Air Resources Board Targets California's Industrial Properties

Winter 2017/2018 Issue
By: Toby Burke, senior director of state and local affairs, NAIOP

California’s Air Resources Board is considering an indirect source rule that would hold building owners and/or tenants responsible for reducing greenhouse gas emissions from trucks and other mobile sources that service their facilities.

GOVERNOR Jerry Brown touts his desire to make California a leader in the climate change debate, especially since President Donald Trump announced his decision to withdraw the U.S. from the Paris climate agreement. As he enters his final year in office in 2018, Brown has outlined an aggressive agenda that encourages state and local agencies to develop programs and make investments to address environmental issues. The California Air Resources Board (CARB) is one such state agency. Its primary mission is to reduce air pollution.

In March 2017, CARB adopted an addendum to resolutions 17-7 and 17-8 that directed staff to develop “concepts for an Indirect Source Rule (ISR) to control pollution from large freight facilities including ports, rail yards, warehouses and distribution centers, as well as any identified alternatives capable of achieving similar levels of emission reductions.” In particular, CARB aims to hold building owners and/or their tenants accountable for reducing greenhouse gas (GHG) emissions from trucks and other mobile sources associated with servicing the facility or property, even though the owners and tenants typically have no control over these vehicles. The rule would also include emissions from machinery and other equipment operating within a building.

The implementation of an indirect source rule could have a devastating effect on the movement of goods throughout the state of California. It would make it more difficult, and perhaps impossible, to operate many industrial properties economically. One concept that has been raised would establish an emissions standard for each industrial building in California, including warehouses and distribution centers. The standard would include truck emissions that are indirectly related to the facility’s operation; any truck dropping off or picking up goods at a building would contribute to that building’s emissions. This could restrict the movement of goods by limiting the number of trucks that are able to service an industrial property.

In other words, the state’s board would establish an emissions standard or cap for each freight-related facility. To remain in compliance with the ISR, the owner or operator of that facility would have to ensure that the facility did not exceed its emissions cap. The emissions from every truck related to that facility’s operation would be included in and subject to the property’s emissions cap. Violations by property owners, operators or tenants who exceed the cap could trigger fines or other restrictions.

Many commercial real estate professionals believe that CARB’s overall intent is to force building operators and the trucking industry to replace internal combustion engines with electric ones. But that goal doesn’t take into account the costs of such a transition, or whether the technology currently exists to achieve proposed emission reductions. To date, CARB has not conducted an economic impact analysis of the ISR concept.

Rex Hime, president and CEO of the California Business Properties Association, says, “Indirect source rules are the best way to upend the economic future of California. Unelected government officials deciding the fate of our distribution centers, our ports, our goods movement system, one-third of our entire state economy, only spells danger ahead.”

California’s ports welcome ships from around the world, and its warehouses distribute products to the rest of the country. However, if state and local regulations become too complex, restrictive or even impossible to comply with, companies may decide to move their operations to other ports and states with less burdensome regulations. If this were to occur, California’s commercial real estate industry would suffer as the state’s economy slowed.

The ISR may or may not be the tipping point for this to occur. But CARB and its staff would be well served to consider the potential repercussions as they discuss how to proceed with the ISR in 2018. NAIOP California, its chapters and members are prepared to work with state regulators to develop achievable and market-based solutions that encourage job growth and build the economy while protecting the environment.