Oil Spills: Expected Reforms in Tanker Standards and Liability

The unfortunate spate of oil tanker disasters last winter highlighted the increasingly serious problem of vesselsource oil pollution of the marine environment. Attention focused not only upon tanker construction and operation standards but also upon liability for clean-up costs and damages. Because present national and international regulatory mechanisms seem inadequate, both Congress and the Carter Administration are developing numerous reforms. Enactment of stronger financial liability laws appears to be likely this session of Congress, but it is still uncertain whether tanker design and operation standards will be tightened by new legislation or by new regulations under existing laws.

The Problem

Notwithstanding higher prices, world oil usage continues to rise and, as a result, ocean carriage of oil is increasing. United States oil consumption is running at about 18 million barrels a day, and nearly half of this must be imported, almost all by tanker. World tanker tonnage has quadrupled in the last 12 years, and last year there were over 5,000 tankers plying the oceans. Many of the newer ships are the very large oil carriers, above 90,000 deadweight tons (dwt).¹

Tanker sinkings account for about ten percent of the approximately 14 million barrels of oil annually spilled into the oceans. At present prices, this particular loss of revenues measures nearly $18 million exclusive of the value of tankers, which can cost $50 million or more apiece.While the greater publicity has gone to the tanker disasters, a more significant source of pollution, constituting a quarter of the total amount, comes from ordinary tanker operations such as tank cleaning, ballast pumping, and tank leakage. There has been no accurate measurement of total costs, exclusive of clean-up expenses resulting from marine oil pollution to resources such as the coastal tourist trade, waterfowl, and the fishing industry. Fortunately, the oceans seem to have strong recuperative powers; damage from the 1967 Torrey Canyon and last winter's Argo Merchant disasters does not appear long-lasting. Nevertheless, the oceans have a finite capacity as waste-disposal sinks.

At the heart of the current reform proposals, therefore, lie two essential aims: first, to reduce both the frequency of disasters and the pollution from ordinary tanker operations; second, once oil has been spilled, to minimize the severe effects of the resulting pollution. Although cargo preference and pollution-zone concepts are parts of the reform strategy, the two main prongs of reform are tanker design standards and broader liability requirements for clean-up costs.

Present Taner Law

Present regulation of tanker standards is governed by the Ports and Waterways Safety Act of 1972 (PWSA)² and, at the international level, the 1973 International Convention for the Prevention of Pollution from Ships adopted by the Intergovernmental Maritime Consultative Organization (IMCO), a specialized United Nations agency charged with coordinating international maritime standards. The PWSA authorizes the Secretary of Transportation to regulate vessel traffic in the nation's navigable waters, require harbor pilots on international-trade vessels, establish handling procedures for dangerous cargoes including oil, and prescribe minimum safety requirements. Further provisions³ specify in detail requirements on vessel safety, inspections, permits, crew certification, and protection of the marine environment relating to vessel design, construction, and repair.

The 1973 IMCO Convention has been ratified by few nations (the U.S. is not a signatory, but President Carter has urged ratification) and consequently has not come into force. Its emphasis is on setting a standard for acceptable limited discharges as well as specifying construction requirements for new tankers (the Convention specifically rejects retrofitting as too expensive) and certain operating procedures.

Design regulations⁴ under the PWSA have been severely criticized as doing little more than codifying existing industry practices and failing to lay down strict and careful standards. Recently, however, Transportation Secretary Adams promulgated stiffer and more comprehensive regulations⁵ in response to the [7 ELR 10100] recent winter disasters. The new regulations cover not only navigation procedures but also special communications and control equipment and contemplate requiring more sophisticated radar. The regulations are clearly geared to improve upon rather than simply maintain current standards.

An additional criticism of past Coast Guard practice is that the agency failed to regulate international tanker traffic adequately. PWSA regulations for protection of the marine environment are specifically applicable to foreign-flag vessels operating in U.S. waters.⁶ Furthermore, the Coast Guard may deny entry to U.S. waters to foreign vessels that are not in compliance with either the PWSA or its regulations.⁷ Doubtless for political reasons, such as the fear of retaliation against U.S.-flag vessels, the Coast Guard has declined to exercise this unilateral authority. Both environmentalists and representatives of the oil industry recognize that enforcement of existing authority, particularly on this point, is very important to improve the world wide standard of tankers. International law does not appear to prohibit the exclusion of foreign vessels, and the concept of "port state jurisdiction" over the standards for incoming foreign vessels is well on the way to being included in the final product of the Law of the Sea Conference.⁸

Present Liability Law

Besides the aim of improving standards for tanker construction and operation in order to reduce the frequency and severity of marine pollution, oil spill regulation seeks to impose liability (for damages and clean-up costs) on polluters as an incentive toward a higher standard of care. The present situation, however, imposes liability only for negligence, and the amounts recoverable are limited in a way that ignores the large size of present-day tankers.

The Federal Water Pollution Control Act⁹ makes the owner or operator of a discharging vessel liable for actual costs when, as is often the case, government acts to clean up spills. This liability extends to an upper limit of $100 per ton of the ship's capacity or a maximum of $14 million. The limit is inapplicable if the discharge was the result of willful negligence or misconduct, but liability can be avoided if the discharge was the result of an act of God, war, negligence of the United States, or the conduct of a third party.

On the international level, liability is governed by two oil industry voluntary agreements and two IMCO conventions.¹⁰ The first major agreement was Tanker Owners Voluntary Agreement Concerning Liability for Oil Pollution (TOVALOP), which now applies to almost all tankers in the world. For negligent spills, participating industries agree to pay clean-up costs up to $100 per ton of the ship or no more than $10 million. Insurers will pay members' costs regardless of liability, but a second industry agreement, Contract Regarding Interim Supplement to Tanker Liability for oil pollution (CRISTAL), sets up a voluntary fund (contributed by members), not to exceed $30 million, to reimburse TOVALOP owners for clean-up costs above $125 per ton or $10 million. In 1975, however, the IMCO International Convention on Civil Liability for Oil Pollution Damage¹¹ came into force and raised the liability limit to $160 per ton or $16.8 million. The Convention set a strict liability standard, although liability can be avoided for acts of God, war, governmental negligence, or intentionally damaging acts of a third party. An IMCO International Fund Convention modeled on CRISTAL was adopted soon afterwards, but only Liberia has ratified it. The Fund Convention sets up a $36 million fund and provides reimbursement for non-negligent spills and of clean-up expenses in excess of $120 per ton or $10 million if shipowners comply with certain international safety standards. Unlike CRISTAL, the Fund Convention would cover spills due to acts of God, third parties, or government interference.

Criticism of the present liability system goes not only to the restriction that tankers are liable only in negligence but also to the low limitation on costs' reimbursement. Clean-up after the Torrey Canyon disaster cost $15 million, or about $160 per ton of oil spilled, but that was ten years ago.¹² Limiting the liability for $10-20 million would not accommodate a disaster of a present-day supertanker in the 200,000 dwt range. Another criticism is that the funds make money available only for clean-up costs, while spill damages are ignored. United States law¹³ limits damage liability to the ship and cargo value at the end of the voyage, but if a tanker breaks up and sinks at sea, nothing of value remains, and there is no source from which to recover damages.

Reform Proposals

Besides tanker standards and liability funds, both of which will be discussed below, two other reform proposals are included in some congressional bills, although neither one would be as directly beneficial to meeting the marine oil pollution problem as the former two concepts.

Cargo Preference

One of the proposals, "cargo preference," is oriented primarily toward assisting the United States merchant fleet. Modeled after a bill passed in the 94th Congress¹⁴ but vetoed by President Ford, the current proposals¹⁵ [7 ELR 10101] would require that 20 percent of U.S. imported oil be carried in American-flag tankers, the percentage rising to 25 percent in two years and 30 percent two years thereafter. At present, 95 percent of the oil imported into the U.S. is carried in foreign ships.

The basic problem with the cargo preference approach is economic. An American-flag ship is one built in the United States and sailed by an American crew. The cost differentials for construction and operation of American-flag andforeign-flag vessels are significant. In Japan, a 90,000 dwt tanker costs about $18 million compared to $35-40 million in the United States.¹⁶ A 32-man crew for a large supertanker would cost about $1.7 million per year for an American crew as opposed to $600,000 for Italian, $325,000 for Greek, and less than $300,000 for a Chinese crew.¹⁷ By sailing under foreign flags, not only do shipowners avoid higher U.S. construction, repair, and crew costs, but also they avoid the U.S. corporate tax on profits. Exxon, 50 of whose 152 tankers are registered in Liberia, pays no corporate tax in Liberia, and the profits are not taxable in the U.S. unless repatriated.¹⁸

The proponents of cargo preference admit that the aim is to give a needed, albeit subsidized, boost to the U.S. commercial fleet, but they also argue that American crews are better trained and American ship safety standards are more strict than the standards for other nations' fleets. American-crewed ships, however, are not necessarily immune to tanker disasters because a structurally weak ship will fail even under highly-trained hands. As noted above, current American tanker safety standards differ little from world standards. Tanker accidents are often the result of metal fatigue and mechanical breakdowns as a ship continues in service beyond ten years. Ships in the Liberian fleet, often vilified because it is the most-used "flag of convenience," average less than six years in age, younger than the American fleet, and are arguably more efficient because of better equipment installed as a matter of course on all new ships. The size of the Liberian fleet makes it an obvious target if one of its flag vessels breaks down, but its safety record is by no means the worst. Furthermore, U.S. restrictions might signal other nations to impose nationalistic preferences with a resulting disruption of the flow of commerce. A final argument against the cargo preference proposals is the economic cost to American consumers, estimated as high as $38 billion by 1985.¹⁹ Although President Carter has spoken in support of assistance to the United States merchant fleet, he has to date failed to outline a national cargo policy.

Pollution Zones

Another proposal is to make the newly-established fishery zone extending two hundred miles out from the coast into a maritime safety or pollution zone.²⁰ All ships entering this zone would have to comply with U.S. tanker safety and navigation standards.

The beneficial impact of a pollution zone would not be as significant as the potential problems. Ninety percent of ships entering the 200-mile fishery zone are bound for U.S. ports, and the United States already has the authority to impose strict standards on all vessel entering its ports. Secondly, legislating the pollution-zone restrictions could be damaging to U.S. shipping interests abroad. The shape of current Law of the Sea negotiations seems to assure U.S. transit through straits and the economic zones of other countries. This form of unilateral restriction could bring retaliatory measures and torpedo important multilateral principles being established in the Law of the Sea Conference.

Legislative Initiative

The main thrust of reform proposals in the area of vessel-source marine oil pollution, therefore, is in the areas of tanker standards and liability. The Senate is concentrating on tanker safety standards and has just unanimously reported the Magnuson bill, S. 682, out of the Senate Committee on Commerce, Science, and Transportation. Floor consideration is expected to take place shortly.²¹ The House of Representatives, on the other hand, is giving prime consideration not to tanker standards but to the liability question.²² The Carter Administration favors new regulations for tanker standards based on existing legislation, but it agrees that legislation is the proper course for liability reform.

Tanker Safety Standards

Current legislative proposals on tanker standards seek to amend the Ports and Waterways Safety Act by strengthening many of the standards it contains. The main safety provisions in question are those relating to ship equipment and construction, crews, tanker operation, and enforcement.

The effectiveness of double bottoms in reducing oil spillage from accidents has been hotly debated, but reform measures, including those of the Carter Administration, point to imposing this requirement on new U.S.-built tankers. Double bottoms would not only allow a certain amount of segregated ballasting in some circumstances, another commonly-urged reform, but would [7 ELR 10102] provide additional structural strength so that in the event of a grounding or hull tear the oil tanks would not necessarily be ruptured immediately. Additional measures that have been urged include radar and navigation systems, improved maneuverability equipment, and new tank-cleaning facilities. President Carter has directed the Coast Guard to raise licensing and qualification standards for American crews.²³ The President has also suggested that if international standards continue to be inadequate he would, in two years, impose American standards on the crews of all ships entering U.S. ports.

Vessel traffic would be monitored by satellite and radar, similar to airplane traffic control, which would require regular notification of ship location to the intended destination port. Enforcement is to be tightened by regular and careful inspections. Several bills include a form of "blacklisting" whereby tankers found unsafe because of Coast Guard inspections or because of long accident records would be either prohibited completely from entering U.S. ports or the vessel names would be published in the Federal Register so that tanker charterers would know the risky ships.

S. 682, the Senate tanker safety bill unanimously reported out of the Commerce Committee on April 26, would establish stringent construction and operation standards for all tankers, regardless of flag, entering U.S., ports and authorize the Secretary of Transportation to bar substandard vessels. In addition, a "blacklisting" procedure would identify substandard vessels and disclose the true ownership of ships. Bulk oil carriers larger than 20,000 dwt would be required to have advanced radar and navigation equipment as well as a collision avoidance system by June 30, 1979. Within another four years, such vessels must also be equipped with additional systems to minimize structural difficulties, such as segregated ballasting and inert gas vapor displacement systems. Vessels contracted for, or those for which actual construction has begun, after January 1, 1978 would have to be built with double hulls. Finally, the bill mandates tighter enforcement programs and crew standards.

The Carter Administration proposals for tanker safety through regulation²⁴ parallel for the most part these legislative proposals. Suggestions for improved ship construction and equipment standards include double hulls on all new tankers, segregated ballast, inert gas systems, backup radar and collision-avoidance equipment, and improved maneuvering capability. More stringent crew standards would be imposed. Also, the Administration is particularly concerned with an expected IMCO convention next year dealing with crew qualifications. Not only is stricter enforcement a key part of the Carter initiatives, but also the proposals will apply to all vessels, regardless of flag, entering U.S. ports.

Liability Reform

The Carter Administration's proposal on tanker liability legislation is contained in S. 1187. The bill provides for strict liability of the owner and operator of a vessel that is the source of oil pollution, but liability may be avoided for incidents caused solely by acts of war or by "a natural phenomenon of an exceptional, inevitable, and irresistable character."²⁵ More importantly, liability would attach not only for clean-up costs but for any economic loss or damages arising out of oil pollution. The primary bill in the House of Representatives is H.R. 6803, which was reported out of the House Merchant Marine Committee on May 4²⁶ and parallels much of the Carter proposal.

Both the Carter bill and H.R. 6803 impose a limit of $300 per ton on liability, but the Carter bill sets no upper limit, while the House committee bill sets a ceiling of $30 million. The House action represents a failure to adjust to present circumstances because, like the current agreements and conventions, it fails to take into account possible disasters involving tankers over 100,000 dwt. On the minimum end of the scale, the Carter bill sets liability at $500,000, but barge operators in particular mounted a strong lobbying effort in the House to reduce the minimum because of prohibitive insurance costs. As a result, H.R. 6803 sets a minimum of $125,000 for inland barges and $250,000 for all other vessels.

A major new concept is the establishment, in both bills, of a $200 million "superfund" to pay clean-up costs and damage claims not recovered from a vessel owner and operator. Money for this fund will come from a levy of three cents per barrel against owners of facilities and refineries receiving imported oil. A possibly thorny problem is the preemption of state jurisdiction. The Carter bill prohibits any action under any other federal, state, or local law for damages for an economic loss of the kind described in the bill. H.R. 6803 seeks to avoid duplication of funds but does allow states to impose clean-up costs. The two proposals may, in the end, not be too far apart; their purpose is simply to avoid overlapping and confusing requirements. Having a single source for damage recovery will inevitably provide ease of administration.

Conclusion

When this legislative and administrative package of tanker standard reform is completed, as it could be in 1977, the United States will be in the forefront of meeting the problem of vessel-source oil pollution. Tanker standards and enforcement will be made substantially stricter, whether by legislation or regulation. Retrofitting [7 ELR 10103] of protective equipment on old vessels, an expensive process opposed by the tanker industry, will probably be required. Retrofitting will have the palliative effect of driving the older and less safe tankers off the market if they cannot be brought up to current standards. While U.S. requirements can not be imposed on all worldwide tanker trade, enforcement of the standards under "port state jurisdiction" should improve a large portion of the worldwide fleet. The imposition of strict liability for clean-up and economic damages, moreover, will have the effect of adding the true cost of vessel-source marine oil pollution to the price of oil itself.

1. The term deadweight tons, refers to a vessel's cargo-carrying capacity, including fuel oils, stores, and potable water, as expressed in long tons (2240 pounds equals one long ton). There are about seven barrels (bbls.) of oil per dwt of measurement. The largest tankers currently in use are two 542,00 dwt vessels operated by Royal Dutch-Shell. Larger ships, up to one million dwt, are under consideration.

2. 33 U.S.C. §§ 1221-27, ELR 41718; 46 U.S.C. § 391a.

3. 46 U.S.C. § 391a. Whether the PWSA preempts state tanker operation and design regulations is an issue that will be aired before the Supreme Court. See Atlantic Richfield Co. v. Evans, 7 ELR 20071 (D. Wash. Sept. 23, 1976), prob. juris. noted sub nom. Ray v. Atlantic Richfield Co., 45 USLW 3586 (U.S. Feb. 28, 1977); Comment, Preemption Once More: Washington's Tanker Law Enjoined But Stays Afloat, 7 ELR 10012 (1977).

4. 33 C.F.R. pt. 157.

5. 42 FED. REG. 5956-66 (Jan. 31, 1977).

6. 46 U.S.C. §§ 391a(1) & (7)(d).

7. 46 U.S.C. § 391a(13).

8. Hearings on Recent Tanker Accidents Before the Senate Comm. on Commerce, 95th Cong., 1st Sess., pt. 1, at 254 (1977).

9. FWPCA § 311, 33 U.S.C. § 1321, ELR 41117.

10. See generally Wood, Toward Compatible International and Domestic Regimes of Civil Liability for Oil Pollution of Navigable Waters, 5 ELR 50116 (1975).

11. ELR 40306. The 1975 IMCO Convention is not in force in the United States, however, because it has not been ratified by Congress.

12. M. Lipeles, Oil: Study of Pollution Insurance Liability Laws S-2 (Environmental Policy Institute, rev. ed. 1977).

13. 46 U.S.C. § 192.

14. S. 578, 94th Cong., 1st Sess. (1975).

15. H.R. 1037 (Murphy, D-N.Y.), S. 61 (Hollings, D-S.C.), S. 682 (Magnuson, D-Wash.), 95th Cong., 1st Sess. (1977). As reported out of the Senate Committee on Commerce, Science, and Transportation on April 26, however, S. 682 does not contain a cargo preference provision. The Hollings and Murphy bills on cargo preference continue to have some support in Congress.

16. Wall St. J., Jan. 18, 1977, at 1, col. 1.

17. Washington Post, Jan. 9, 1977, at A8, col. 1.

18. Wall. St. J., supra note 17.

19. National Wildlife Federation, Conservation Report 168 (Mar. 25, 1977).

20. S. 182 (Kennedy, D-Mass.), S. 682 (Magnuson, D-Wash.), 95th Cong., 1st Sess. (1977). As reported out of the Senate Commerce Committee on April 26, however, S. 682 does not contain a pollution zone provision. The Fishery Conservation and Management Act, 16 U.S.C. § 1801 et seq., extends the exclusive United States fishing zone from 12 to 200 miles from the coastline and establishes an extensive management program requiring licenses for all foreign fishing vessels operating in the zone.

21. House consideration of the tanker safety legislation has lagged, but oversight hearings before the Coast Guard Subcommittee of the House Merchant Marine and Fisheries Committee are scheduled for late May.

22. Consideration of liability legislation will be several months away in the Senate. The relevant bills, S. 121 (Biden, D-Del.), S. 182 (Kennedy, D-Mass.), S. 687 (Magnuson, D-Wash.), and S. 1187 (the Carter Administration proposal) have been referred jointly to the Senate Commerce and the Public Works and Environment committees. Work in the Senate Commerce Committee will begin after the tanker standards business is completed at the end of May.

23. Recently, the Coast Guard proposed regulations for qualifications of tanker personnel engaged in oil transfer operations. 42 FED. REG. 21190-200 (Apr. 25, 1977).

24. The proposed regulations had not been issued at ELR press time, but the measures were announced by the White House on March 18, 1977.

25. S. 1187, § 104(c)(1), 95th Cong., 1st Sess. (1977). This phrase may be merely a meaningless elaboration of the familiar "act of God" provision, but it also may cause confusion by creating some new standard of proof.

26. H.R. 3711, the original House bill, was referred jointly to the Committee on Merchant Marine and Fisheries and the Committee on public Works and Transportation. H.R. 6803 is the mark-up of H.R. 3711 outof the Merchant Marine Committee, but the Public Works Committee has taken no action on liability reform legislation. Thus, before the bill can reach the House floor, the Public Works Committee must pass on it.