Controversial program targets warehouse emissions

The South Coast Air Quality Management District sparked widespread interest and controversy with its May 2021 adoption of an "indirect source rule" regulating warehouse operations throughout its jurisdiction. Instead of directly regulating actual tailpipe emissions, which it cannot legally do, Rule 2305, (also known as the Warehouse Actions and Investments to Reduce Emissions, or WAIRE), allows the district to assess warehouse facilities themselves based on how many trucks come and go in a given 12-month reporting period. (Owners of warehouses of 100,000 or more square feet must make their first filing under the rule on or before September 1, 2021)

Intended to "reduce local and regional smog-forming emissions associated with warehouses and mobile sources attracted to warehouses" and "reduce public health impacts for communities located near warehouses," Rule 2305 calculates a points-liability rating for warehouses based on the number of truck trips into and out of a given facility during the reporting period; which is called the WAIRE Points Compliance Obligation, or WPCO. Every truck visit results in two assessed truck trips -- one in, one out. And every truck counts, whether picking up, dropping off or even making a FedEx delivery. The heaviest of trucks, Class 8 tractors (whether hauling a payload or not), are subject to a 2.5 multiplier on each trip in and out. Warehouse operators must then generate enough points each year to offset their WPCO.

There are four ways to earn points to offset the WPCO. First, there is a "WAIRE Menu" of actions operators can take on-site, such as acquiring and using zero emission and near zero emission equipment; installing and using zero emission charging or fueling infrastructure; installing, energizing and using solar panels; and installing or replacing air filters for sensitive receptors. Each measure credits the operator with a specified number of points to offset the WPCO total.

The second means of offsetting the WPCO is to pay a mitigation fee -- $1,000 per WPCO point. The third approach is to craft a facility-specific "Custom WAIRE Plan." Under a custom plan, an operator proposes to the district a scheme that demonstrates the reduction in pollutants under the plan. The fourth approach is by utilizing WAIRE's limited provision for transferring and/or banking WAIRE Points for others' use or for future compliance obligations of the operator.

WAIRE differentiates between "owners" and "operators." Although owners have the initial obligation to file with the district a "Warehouse Operations Notification," which identifies facility and lessee information, actual compliance with the rule falls on operators. According to a June 30 webinar with district staff, owners cannot be held liable for any operator's noncompliance. Owners may, however, earn points for on-site investments under the WAIRE menu to bank, sell or trade, as provided in the rule.

After an owner's Warehouse Operation Notification filing identifies the warehouse operator, compliance and reporting obligations shift to operators. An operator's first reporting obligation is an Initial Site Information Report, a one-time filing establishing the facility's baseline truck trips. (The due date for this report depends on the facility size, but warehouses totaling 250,000 or more square feet should be accounting immediately for truck trips for the 12-month period ending June 2022, with a filing deadline for their ISIRs being July 1, 2022)

WAIRE specifically targets nitrogen oxides and particulate matter, both of which are common-criteria pollutants from heavy-duty diesel truck exhaust. A prominent critic of the rule argues that the rule's sole intent is to force warehouse operators and users to acquire zero or near zero emissions equipment. The alternative compliance options, this critic argues, are far more expensive than equipment acquisition.

However, even district staff have recently acknowledged in the administrative record that they have no actual data supporting their contention that Rule 2305 will reduce emissions.

Opposition to Rule 2305 by the regulated community is strong, and litigation has been threatened, though, at the time of this publication, not yet filed. There is not much precedent for whether the district has the authority to adopt Rule 2305. Opponents argue it is preempted by federal law and falls outside the district's statutorily authorized powers. As noted, Rule 2305 purports to regulate "indirect sources," i.e., the collective operations of the warehouse as opposed to any specific emissions source such as a tailpipe or generator. The district characterizes the counting of warehouse truck trips as a "proxy" for operational emissions overall.

In addition to a clear push to convert the goods movement fleet to zero or near zero emissions equipment, many question how the district will use what are expected to be significant sums from the mitigation fee alternative compliance option. Critics claim the district has not adequately specified its intended use of these funds. The district claims it will use mitigation fees for emissions-reducing projects in impacted communities near those warehouses that pay the fees, as well as using funds to improve the electricity grid for expanding zero and near zero emissions fleets. But it is still unclear, say critics, how the funds will be expended in furtherance of the articulated purpose of Rule 2305.

Perhaps most prominently, 45 California business organizations signed on to a single protest letter asserting that Rule 2305 is not a mitigation "fee" but rather an "illegal tax." "The district's charge would apply to a limited subset of taxpayers -- those that operate warehouses above a specific size -- and the payers would not receive any specific benefit. That is a tax."

The implementation, compliance and potential challenges associated with this novel regulatory program demand close attention, including potential proliferation of similar rules in other jurisdictions. 