Carnival Cruises 2008 Annual Report Download - page 23

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sufficient cause, comply with an order issued by the federal on-scene coordinator. Pursuant
to the OPA, in order for us to operate in U.S. waters, we are also required to obtain
Certificates of Financial Responsibility from the U.S. Coast Guard for each of our ships
operating therein. These certificates demonstrate our ability to meet the maximum amount of
liability that our ships could be subject to for removal costs and damages related to water
pollution, such as from an oil spill or a release of a hazardous substance, up to each
ships' statutory liability limit. Our financial responsibility under these certificates is
supported by certain of our insurers who provide guarantees aggregating $957 million.
In addition, most U.S. states that border navigable waterways or seacoasts have enacted
environmental pollution laws that impose strict liability on a person for removal costs and
damages resulting from a discharge of oil or a release of a hazardous substance. These laws
may be more stringent than U.S. federal law and in some cases have no statutory limits of
liability.
Furthermore, many countries have ratified and adopted IMO Conventions which, among
other things, impose liability for pollution damage, subject to defenses and to monetary
limits, which monetary limits do not apply where the spill is caused by the owner's actual
fault or by the owner's intentional or reckless conduct. In jurisdictions that have not
adopted the IMO Conventions, various national, regional or local laws and regulations have
been established to address oil pollution.
Limitations on the sulfur content of fuel are part of new regulations approved by the
International Convention for the Prevention of Pollution from Ships Annex VI ("MARPOL Annex
VI"). Ships must carry an International Air Pollution Prevention Certificate issued by its
flag state indicating that it is operating in compliance with MARPOL Annex VI. Among other
things, MARPOL Annex VI establishes a limit on the sulfur content of fuel oil and calls on
the IMO to monitor the worldwide average sulfur content of fuel oil supplied for use aboard
vessels.
In addition, MARPOL Annex VI and EU rules also provide for special SOx, or Sulfur
Emission Control Areas ("ECAs") to be established with more stringent limitations on sulfur
emissions. There are currently two ECAs in operation, one in the Baltic and the other in
the North Sea/English Channel. Compliance with these regulations has increased our
operating costs, due to the higher cost of purchasing low sulfur fuel.
In 2008, MARPOL Annex VI was amended to require additional reductions in sulfur
emissions by reducing the sulfur content requirements for fuel oil. Global sulfur fuel
content limits are currently 4.5% and are required to be reduced to 3.5% by January 1, 2012.
Thereafter, they are to be progressively reduced to 0.5% by January 1, 2020, subject to
feasibility review to be completed no later than 2018. In addition, from July 1, 2010,
ships operating in ECAs will have to reduce their fuel sulfur content from the current 1.5%
to 1.0%; and from January 1, 2015 this content requirement will be further reduced to 0.1%.
Additional ECAs may also be established in the future. Compliance with these new standards
will increase fuel and operating costs and may result in the use of new sulfur abatement
technologies, which may also increase costs. The MARPOL Annex VI amendments also introduce
further progressive reductions in NOx, or nitrogen oxide, emissions from both existing and
new marine diesel engines, with the most stringent requirements for those engines installed
on ships contracted on or after January 1, 2016 operating in ECAs. These 2016 requirements
will necessitate the development of new engine designs or exhaust gas treatment systems,
which may result in significant additional costs.
A further EU directive regarding the use of low sulfur fuel for passenger ships on
regular service between EU ports was introduced in 2005. The application of this
legislation to cruise ships is unclear and varies among EU member states, leading to
potentially higher fuel costs where it is applicable. In January 2010, a 0.1% sulfur limit
on all marine fuels used in EU ports enters into force. This will require distillate fuels
such as marine gas oil, to be used, further increasing fuel costs.
The California Air Resources Board ("CARB") has adopted regulations for ocean-going
ship auxiliary engines, shore power requirements for commercial marine vessels, and ship
onboard incineration. CARB is also developing regulations for ocean-going ship main
engines. These requirements will require use of lower sulfur fuels and eventually
distillate fuels, and limit in-port operations, further increasing fuel and operational
costs.
If we violate or fail to comply with environmental legislation, regulations or
treaties, we could be fined or otherwise sanctioned by regulators. We have made, and will
continue to make, capital and other expenditures to comply with environmental legislation
and regulations.