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CRE Slams New Rule Aimed At Reducing Warehouse Emissions

A new regulation that will impact the industrial powerhouse areas of Southern California in LA and the Inland Empire has some of that sector's property owners and developers concerned.

An industrial building in the Inland Empire.

The rule requires warehouse operators within the boundaries of the South Coast Air Quality Management District to make up for the emissions from the truck traffic from their warehouses. They could do this by accruing points by taking steps from a list of actions including having zero-emission trucks service their warehouses or installing solar panels, a releasefrom the air quality management district said.

“About half of the air pollutants that contribute to smog come from the goods movement industry, with the largest source being heavy-duty trucks heading to warehouses across Southern California,” South Coast AQMD Executive Officer Wayne Nastri said in a statement.

Proponents of the rule were quick to issue plaudits for its advancement. 

Earthjustice staff attorney Adrian Martinez pointed to the SCAQMD report's findings that the rule was expected to result in 150 to 300 fewer deaths and 2,500 to 5,800 fewer asthma attacks between 2022 (when compliance begins) and 2031, and most of the scenarios explored by the district found about a 3:1 ratio of public health benefits compared to rule costs.

Critics of the rule say warehouse operators often do not have a say over the trucks, and they claim that the rule will have a ripple effect through the sector.

"This is a significant jolt to the supply chain," said Tim Jemal, CEO of NAIOP SoCal, the local arm of the commercial real estate development association.

Called the "warehouse indirect source rule," it would apply to warehouses over 100K SF in the district, which covers large swaths of Los Angeles, San Bernardino and Riverside counties and all of Orange County. That is potentially a lot of very big warehouses: About 3,000 of the area's biggest warehouses would be affected, according to The New York Times. A staff report from the district said that the warehouses that would fall under this new rule take up about 750M SF.

A company that doesn't meet the new requirements would have to pay a mitigation fee based on the size of its warehouse. The district estimated that would be approximately 83 cents per SF if no other interventions were taken and operators chose to solely pay the fee, but NAIOP SoCal estimates that operators could have to pay as much as $1 per SF.

Much of the new requirements fall on warehouse operators, but warehouse owners would have to furnish the information about who their tenants are and how much space they take up to the district for enforcement of the rules. 

The goal of reducing harmful emissions would lessen the public health burden on the communities in which these warehouses are concentrated, the district said. But Jemal said while NAIOP is also concerned about emissions, he worries that the rule and its associated costs could push warehouse users to seek space elsewhere, which could mean lost jobs.

Jemal said it seemed like the district staff thought there was no tax too high to impact the sector and the jobs it generates. "That's a mistaken view," he said.

The SCAQMD documents detailing the new rule and implementation say that the district commissioned a third-party study to see if warehouses in the area were likely to leave the area as a result of the new requirements. The study concluded that no warehouses would relocate to nearby areas outside the district boundaries as a result of the rule as proposed. 

"The low vacancy and continued increases in rents [in the area] over the past decade support this conclusion," the SCAQMD said.

The new requirements are ripe for a legal challenge, said Steve Farkas, a lawyer specializing in real estate and environmental law. 

One factor increasing a legal challenge is that Southern California's industrial commercial real estate has attracted increasingly massive and wealthy investors, owners and operators in recent years.

The coronavirus pandemic kicked investor interest in e-commerce-related industrial properties into high gear and saw a boom in expansion for operators like Amazon, which has at least 5.2M SF of warehouse space in Southern California alone and increased its "logistics nodes" in the area from nine to 32 in 2020, the Orange County Register reported in March. 

Another factor, which opponents have raised and Farkas underscored, is that the air quality district is stretching the boundaries of what it can regulate through this new rule. The district has jurisdiction over the warehouses, but not the trucks that ferry goods to them, which fall under the purview of the California Air Resources Board. 

"That's why they are calling it an indirect source rule," Farkas said. The idea is that they are not regulating the trucks, they are regulating the warehouses, which are indirectly impacting the trucks and their emissions. 

A legal challenge may or may not change whether the rule goes into effect. If it does go into effect, warehouse owners are required to share the necessary information about their warehouses with the air district in September, and the first compliance point comes up next year. 

For Earthjustice's Martinez, the authority of the district to act here is clear and very necessary. 

"Our hope is, now that the rule is passed, that there are some folks rolling up their sleeves and figuring out how best to implement this," hopefully by using zero-emission technology, Martinez said. "This is a unique opportunity to clean the air for communities that are suffering from high levels of pollution."