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State sues over ECA

By Marleanna Hall

Alaskans already pay more than most other places in the U.S. for goods coming to the state partly due to transportation costs. Prices are set to climb more as the federal government implemented a North American Emission Control Area (ECA) on August 1st.

State of Alaska and private sector officials noted the ECA was applied to Alaska’s coastline with little or no consideration for the additional burden it would impose on residents. The State said ECA was implemented without studies and modeling showing how it could benefit Alaskans. They also noted the ECA will likely have little to no added benefit to the environment in Alaska.

The one size fits all program will affect Alaska’s heavy reliance on maritime traffic, for goods shipped to and from the state, and for cruise ships whose passengers support local businesses.

The State filed a lawsuit in July seeking to block enforcement of ECA in Alaskan water, from Southeast to just west of Cook Inlet.

Shipping, using the ECA-mandated 1% sulfur-fuel model, is estimated to result in an initial 8% increase in shipping costs. This increase will be felt throughout the Alaska economy by small and large business, and consumers. ECA implementation will also drive up the cost to operate cruise ships, which provide approximately 60% of the visitors to Alaska.

Ultimately, this will make Alaska less competitive as a global cruise destination, risking redeployment of cruise ship assets to other jurisdictions with lower costs and less stringent requirements. This will harm many Alaskan businesses that provide support services and visitor attractions to the cruise industry. It will also drive up the transportation cost of the oil tankers, which affects both royalty valuation, and severance taxes, making a direct impact on the State’s revenues.

Alaska will feel a disproportionate impact compared to other jurisdictions because most marine traffic to and from Alaska occurs within the 200 mile zone.

New federal rules on emissions will require marine operators in Alaska waters to use lower sulfur fuels. Fuels costs will rise as much as 25 percent by 2015, causing an increase in freight rates.

Days after the August 1st implementation, Totem Ocean Trailer Express received an EPA waiver to continue operations with higher sulfur fuel while it converts its engines to liquefied natural gas.

In response, Senator Lisa Murkowski cautiously noted, “While this deal helps one company, it does not address who will pay for the additional investments and costs required for TOTE and others to meet the new fuel standards, a total that could run into the hundreds of millions of dollars. My fear is that the total costs of compliance will simply be passed on to Alaskans.”

Murkowski added, “Applying the new fuel standards will mean that vessels plying the waters of Southeast and Southcentral Alaska, whether freight ships that deliver nearly all of our goods or cruise ships that are the life-blood of our active tourist economy, will now be required to burn expensive low-sulfur fuel.”

Other groups like the Alaska Cruise Association (ACA) have applauded the Parnell administration after it sued the EPA and other federal agencies to block enforcement, or amend the rules.

ACA President John Binkley said cruise companies will likely begin to schedule ships to other countries without overly burdensome regulations like ECA. “Alaska is an expensive destination because there are long distances to travel,” Binkley noted. “So fuel becomes a much more important component of the overall cost of the ship.”

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