[Federal Register Volume 80, Number 77 (Wednesday, April 22, 2015)]
[Rules and Regulations]
[Pages 22421-22422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09385]



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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 298

[Docket Number MARAD-2014-0011]


Final Action Regarding ``Other Relevant Criteria'' for 
Consideration When Evaluating the Economic Soundness of Title XI 
Maritime Loan Guarantee Program Applications

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Final policy.

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SUMMARY: This document serves to inform interested parties and the 
public of the Maritime Administration's (MARAD) final policy regarding 
the factors MARAD will consider as ``Other Relevant Criteria'' in its 
review of the economic soundness of applications under the Title XI 
Loan Guarantee Program [also known as ``Title XI'' or the Federal Ship 
Financing Program (FSFP)]. On February 24, 2014, MARAD published a 
Notice of Proposed Policy (NPP) and sought comments relating to the 
agency's evaluation of Title XI Maritime Loan Guarantee applications. 
In this document MARAD: Responds to comments received during the public 
notice; clarifies and reinforces that applicants with projects to 
construct or reconstruct vessels to use alternative energies, or to 
meet current or future U.S. or international environmental and safety 
standards, are eligible and encouraged to apply for FSFP loan 
guarantees; and implements the final policy.

DATES: This policy is effective April 22, 2015.

FOR FURTHER INFORMATION CONTACT: Owen Doherty, Associate Administrator 
for Business and Finance Development, Maritime Administration, 
Telephone: 202-366-1883; Email: [email protected]; Mail: MARAD, 1200 
New Jersey Avenue SE., Washington, DC 20590.

SUPPLEMENTARY INFORMATION:

A. Introduction

    In order to be eligible for a FSFP loan guarantee an obligation 
must, among other things, aid the financing of the ``construction, 
reconstruction, or reconditioning of a vessel.''

46 U.S.C. 53706. The terms construction, reconstruction and 
reconditioning are broadly defined to include ``designing, inspecting, 
outfitting, and equipping.'' 46 U.S.C. 53701(3).

    Chapter 537 of Title 46 of the United States Code, as implemented 
by part 298 of title 46 of the Code of Federal Regulations (CFR), 
details the factors MARAD must consider in processing FSFP loan 
guarantee applications. The factors include economic soundness, project 
feasibility and specifically enumerated priorities. For the economic 
soundness determination, 46 U.S.C. 53708(a) provides six mandatory 
factors MARAD must consider, but allows consideration of ``other 
relevant criteria'' as well. The accompanying regulation, 46 CFR 
298.14(b), also provides that MARAD may take into account ``other 
relevant criteria.'' Sections 53708(a) and (b) explicitly provide ``the 
need for technical improvements, including increased fuel efficiency or 
improved safety'' as matters the Administrator and Secretary must 
consider with regard to applications for vessels intended for use on 
inland waterways and for fishing vessels, respectively.
    On February 24, 2014, MARAD published a Notice of Proposed Policy 
(79 FR 10075) in which it proposed to consider ``various environmental 
initiatives that are likely to increase efficiency and lead to future 
cost savings as `other relevant criteria' in evaluation of [the 
economic soundness of] Title XI loan guarantee applications.'' A non-
exclusive list of such initiatives are alternative fuel systems 
designs, fuel cells, hybrid propulsion systems, air emissions reduction 
technologies and ballast water treatment technologies.
    The policy provides that, ``demand for environmentally friendly 
designs, fuel and technologies is growing rapidly throughout the 
maritime industry because, among other things, they meet new air 
emissions and other discharge standards, and present the potential for 
greater efficiency and cost savings.'' The proposed policy also stated, 
``. . . that many of the economic benefits of environmentally friendly 
designs, fuels and technologies take the form of public benefits.'' 
Many of these public benefits cannot be captured by vessel owners and 
operators using traditional economic metrics, but are valuable 
nonetheless, because they contribute to environmental sustainability 
and human health. MARAD sought public comment on the NPP.
    In this final policy, MARAD is responding to the comments received, 
announcing that it intends to clarify and implement the policy as 
proposed in the prior notice, and clarifying that applicants with 
projects to construct or reconstruct vessels to be powered by 
alternative energies, or to meet U.S. or international environmental 
standards as required for continued operations, are eligible and 
encouraged to apply for FSFP loan guarantees.
    The comments received varied in the degree to which they directly 
addressed the substantive provisions in the policy. Some commenters 
expressed agreement with the general principle of considering 
environmental factors in the review of applications for FSFP loan 
guarantees. The majority disagreed with the proposal to include 
environmental considerations as a factor used to determine the economic 
soundness of projects.

B. Comments

    MARAD received a total of 11 comments in response to the policy. 
Nine commenters disagreed with the proposal to include environmental 
considerations as ``other relevant criteria'' in the economic soundness 
analysis. MARAD received three comments indicating general support for 
including environmental considerations when evaluating FSFP 
applications. One commenter suggested that doing so could help 
accelerate replacement of an aging U.S.-flag fleet. Another stated that 
FSFP guarantees should be granted in order to make the new ships as 
environmentally friendly as possible. However, these commentators did 
not provide input on specific actions MARAD could take to further those 
interests. The comments, as submitted to the docket for the policy 
(Docket No. MARAD-2014-0011-0001) may be accessed via http://www.regulations.gov.
    While many of the other comments included general support for 
considering environmental factors at some point when evaluating 
applications that are otherwise economically sound, none of those 
commenters supported including such factors in the ``economic 
soundness'' analysis required under 46 U.S.C. 53703(b). Many commenters 
focused on the reference to ``public benefits'' in the original 
document. They expressed concern that it would be difficult and 
expensive for applicants and MARAD to incorporate the public benefits 
(e.g., human health and lower air emissions) of environmentally 
friendly technologies into a review of economic soundness, which is 
based on traditionally quantifiable financial factors. Commenters 
stated that attempting to address public benefits in the economic 
soundness analysis would result in additional time and expense, which 
would be inconsistent with MARAD's stated desire to streamline the 
application review process. Other commenters noted that cost savings 
from increased efficiency resulting from

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the use of alternative fuels are already captured in the current 
economic soundness factors.
    MARAD received two comments that suggested that the policy might be 
interpreted to mean that MARAD does not consider projects to 
reconstruct or reconstruct vessels to use alternative energies (e.g., 
from a diesel propulsion system to a liquefied natural gas (LNG) 
propulsion or a hybrid diesel/LNG propulsion system) to be eligible for 
FSFP loan guarantees.
    Several commenters noted that MARAD is already authorized, under 46 
U.S.C. 53706(c), implemented by 46 CFR 298.3(k), to prioritize 
applications for certain vessels, and that a formal rulemaking to add 
environmental considerations to that section would be more appropriate 
than adding such considerations to the economic soundness analysis.
    MARAD received three comments that referenced issues beyond the 
scope of the proposed policy.

C. MARAD Response to Comments

    MARAD understands the concerns commenters expressed about potential 
ramifications of implementing this policy. In response to these 
concerns, MARAD clarifies the policy as described below. The Department 
of Transportation and MARAD are committed to supporting the development 
and implementation of technologies that help the U.S.-flag fleet meet 
or exceed national and international environmental standards and result 
in environmental improvements. MARAD is also determined to reduce FSFP 
application processing times and administrative burdens that potential 
applicants face.

D. Final Policy

    By this document, MARAD announces that it will implement the core 
of the proposed policy. Under this final policy, in addition to the 
factors listed in 46 U.S.C. 53708(a)(1)-(4) and (6), MARAD will 
consider whether such projects include environmental initiatives that 
are likely to increase efficiency and lead to future cost savings. As 
noted by several commenters, cost savings resulting from increased fuel 
efficiency are captured in the current economic soundness analysis 
factors--most notably projected revenues and expenses of the vessel(s). 
This final policy merely states explicitly what MARAD is authorized to 
do under current law and regulations.
    MARAD clarifies that it will not require applicants to quantify the 
potential public benefits of environmentally friendly designs, fuels 
and technologies. MARAD encourages applicants to emphasize any public 
benefits or costs of greenhouse gas or criteria pollutant emissions 
caused or reduced by vessel(s) to be constructed or reconstructed. 
MARAD encourages applicants to quantify such public benefits to the 
extent practicable. Consult the following authorities for guidance for 
undertaking such calculations: (1) White House Office of Management and 
Budget, Circular A-94, Circular A-94 Guidelines and Discount Rates for 
Benefit-Cost Analysis of Federal Programs (October 29, 1992) (https://www.whitehouse.gov/sites/default/files/omb/assets/a94/a094.pdf); 
Interagency Working group on Social Cost of Carbon, United States 
Government, Technical Support Document: Technical Update of the Social 
Cost of Carbon for Regulatory Impact Analysis Under Executive Order 
12866 (May 2013; revised November 2013) (https://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).
    In addition, MARAD considers as part of economic soundness the 
degree to which applications include the use of such designs, fuels or 
technologies for: (1) Reconstruction of vessels to ensure compliance 
with current or future environmental and safety operating standards, or 
(2) construction of new vessels to replace vessels that would not meet 
such standards. MARAD encourages applicants to include information in 
their applicants regarding the degree to which the vessel(s) to be 
constructed or reconstructed meets these components of economic 
soundness analysis.
    Consideration of the impact of environmental and safety standards 
on the economic soundness of an application is consistent with the 
factors MARAD is required to review. See, 46 U.S.C. 53708(a)(1)-(3). 
For example, pursuant to new global standards promulgated by the 
International Maritime Organization, and enforced in the U.S. by the 
Environmental Protection Agency, NOx emissions from large ``Category 
3'' vessel engines are required to be substantially reduced by 2020. 
Implementation of these standards will result in many vessels currently 
in operation being taken out of service, unless they are converted to 
reduce emissions. These environmental factors directly impact the need 
for, and market potential and projected revenues and expenses of, any 
proposed construction or reconstruction.
    Further, MARAD clarifies that projects to reconstruct existing 
vessels are eligible for Title XI loan guarantees. Reconstruction 
includes conversion of vessels to LNG or dual-fuel power.

    Authority: 46 U.S.C. 53708.

    Dated: April 17, 2015.

    By Order of the Maritime Administrator.
Thomas M. Hudson, Jr.,
Acting Secretary, Maritime Administration.
[FR Doc. 2015-09385 Filed 4-21-15; 8:45 am]
 BILLING CODE 4910-81-P