Fuel regs will raise costs, but how much?

New U.S. Environmental Protection Agency rules on fuel standards for ocean cargo carriers go into effect in August and the requirements will add to fuel costs for companies that ship consumer goods to Alaska, sources in the industry say.


There are also more stringent requirements effective in 2015 that are likely to result in additional costs.

On Aug. 1 the companies will be required to use fuel with no more than 1 percent sulfur, according to Richard Berkowitz, with the Transportation Institute, an industry trade association.

"This won't be cheap. It will be significant," Berkowitz said.

In 2015 the standards will be tightened further, with a requirement to use fuel with no more than 0.1 percent sulfur.

Berkowitz said he had heard estimates that the 1 percent rule in effect in August could add 25 percent to fuel costs for major carriers operating to Alaska but other estimates have been as high as 40 percent for fuel.

Officials with shipping companies serving Alaska are being cautious on estimates. Higher fuel costs will translate to higher costs for shipping goods, but the companies can't yet say what the increase might be.

"We are still researching the cost impact of the (rule) implementation on Aug. 1 and are not ready to provide any estimates at this time," said Marvin Buchanan of Horizon Lines Inc. The company hopes to have more information available soon, he said.

One of the problems shipping companies are wrestling with is how to get the special fuels, according to sources in the industry. Ultra-low sulfur diesel with 15 parts per million sulfur is now available because it is required by EPA for trucks and other equipment operating onshore, but a different requirement for ocean vessels, mainly the 1 percent sulfur limit required in August, may require blending of fuels or custom-processing by refineries, which will add costs.

"The uncertainty is over what the cost of blending the fuel will be," Berkowitz said.

Alaska Sen. Lisa Murkowski said she has been told by industry executives that the increases may result in a 25 percent increase in overall shipping costs. Murkoswki made the comment in a meeting with EPA Administrator Lisa Jackson May 15.

Most groceries and many other goods for retail sale are shipped from the Port of Tacoma to Anchorage on Totem Ocean Trailer Express Inc., or TOTE, and Horizon, so higher shipping costs will affect the price of groceries and other consumer goods.

EPA has imposed similar sulfur restrictions in recent years for trucking companies and off-road equipment using diesel engines, but this will be the first time low-sulfur rules are applied to large ocean freighters. The agency is acting to reduce sulfur in the fuels because of studies showing a relationship between air pollution resulting from fuels with higher sulfur and human health problems.

The new EPA rules will apply to all vessels operating out to the 200-mile limit from the U.S. and Canadian coasts, as Canada is adopting similar rules, but U.S.-flagged vessels that operate in coastal shipping, like TOTE and Horizon, are affected more than foreign-flagged ships which must switch to the low-sulfur fuels only when they approach the U.S. closer than 200 miles.

Interestingly, the area covered by the rule does not include western Alaska or the Aleutians, so Unalaska and Dutch Harbor are not included. The estimated 4,000 foreign ships a year that pass through Umnak Pass near Dutch Harbor are not covered by rule. Neither are the U.S. Great Lakes, which are exempted under a special provision secured by Congress.

In her meeting with Jackson, Murkowski expressed concern over the effect of the increases on shipping costs as well as cruise ships.

"These vessels carry four-fifths of the visitors that come to Alaska every summer," Murkowski said, and added that increases to fuel costs will be passed on to passengers, which will discourage tourism.

Murkowski told Jackson that she has been told that the marine industry has been trying to work out an alternative compliance plan with the EPA that would give companies more flexibility and provide a different way to meet or even exceed EPA's goals, but that EPA has not responded.

The issue has been developing for several years. Environmental groups have been pushing EPA hard to enact the low-sulfur rules to ships calling at U.S. ports to reduce harmful air pollution in port areas.

Most of the effort is aimed at foreign ships calling at U.S. ports but EPA's jurisdiction is currently limited to U.S.-flagged ships. An analysis of the foreign vessel traffic, however, led EPA to conclude that only 15 percent of ship traffic are U.S.-flagged ships that would be covered by the rule, Berkowitz said.

California, meanwhile, asserted state authority to require all ships approaching California ports to use low-sulfur diesel but that was successfully challenged in court by a shippers' association.

Following that, EPA then stepped in to impose its own rule to cover U.S. ships, as well as foreign vessels out to 200 miles once a similar rule under the International Maritime Organization is agreed upon.

Canada has also adopted similar emissions restrictions for vessels off its coasts, but has delayed its rule. Ships traveling to and from Alaska on a route within 200 miles of shore will fall under the EPA rule. The routes traveled by TOTE and Horizon ships are rarely if ever more than 200 miles offshore.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.