Regulatory rouletteLast week, President Obama was to sign into law a bill that requires the cruise industry to be more transparent in reporting onboard crime and to comply with new cabin security and surveillance measures.

The legislation was one of several recently enacted U.S. laws and international conventions that regulate the actions of the cruise industry.

From Antarctica, where the International Maritime Organization's ban on heavy fuel oil effectively shuts out most large cruise ships, to Alaska, where wastewater-discharge restrictions limit trace-metal content to levels the cruise lines say they can't meet, the cruise industry has said it is facing what one insider called a regulatory "minefield."

What makes compliance difficult for the industry is that one of its greatest assets, the mobility of its ships, presents a challenge when it comes to jurisdiction. Ships constantly move through different territorial waters, encountering different laws and standards to which they must conform.

"There is always a concern about different countries adopting new rules," said Carnival Cruise Lines CEO Gerry Cahill. "It does make it more difficult. Sometimes we have to carry two different grades of fuel onboard to comply with these rules. Different communities sometimes post their own rules, and to an operator, that kind of drives you crazy."

CLIA has lobbied the IMO and the U.S. government for more consistent rules, but Michael Crye, CLIA's executive vice president for technical and regulatory affairs, said that in "different areas of the world, they have different problems and issues."

"From a shipping perspective, it's always been and always will be that we'd like to harmonize the requirements placed on an industry, so that you don't have this thing taking effect in this location and that thing in that location," he said.

Meanwhile, environmental groups and victims associations are applauding the increased jurisdiction, claiming that an industry that has long sidestepped regulation by flying foreign flags and operating in international waters is finally being held to account. Politicians behind the legislation say that it makes the world cleaner and safer.

Doris MatsuiIntroduced by Rep. Doris Matsui (D-Calif.), the Cruise Vessel Safety and Security Act passed thanks to support from legislators such as Sen. John Kerry (D-Mass.), who said, "The term 'duty free' does not apply to the safety of passengers. Murky lines of jurisdiction are no longer an excuse for risking the safety of millions of Americans who will board cruise ships this year."

Rod McLeod, a former cruise executive and now a consultant with McLeod Applebaum & Partners, said this increase in regulatory attention from so many different parts of the world is the industry's "new normal."

"The cruise industry's platform has never been as high, as wide and as global as it is today," McLeod said. "Over the past 25 years, the industry has shifted from relative anonymity to being a high-profile and profitable mainstream vacation option. This increased visibility has upped the industry's target profile among every level of government."

McLeod speculated that these various levels of government throughout the world might be looking to increase revenue to cope with budget deficits or make the cruise industry an example of their environmental stewardship or public service.

Much of the regulation does not target the cruise industry but envelops it in new restrictions on the entire shipping industry.

The IMO, for example, one year ago approved a rule banning high levels of nitrogen and sulfur oxides in fuel used by any ships sailing within 200 miles of U.S. and Canadian coastlines.

California has similar limits on ships sailing within 24 miles of its coast, and in the Baltic and North seas, "emission control area" limitations have been in effect since 2006. The nations of the Mediterranean and Caribbean are expected at some point to implement a similar limitation.

To the cruise industry, the aggregate of so many new laws and rules makes the current regulatory environment a "minefield," Tom Strang, vice president of policy and regulation for Carnival Corp., said during a presentation at the Seatrade Cruise Shipping Conference in Miami this year.

During the same conference, Cahill said that increased regulation was the single biggest threat to the cruise industry today, a statement seconded by Stein Kruse, CEO of Holland America Line.

On the same panel, with Alaska Gov. Sean Parnell sitting in the front row, Kruse famously singled out Alaska's regulatory environment as the "most burdensome and costly" in the world.

Parnell later met with Kruse and other cruise line executives behind closed doors. Upon returning to Alaska, he proposed legislation to reduce the cruise passenger head tax from $46 per person to $34.50. It passed two months later.

Parnell also publicly addressed the issue of the Alaska wastewater limits, saying the regulations have to be based on science and also be attainable and fair.

But cruise industry executives are well aware that while they might achieve some regulatory relief in Alaska, the greater issue of increased regulation, specifically environmental, is part of a new global reality.

"There is a huge amount of pressure and concern across the globe for anything coming out of a smokestack," Cahill said.

CLIA Regulatory TeamCrye agreed that maritime air emissions are a particular target right now. He added that growing environmental concerns are causing the U.S. and international groups to look harder at the shipping industry in general.

"There is a very significant focus on environmental issues at the IMO," he said. "They are not specifically targeted to cruise or passenger ships, but they are sweeping requirements."

A problem for the industry that Crye and others have pointed out is that in many cases, the technology and facilities necessary to comply with the laws don't exist.

Crye cited a petition the Baltic nations recently submitted to the IMO seeking to reduce the nutrients allowed in wastewater, an effort to minimize algae blooms that are harmful to marine life.

The problem, Crye said, is that those countries do not have the wastewater facilities to process cruise ship effluence. Thus the ships would have to carry it, which they don't have the capacity to do.

Crye said that while he agrees with the intent of the petition, the proposed regulations on passenger ships would only fix "one-tenth of 1% of those problems, while 99.9% are associated with shore-based wastewater treatment plants or agricultural runoff."

"They are focusing on passenger ships, but they are not fixing the problem," Crye said.

The industry has long argued that Alaska's regulations for ships are more stringent than those for other industries and the state itself.

The Alaska Department of Environmental Conservation imposed limits on the trace metals allowed in treated cruise ship wastewater discharge, complying with a citizens' initiative passed in 2006. The industry points out that the state's own drinking water doesn't have such stringent limits.

"No community in Alaska would be able to discharge any of their treated waste if they were held to this standard," John Binkley, head of the Alaska Cruise Association, said last year. "Ships could not even discharge drinking water from any port in Alaska under those terms."

The Alaska Cruise Association was successful in getting the requirement temporarily changed from ships needing to have the "best available technology" for treating wastewater, to requiring the ships to use the wastewater treatment system they already have onboard, which the Alaska Department of Environmental Conservation says are advanced treatment systems.

The industry has repeatedly said that the technology to meet the standards either does not exist or would be prohibitively expensive to install. Moreover, Binkley said, the cruise industry spent $200 million to meet previously established standards.

Gershon Cohen, a Juneau lawyer and one of the authors of the 2006 referendum, accused the cruise industry of being dishonest in that assertion: "Some of the ships already have them, so we know they are available, we know they are affordable and we know they work," Cohen said. "The Parnell administration has taken the side of the Miami-based cruise industry over the will of the people of Alaska."

Cohen appealed the decision by the Alaska Department of Environmental Conservation and is waiting for the state to make a decision.

The cruise industry has fought Alaska's initiative by redeploying its ships to other ports and destinations. The state saw a 17% reduction in cruise ship traffic this summer, which industry leaders have attributed to its tax and regulatory structure.

It's not going to be possible to use the same tactics to fight the emission control area limitations, because such restrictions are expected to continue to grow worldwide.

The IMO approved a rule banning high levels of nitrogen and sulfur oxides in fuel used by any ships sailing within 200 miles of U.S. and Canadian coastlines. The U.S. Environmental Protection Agency proposed that restriction as a joint U.S.-Canada request, arguing that it would significantly reduce air pollution from oceangoing ships.

The emission control area "would be expected to save as many as 8,300 lives and provide relief from respiratory symptoms for over 3 million people each year," the EPA said in the proposal to the maritime organization. "In total, the monetized health-related benefits of the proposed ECA are estimated to be as much as $60 billion in the U.S. in 2020."

The impact on the cruise industry is significant, because the cleaner fuel is twice as expensive as the bunker diesel fuel most cruise ships use.

Cruise executives have said that those costs could force lines to deploy ships away from emission control areas for as long as they can and to modify itineraries to use less fuel.

"Cruise companies today are much more focused on how much it costs to run a cruise," Cahill said. "It's a combination of what your fuel costs are vs. your pricing for that cruise. If you have high fuel costs for that itinerary, you have to have a high cruise price. As this has a bigger impact on our fuel prices, it will continue to impact itineraries. Some itineraries probably won't be profitable, so cruise companies will move away from them."

Cahill said that in the short term, the current emission control area will affect Carnival Cruise Line more than other Carnival Corp. brands because CCL has a much larger number of ships leaving from U.S. homeports. But he said that eventually, "it will catch up with everybody."

Environmental issues "are serious concerns across the globe," Cahill said. "We all have to deal with these issues. ... The [regulatory environment] is the single biggest concern, and certainly not an insignificant one. There will be a substantial cost to the industry."

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