A local air district approved a rule requiring warehouses to adopt clean technologies or pay a mitigation fee.
By Joshua T. Bledsoe and Jennifer Garlock
At a contentious board hearing on May 7, 2021, the South Coast Air Quality Management District (SCAQMD) approved a first-in-the-nation rule to regulate trucking emissions from warehouses by a 9-4 vote. Rule 2305, the Warehouse Indirect Source Rule (ISR), establishes the Warehouse Actions and Investments to Reduce Emissions (WAIRE) Program to reduce emissions associated with warehouse activity. The WAIRE Program essentially requires warehouse operators to take actions to electrify warehouse activities and the trucks that visit warehouses in order to reduce nitrogen oxides (NOx) and diesel particulate matter (DPM) emissions. As previewed in a 2019 Latham blog post, despite the warehouse sector’s limited control over the types of trucks servicing its facilities (warehouses generally do not own or operate trucking fleets), the ISR imposes obligations on warehouses to indirectly reduce trucking emissions. The WAIRE Program applies to warehouses with more than 100,000 square feet of warehouse space in a single building, and will phase in over three years based on warehouse size, with the largest warehouses (i.e., more than 250,000 square feet) having the earliest compliance period.
Compliance Obligation. Warehouse operators must earn WAIRE “Points” to meet their WAIRE Points Compliance Obligation (WPCO), which is calculated based on the weighted annual number of truck trips to the warehouse (where Class 8 trucks are weighted 2.5 times more than Class 2b-7 trucks), the rule stringency (defined in the ISR as a static 0.0025 multiplier), and an annual variable (defined in Table 2 of the ISR, and increasing from 0.33 to 1.0 over three years). Thus, the more trucks that visit a warehouse in a given year, the higher the WPCO. SCAQMD estimates that the ISR will impose total annual average costs on the industry of $0–$670 million per year, or $0.00–$0.83 per square foot of warehouse space, depending on the compliance measures chosen by the warehouse operator. In addition to increasing costs for existing warehouses, the ISR will impact the siting, design, and operation of new warehouses, including actions by local land-use authorities (i.e., cities and counties).
Earning Points. WAIRE Points may be earned to meet the WPCO in several ways, including: (1) taking actions defined in the WAIRE Menu (Table 3 of the ISR); (2) implementing an approved Custom WAIRE Plan; or (3) paying a mitigation fee. The WAIRE Menu lists action items that a warehouse operator may take, and the corresponding number of Points that such actions will earn. The Point values are determined based on the cost of the action, the regional emission reductions achieved (NOx), and the local emission reductions achieved (DPM). Examples of Point-generating items on the WAIRE Menu include: (1) purchasing a zero-emission Class 8 truck for the warehouse operator’s fleet; (2) receiving visits from a zero-emission Class 8 truck, regardless of ownership; (3) acquiring a zero-emission yard truck; and (4) installing electric charging stations. Any combination of WAIRE Menu items may be used to meet the WPCO.
A warehouse operator may also earn Points by submitting to SCAQMD an application for a Custom WAIRE Plan. Exercising this option would allow a warehouse operator to earn Points for “off-menu” actions demonstrated to reduce NOx and/or DPM. The Custom WAIRE Plan must be approved by SCAQMD, and progress reports may be required if implementation of the Plan will continue beyond the next compliance period.
Alternatively, a warehouse operator may meet its WPCO without taking any action to reduce emissions and instead paying a mitigation fee, equal to $1,000 per Point. The mitigation fee may be used in tandem with earning Points from the WAIRE Menu or Custom WAIRE Plan to meet the WPCO. Mitigation fees will fund the WAIRE Mitigation Program, administered by SCAQMD, which will provide funds for projects to reduce emissions in the same Source Receptor Areas and counties as the warehouses that paid the mitigation fees. SCAQMD will issue solicitations for projects to be funded by the WAIRE Mitigation Program, and awards of funds must be presented to the SCAQMD Governing Board for approval at least annually.
Transferring and Banking Points. The ISR includes several provisions intended to provide compliance flexibility. Warehouse operators may earn Points at one warehouse and, after satisfying that warehouse’s WPCO, transfer any excess Points to another warehouse under the same operational control. The Points will be discounted, as shown in the WAIRE Menu (Table 3 of the ISR), to remove the portion of Points earned due to local emissions reductions (DPM). This discounting is imposed because local emissions reductions will not occur at the warehouse to which the Points are transferred. Warehouse operators may also bank excess Points for use in a later compliance period, but not in an unlimited fashion. Points may be used in any of the following three annual compliance periods after they were earned, subject to the limitation that the Points become invalid if the WAIRE Menu item used to earn the Points becomes required by the SCAQMD, California Air Resources Board (CARB), or Environmental Protection Agency (EPA) (i.e., the actions must be surplus to other regulatory requirements at the time they are used for compliance). In addition, warehouse owners may earn Points (even though they are not subject to a WPCO) and transfer them to any warehouse operator in the warehouse where the Points were earned within three years.
Reporting. The ISR requires warehouse owners and operators to submit several types of reports. First, warehouse owners must submit a Warehouse Operations Notification by September 1, 2021, or anytime thereafter when certain changes occur at the warehouse (e.g., a new operator). This notification includes information related to and identifying warehouse operators leasing space at the warehouse.
Warehouse operators must submit an Initial Site Information Report, which is a one-time submission that includes baseline information on the warehouse space in their operational control, truck trip data, any owned trucks and yard trucks, on-site alternative fueling stations or electric charging stations, and how the warehouse operator anticipates complying with its WPCO. Since the Initial Site Information Report requires actual truck trip data for the preceding 12 months, this data collection effort is the first obligation warehouse operators will encounter.
Warehouse operators must submit an Annual WAIRE Report at the end of January that contains information from the prior year’s compliance period, which runs from January 1 to December 31. The Annual WAIRE Report must include the truck trips that occurred in the compliance period and the number of Points earned from the WAIRE Menu, a Custom WAIRE Plan, or from payment of the mitigation fee. For each WAIRE Menu item used to earn Points, data for the reporting metric (e.g., number of visits from a zero-emission truck) must be reported to validate the number of Points earned.
As noted above, the ISR will phase in based on warehouse size. The compliance dates by warehouse size are shown in the table below.
Fees. SCAQMD simultaneously adopted Rule 316, which imposes a fee schedule to recover the costs of administering the ISR. Rule 316 specifies fees that must be submitted with each Warehouse ISR report (Warehouse Operations Notification, Initial Site Information Report, and Annual WAIRE Report), as well as detailing the fees associated with review of a Custom WAIRE Plan. Notably, Rule 316 includes a fee for administration of the WAIRE Mitigation Program, equal to 6.25% of the mitigation fee paid by the warehouse operator (effectively making the mitigation fee $1,062.50 per Point). Fees are due at the time of report submittal.
Sunset Date. The rule includes a sunset date, whereby the WPCO requirement expires after both an EPA finding that all SCAQMD air basins have attained the federal 2015 ozone standard of 70 parts per billion (ppb) and a CARB finding that all SCAQMD air basins have attained the state ozone standard of 70 ppb. These state and federal standards require areas to reach certain ambient concentrations of ozone to be considered in “attainment.” Areas that are in “nonattainment” are subject to additional requirements (e.g., more stringent permitting requirements for new sources). The NOx reductions sought by the ISR are intended to help bring the area into attainment (NOx is part of the chemical reaction that forms ozone). However, the South Coast Air Basin has a long history of failing to meet the ozone standards, which could render the sunset date ineffectual.
Further Actions. Warehouses are one of five types of indirect sources that SCAQMD pledged to address through Facility-Based Mobile Source Measures in the District’s 2016 Air Quality Management Plan (AQMP). The other indirect sources the District intends to regulate to achieve emission reductions include commercial airports, new development or redevelopment projects, commercial marine ports, and railyards.
Latham & Watkins will continue to monitor SCAQMD rulemaking efforts on additional ISRs.
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