A process four years in the making to regulate the emissions of truck traffic in and out of Southern California warehouses reached its end earlier this month with the adoption of a new rule that the warehouse industry says will ratchet up costs in the sector.

The South Coast Air Quality Management District (SCAQMD) approved the rule earlier this month. It is known as the Warehouse Indirect Source Rule (ISR). The goal of the rule is to reduce nitrogen oxides (NOx) and diesel particulate matter emissions tied to warehouse activity.

SCAQMD has jurisdiction over stationary sources in the Southern California region. And while a truck moving in and out of a warehouse is not a stationary source, Bradley Whitaker, a senior public information specialist at SCAQMD, said in an email to FreightWaves that the agency has “limited authority over mobile sources as we can regulate indirect sources, facilities that attract mobile sources, such as warehouses.”

Whitaker, in his email, said the rule goes into effect immediately, with the first report required to be filed by warehouses on Sept. 1. But enforcement dates will be implemented over time.

The rule is encountering opposition from the warehouse industry. In a fact sheet, the Inland Empire chapter of NAIOP, the Commercial Real Estate Development Association, estimates that the costs of compliance would be 90 cents per square foot, with a total bill of $1 billion. 

Warehouses with more than 100,000 square feet come under the rule. The program’s formal name is Warehouse Actions and Investments to Reduce Emissions (WAIRE), and the number of warehouses that are expected to fall under its rules total 2,902, according to the more than 360-page document the staff of SCAQMD prepared to set out the rationale and implementation of the rule. 

A system of carrots and sticks has been created to incentivize compliance. The ISR is a points-based system that will allow warehouses to earn points to be used to determine whether a warehouse has met its requirements.

NAIOP, in its summary of the rule, gave some examples: “Buy or use zero-emission or near-zero-emission trucks (if available); install additional solar panels beyond the current solar panel requirements; install additional EV charging or hydrogen fuel stations beyond the current requirements.” 

Each warehouse will have a compliance number that Whitaker said will be based on the number of truck trips into the facility during that particular year. But if a company fails to reach its target through the various mitigation measures, then there will be financial penalties. 

NAIOP’s fact sheet is pessimistic about the industry’s ability to meet those standards just through mitigation measures. “Most warehouses will end up paying the fee (tax) because it will not be feasible or possible to comply with the regulation mandates,” the group wrote. “If this is the case, then the ISR regulation did nothing to improve air quality and only increased costs to business/consumers.”

Whitaker pushed back on a description of the rule as involving a tax. “The warehouse rule is not a tax, it is a regulation aimed at reducing air pollution associated with warehouses,” he said. 

He also rejected the idea that limiting emissions was already being governed by regulations on individual trucks and other vehicles and those rules should be adequate. “The current state and federal regulations for trucks are simply not enough to clean our air,” he wrote in his email. “While there is no single action that will solve our smog issues, the warehouse rule is a major component of a larger strategy to meet federal and state air quality standards.”

Although the first report needs to be filed by Sept. 1, that is not a compliance date. Whitaker described what needs to be filed by that date as a “basic informational report from warehouse owners.” 

From that, the compliance standard would be devised. The largest warehouses, defined as those with more than 250,000 square feet, must begin earning points toward compliance in the year that begins Jan. 1, 2022. The next group, those with more than 150,000 square feet, will face the requirement beginning in 2023. The third and smallest group, with more than 100,000 square feet, will need to comply with the rule one year later.

NAIOP’s face sheet broke down the specific reporting requirements. Each warehouse must report the number of truck trips in the prior 12 months and the anticipated trips in the upcoming 12 months. Such information as miles traveled, dwell time and whether a truck is leased or owned will need to be reported,  NAIOP said. 

That information will be required on Jan. 15 of the first year that a warehouse falls under the ISR requirements. After that, such information will need to be updated annually but also with the number of WAIRE points the warehouse has generated through its mitigation efforts.

The system of incentives has some similarities with the state’s Low Carbon Fuel Standard (LCFS), in which credits can be earned by providing a transportation fuel — like renewable diesel — with a lower carbon footprint. That LCFS involves numerous choices, known as “pathways,” to earn those credits.

That there are choices involved in the ISR can be seen in this passage from the staff report that established the structure of the program: “If a warehouse operator owns a fleet of trucks and they want to purchase a (zero-emission) or (near-zero-emission) truck, they will need to decide among two options,” the report says. “First, they could purchase the truck at full price and receive WAIRE points for that action. Second, they could instead choose to receive incentive funding for that purchase but not earn any WAIRE points for the truck purchase. In both instances, they would be allowed to receive WAIRE points for the visits that this truck makes to their warehouse.”

Points are earned for practices that reduce emissions of NOx and diesel particulate emissions. The mitigation fee is $1,000 per point. 

Kim Snyder, the president of the U.S. West region for warehouse operator Prologis, suggested that there may be litigation challenging the rule now that it is official, given that SCAQMD is traditionally charged with stationary sources and whether a warehouse could fall under that is debatable.

A bigger problem he sees is that many warehouses have no control over the types of trucks that come through the gate. While some larger warehouse operators may have control over their fleets, and in those instances “you can change out your fleet and make it greener,” those tend to be the largest warehouse operators or where they are involved in specialized activities, such as food storage. 

But the incentives can change behavior, Snyder said. A warehouse “can put pressure on shippers to green their fleet,” he said. Charging stations at the warehouse can be added; electric lift trucks that operate at the warehouse can be added; and trucks can drop their trailers and then have an electric vehicle move the trailer inside.  

But those choices are not available to all, Snyder said. And ultimately, “rarely do they have the ability to control the type of vehicle that enters the property.”

Snyder said he did not think the new regulations would be enough to push cargo imports toward ports in northern California or elsewhere, noting that he expects regulations like the new SCAQMD rule to spread. Ultimately, the fees that a warehouse might find themselves paying will become part of a warehouse company’s charges to those using the site, acting like a surcharge.

Whitaker, in his email, said facilities that do not reach compliance will be issued a notice of violation. The size of the fine would be contingent upon several issues, he said, including “the degree of harm, measures taken to come into compliance, financial burden on the defendant, whether the violation was negligent or willful and other relevant factors.”

If “negligent or willful” actions can not be shown, the maximum penalty is $10,000 per violation, he said.

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