come down to two main factors: compliance and enforcement. As to the former, ballast water compliance – the environmental topic de jour for the past several years – will continue to be at the forefront of compliance considerations, with the notable update of the U.S. Environmental Protection Agency’s (EPA) Notice of Proposed Rulemaking on Vessel Incidental Discharge National Standards of Performance under the 2018 Vessel Incidental Discharge Act (VIDA) framework for regulating discharges incidental to the normal operation of vessels. Once EPA has finalized national standards of performance, VIDA requires the USCG to issue implementing regulations before the EPA regulations take effect, so look for the USCG to announce steps in this regard, including in relation to compliance, monitoring, inspections and enforcement.
Beyond ballast water, invasive aquatic species can also be transferred by biofouling of a ship’s hull. Biofouling is quickly emerging on the horizon as the shipping issue with the most significant impact on marine ecosystems with a direct effect on vessel performance (and thus charter party compliance). At present, there are no international biofouling regulations, although the USCG requires ballast water management (BWM) plans to include detailed fouling maintenance and sediment removal procedures. Look for biofouling to gain prominence as related to broader environmental goals.
With a year of the International Maritime Organization’s (IMO) 2020 sulfur cap under the industry’s belt, look for continued efforts by the USCG for verifying compliance with MARPOL Annex VI and enforcement of the IMO sulfur cap regulations. Also expect continued issues related to compliance with shipboard exhaust gas cleaning systems (EGCS, or “scrubbers”). Scrubbers are an accepted equivalent measure in complying with the IMO 2020 global sulfur cap, however, the EGCS discharge of washwater has raised environmental questions, leading numerous global ports to prohibit, or place local conditions on, the use of scrubbers – including California, Connecticut and Hawaii. Stakeholders should continue to monitor developments with EGCS discharge washwater compliance, as revised IMO guidance may be taken up at Marine Environment Protection Committee (MEPC) 77 or MEPC 78.
Lastly, offshore wind is developing at record pace as a “renewable resource” and potentially viable decarbonization strategy. While the USCG is not the lead regulatory agency for offshore wind, construction and location of offshore renewable energy installations (OREI) impacts marine navigation safety, which does fall under USCG purview. Thus, as this market expands, expect the USCG to rely on its guidance on roles and responsibilities for OREI, serve as a cooperating agency and conduct more studies and make more recommendations for providing safe access routes for vessel traffic in U.S. waters, and make recommendations on the same to relevant lead agencies. Given the overlapping federal agency jurisdictions related to offshore wind, stakeholders should anticipate more regulatory hurdles in this space.
New technology could also lead to further development and expansion of “America’s Marine Highway” corridors and inland waterways, and as with offshore wind, may require USCG involvement with ensuring safe navigation. The Marine Highway program was established by Section 1121 of the Energy Independence and Security Act of 2007 and has yet to fully realize its potential, although it could become accelerated by concepts such as the Transportation Climate Initiative, which aims to cap vehicle emissions from Maine to Virginia by as much as 25 percent over the next decade, and thus could require options for moving some trucking shipments to short-sea shipping. This is similar to other DOT Marine Highway projects by entities such as the North Atlantic Marine Highway Alliance intended to promote transport options (e.g., barges) to support port terminal capacity and reduce the volume of vehicles on roads to reduce road traffic and curtail pollution.
2. Innovation: A Sea Change into Shipping 4.0
To survive budgetary constraints and keep pace with an evolving maritime sector, the USCG likely faces a common obstacle facing the commercial sector, interagency partners and sister services: innovate, or perish. In either case, lack of innovation could lead to redundancy in operations and inability to meet the full scope of mission objectives. To its credit, the USCG’s Maritime Commerce Strategic Outlook (October 2018) signals the service’s clear intention to consider innovation and emerging technologies to facilitate lawful trade and travel on secure waterways, modernize aids to navigation and mariner information systems, and transform the workforce capacity and partnerships. This is buttressed by Executive Order 13859 on Maintaining American Leadership in Artificial Intelligence with a concerted effort to promote and protect U.S. AI technology and innovation, further supported by the references to utilizing optionally manned and unmanned systems in the recently released Tri-Service Maritime Strategy Prevailing with Integrated All-Domain Naval Power (Dec. 2020). Thus, look for more reliance on, and introduction of, more innovative solutions by the USCG as both a regulator of and user of innovative and “blue” technologies.
To this end, expect the USCG as a regulator to become more involved with the development by the industry of novel use concepts in the maritime domain, fuels and energy sources for ships, and ship propulsion and design. Such operations may require oversight and approval by relevant USCG offices, and since these may be novel or yet-to-be-seen concepts, the USCG may rely on input from industry and the public to educate those same approvers. For example, liquefied natural gas (LNG) as a fuel has been evolving for several years with essential port infrastructure to support LNG-fueled vessels. As a result, the USCG has promulgated guidance on LNG fuel operations and established the Liquefied Gas Carrier National Center of Expertise (NCOE). Now, some international and U.S. companies are rapidly developing viable alternate propulsion options, such as hydrogen, ammonia, methane, battery, rigid sail and nuclear power ships. Such novel technologies could create new work for U.S. shipyards, vessel operators and port facilities, which in turn could add shoreside and shipboard jobs. However, for novel designs or operations not covered in current regulations, the USCG will have an active role to ensure that new technology meets a minimum safety level, as well as in developing and maintaining guidance, standards and regulations. Also in question is whether the infrastructure currently exists to accommodate these emerging fuels. Stakeholders should be aware that navigating approval processes could be complex, although investors should be optimistic about expected Biden Administration support in this space.
To its credit, the USCG has already embraced innovative solutions by permitting the use of Electronic Record Books (ERBs) for certain required logs under the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) to electronically record discharges, transfers and other reportable operations. Written confirmation from the ship’s Flag Administration is needed to verify that the electronic system meets the criteria provided in IMO Resolution MEPC.312(74), but the move signals a shift toward the USCG’s acceptance of more efficient and innovative development. Notably, the use of ERBs in no way relieves shipowners of their existing duty to accurately maintain and produce records during an inspection. Thus, it remains to be seen whether the USCG will develop more well-defined policy on ERB compliance and enforcement given the prosecutorial and evidentiary importance of record books when “presented” to the USCG with erroneous entries or omissions.
Innovation is also important to the USCG as a user of emerging technologies. The USCG Research and Development Center is involved in several research and innovation projects that indicate progress in this space. More notably, the Chair of the House Committee on Transportation and Infrastructure (T&I) Peter DeFazio (D-Ore.), Full Committee Ranking Member Sam Graves (R-Mo.), Chair of the House Subcommittee on Coast Guard and Maritime Transportation Sean Patrick Maloney (D-N.Y.) and Subcommittee Ranking Member Bob Gibbs (R-Ohio) recently sent a letter to the USCG Commandant urging him to adopt the recommendations from the National Academy of Sciences (NAS) report titled Levering Unmanned Systems for Coast Guard Missions: A Strategic Imperative, with the recommendation “to realign plans, operations, budgets, and policies to enable the USCG to capitalize on unmanned systems through purposeful strategic action.” That T&I Committee letter also indicated “it is time for the Coast Guard to establish proactively a formal means to identify, investigate, and integrate these promising systems. This will allow the Coast Guard to establish funding needs and make a compelling case to Congress and the Administration for the additional resources to acquire and use these technologies.” (Author’s note: As a member of the NAS ad hoc committee that prepared the NAS Report, it is personally encouraging to see the speed by which the T&I Committee has moved to urge the USCG to adopt the recommendations, something that bodes well for U.S. developers as the USCG adopts and procures emerging technologies.)
There are other indications that the USCG is embracing innovation. The USCG has recently increased its access to innovative technologies through a partnership with the Defense Innovation Unit. In addition, the recently established Blue Technology Center of Expertise (BTCOE) will “serve as a conduit to the technology sector, seeking innovative ocean-focused technologies to enhance the service’s missions.” Lastly, but certainly not least, it remains likely that sanctions compliance will continue to permeate the shipping industry operations, and thus expect the USCG to continue to evaluate innovate solutions to further support its Guidance to Address Illicit Shipping and Sanctions Evasion Practices.
3. Cybersecurity: Managing Risk of Cyber Threats by Land and by Sea
In the marine sector, ports, terminals, ships, refineries and their support systems are vital components to the national security and economic interest – they are also increasing the use of cyber technology, and thus, increasing cyber risk. Maritime cybersecurity is of particular concern to industry because lost or delayed shipments can result in strategic economic disruptions and “potential spillover effects on downstream industries” as indicated in the National Cyber Strategy.
The USCG is both a user and regulator of cyber technology, and thus is keenly aware that exploitation, misuse, disruption or failures of cybersystems can cause injury or death, harm the marine environment, disrupt vital trade activity and degrade the ability to respond to other emergencies – a threat that will continue to grow in 2021. Owners and operators are responsible for assessing cybersecurity vulnerabilities and ensuring cybersecurity of their facilities with the USCG’s oversight and guidance in accordance with implementing regulations of the Maritime Transportation Security Act (MTSA) of 2002. Regulated facilities (including Outer Continental Shelf facilities) are required to assess and document vulnerabilities associated with their computer systems and networks in a Facility Security Assessment (FSA). If vulnerabilities are identified, the applicable sections of the Facility Security Plan (FSP) must address the vulnerabilities in accordance with 33 CFR 105.400 and 106.400.
To that end, the USCG offers guidance to facility owners and operators in complying with the requirements to assess, document and address computer system or network vulnerabilities in Navigation and Vessel Inspection Circular No. 01-20: Guidelines for Addressing Cyber Risks at Maritime Transportation Security Act (MTSA) Regulated Facilities. Although that NVIC addressed MTSA-regulated facilities, look for the USCG to take more a rigorous review of shipboard cyber risk this year by building on the IMO Maritime Safety Committee’s Resolution 428(98), “Maritime Cyber Risk Management in Safety Management Systems” (SMS) and the recently released National Maritime Cybersecurity Plan. The USCG issued a Vessel Cyber Risk Management Work Instruction (CVC-WI-027(1)) that provides guidance regarding the USCG commercial vessel compliance program’s approach to assessing the cyber riskon vessels to ensure that vessels do not pose a risk to the Marine Transportation System (MTS) due to a cyber event. The focus of the USCG’s approach is on cyber risk management and basic cyber hygiene as implemented into a vessel’s SMS. Notably, companies with foreign flagged vessels that call on ports in the U.S. should ensure that cyber risk management is appropriately addressed in their SMS no later than the first annual verification of the company’s Document of Compliance (DOC) after Jan. 1, 2021. Failures with compliance have real conseqences, including vessel detention, rectifying defiencies prior to departure and external audits.
In 2021, stakeholders should closely examine the above three areas and evaluate whether there will be emerging commercial opportunities under a Biden Administration, including options for helping shape future legislation, while also carefully navigating the regulatory compliance frameworks. Moreover, the U.S. maritime industry should view President-Elect Biden’s nomination for DHS Secretary, Alejandro Mayorkas, as favorable to the USCG and industry alike as he comes to the post with a relevant background as former DHS Deputy Secretary and is thus seemingly aware of the capabilities and missions of the USCG (in fact, he previously received the USCG Distinguished Public Service Award). This experience should mitigate the need for a steep learning curve on understanding the USCG’s missions and value to the nation. More notably, Mayorkas has experience in some of the key issues facing the USCG, such as information-sharing and cybersecurity, immigration, relations with Cuba and promoting lawful trade with innovative solutions. He should be able to hit the ground running and let the USCG carry on with business as usual.
Having Mayorkas leading DHS will be an important consideration given the vital decisions needed on USCG budget and operational priorities, and should lead to less emphasis on redirecting resources toward other missions, such as a border wall, with a reemphasis on extending the reach of the U.S. border at-sea and to support President-Elect Biden’s purported focus on a more sustainable economy with reduction of carbon emissions. This is not to mean the USCG will not face budget battles – with the USCG, that is seemingly as certain as death and taxes.
Overall, the appointment of Mayorkas should instill a sense of stability to the USCG and maritime sector alike as both should know what to expect in terms of compliance and enforcement, which in turns fosters investment. There is no doubt the USCG will continue to “stand the watch” and dutifully serve the nation by addressing national priorities, a task it will balance with the well-being of its service members and civilian workforce during COVID-19. In other words, under the incoming Biden Administration, the USCG will continue to live up to its motto of Semper Paratus.
Read more of Holland & Knight’s Transportation & Infrastructure Industry Sector Group’s blog series: 20 Posts in 20 Days Leading to Inauguration Day
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