LUDINGTON, Mich. (AP) -- One of the nation’s last operating coal-fired passenger ships could be left high and dry unless operators comply with new federal regulations banning its discharge of coal slurry into Lake Michigan.

The Environmental Protection Agency has given Lake Michigan Carferry, owner of the SS Badger, until 2012 to change its practices -- a deadline the company says it will meet. The Badger hauls people and vehicles between Ludington and Manitowoc, Wis.

Local leaders say keeping the carferry afloat is crucial for tourism on both sides of the lake.

More than 100,000 people a year make the 60-mile crossing. The company employs 250 workers, pumps about $20 million annually into the Ludington economy and gives the Manitowoc area a similar boost, according to a study by West Shore Community College.

Losing the Badger would be “devastating,” Kathy Maclean, president and CEO of the Ludington & Scottville Chamber of Commerce, told the Ludington Daily News for a recent story.

“So many of our businesses, not just hotels, but restaurants and downtown businesses rely on it,” Maclean said. “Where else are you going to get something that puts that many tourists on your doorstep?”

Bob Manglitz, president and CEO of Lake Michigan Carferry, said he was determined to stay in business. He took over operations of the carferry from his father-in-law, Charles Conrad, who revived the cross-lake service in 1992 and died three years later.

“My father-in-law wanted the carferry service to run for another 100 years,” Manglitz said. “I’ve only got 83 more to go before I’ve fulfilled my obligation.”

For decades, the EPA did not regulate discharges from ships under the Clean Water Act. But several states and environmental groups successfully sued to overturn that policy after ballast water was blamed for introducing invasive species such as zebra mussels and the round goby into the Great Lakes and other U.S. waterways.

EPA declined to exempt coal slurry from its new regulation, but extended its compliance deadline from this spring to 2012 after meeting with representatives of the carferry company.

The Badger’s crew mixes coal ash waste with water and dumps the slurry into Lake Michigan during each trip. It’s done at least five miles from shore and in a different location each time, partly because the carferry alters its course depending on weather.

“Having ash to deal with is just part of having coal-fired power in any form,” said Chuck Cart, the carferry company’s chief engineer. “It’s been tested. It’s inert, benign. Sand is all it really is. It’s really not a harmful pollutant.”

Joel Brammeier, vice president of policy for the Alliance for the Great Lakes, said even if the discharge is non-toxic it should be regulated.

“The physical changes to the lake bottom can have an impact just like toxic chemicals can,” Brammeier said.

The carferry operators are considering several options.

Manglitz’s first choice is to use the existing boiler system and keep the Badger operating as a steamship, because of its historical significance and the $1 million the company has spent on it. That would require finding a different fuel that doesn’t generate waste ash -- possibly liquid coal.

Another possibility is capturing the ash and trucking it to a landfill, which would mean redesigning the engine area so the ash could be stored until the vessel docks.

The boiler system also could be replaced with diesel engines, a step Manglitz is reluctant to take.