The Never Ending Story: Indirect Source Rules

By Thomas Jelenić, Vice President, Pacific Merchant Shipping Association

For almost a decade, the logistics industry has faced the threat of “indirect source rules” or ISRs. Indirect source rules are a clever way of saying that facilities should be responsible for emissions from sources they do not control. That is why it is referred to as “indirect”. So, under the ISR logic, a warehouse in the Inland Empire would be responsible for the trucks picking up and dropping off freight – this would be similar to a grocery store telling its customers what kind of car they could use on a shopping trip. For the moment, put aside the absurdity of making someone responsible for something they do not control – I will come back to that.

I want to start off with the interminable process that industry has faced. This process, through all its twists and turns, is really about one thing: power. More specifically, who has the power to regulate mobile sources in California and, through that power, influence or control land-use decisions.

Authority to regulate mobile sources has been vested in the Air Resources Board (CARB) since California began controlling emissions for the simple reason that mobile sources move throughout the State (not to mention the country) and vehicle operators could never comply with a patchwork of different regulations from county to county. CARB has often implemented this authority through two straightforward mechanisms. The first is new engine standards, by which CARB has ensured that each new generation of vehicles is cleaner than the last. Through the second, CARB often accelerates the impact of new engine standards by issuing in-use standards, basically requirements that vehicles be retired before the end of their useful life forcing the adoption of newer, cleaner equipment. Through these requirements, new vehicles are more than 90% cleaner than older vehicles…and are getting cleaner still.

Local air pollution control districts were granted authority over stationary sources for the simple reason that, as the name implies, these sources do not move and cannot be subject to multiple jurisdictions. Local air pollution control districts have always coveted CARB’s mobile source authority. Indirect source rules are a means through which local districts can wield mobile source authority. To date, no indirect source rules have been initiated by a local air pollution control district on freight facilities.

The current battle over indirect source rules arguably begins with the South Coast Air Quality Management District’s (SCAQMD) 2017 Air Quality Management Plan. In that plan, SCAQMD once again put indirect source rules on the table. After years of development, the approval of the 2017 plan in March of last year accelerated the discussion of indirect source rules. A month later, CARB also took up the issue of indirect source rules – despite the fact it has direct regulatory authority to set emissions standards for engines. A year later, CARB staff concluded that its authority is better exercised through establishing new engine standards and in-use standards.

However, during Board discussion and public discussion of the topic, it was revealed that community activists are unhappy with the local land-use decisions made by their local elected representatives and they seek tools from CARB to block or overturn local land use decisions. Apparently, the CARB Board is sympathetic to wading into local land-use decisions. As a recent Los Angeles Times article concluded:

“Responding to residents urging rules at a meeting last month, [CARB Chair] Nichols said the proliferation of warehouses has ‘not gone unnoticed. It’s a really serious problem,’ and the Air Resources Board was watching the South Coast district very closely and ‘hoping that they will do the right thing.’

“‘And if some reason they don’t,’ Nichols said, ‘then we will have to take action.’”

This past March, SCAQMD heard public testimony on staff’s proposal to initiate a regulatory process for freight facility indirect source rules (or as SCAQMD calls them “facility-based measures”). Following public testimony, the Board postponed the item since not all Board members were present. In April, with more Board members absent, the Board again voted to postpone consideration. In May, if enough Board members are present, the public may finally know where the SCAQMD stands on indirect source rules – a phenomenally bad public policy that, if implemented, would have dire consequences for the logistics industry, the ports and consumers throughout the United States.

Why dire consequences?

Unlike the straightforward regulatory approach taken by California for decades, indirect source rules call on freight facilities, like marine terminals, to be responsible for emissions from mobile sources like trucks – sources they do not control. Indirect source rules have no requirement that equipment manufacturers build compliant trucks, unlike new engines standards. Indirect source rules have no requirement that fleet owners accelerate their purchase of new, cleaner equipment, unlike in-use standards. Instead, indirect source rules would fine freight facilities, when truck manufacturers don’t produce cleaner trucks and fleet owners don’t purchase those vehicles. The only other option would be to shut down facilities when they reach their emission threshold. Imagine how that would play out in a global trade environment?

Which raises the question, how is indirectly regulating something more effective than doing so directly? How are indirect source rules a better strategy to clean up the air than new engine standards and new in-use standards? Or are indirect source rules simply a power grab by regulators attempting to exert control over a vibrant part of California’s economy?