Everyone who touches or relies on freight for a job in Southern California will be impacted by the ports of Los Angeles and Long Beach Clean Air Action Plan (CAAP).
Its impact will be transformative.
Given the CAAP's long-reach, the question that needs to be discussed is whether the CAAP will reshape the waterfront for better or worse. There are a number of policy directives within the CAAP ranging from expansion of the California Air Resources Board (CARB) at-berth regulations for container ships to all types of vessels - bulk, breakbulk and the like; to mandates for zero emission trucks by 2035; operational mandates and zero emission equipment requirements for marine terminal operators by 2030.
It is the last item, zero emission equipment requirements for marine terminal operators, that I am going to focus my comments on today.
Imagine for a moment that you operate a marine terminal at the ports of Los Angeles or Long Beach. Your facility is hundreds of acres in size and has anywhere from 10-20 miles of roadway on it; and 3-15 miles of rail tracks. You employ approximately 400-700 people every day to operate 150-400 pieces of equipment to process between 2,000-4,000 gate moves per day. In addition, you pay anywhere from $50-60-plus million a year to the port in lease payments - along with millions in property tax every year. You work with a number of different unions, deal with hundreds of trucking companies, thousands of truck drivers, tens of thousands of cargo owners, a handful of ocean carriers and multiple regulatory agencies involving all three layers of government on a daily basis - in addition to your local port authority.
And you compete for cargo not just with your neighbors in San Pedro Bay, but gateways all over North America. Gateways that have enjoyed far higher rates of growth than the ports of Los Angeles and Long Beach experienced between 2006 -2016. And the San Pedro gateway as a whole has lost market share for a number of years.
Into this already ultra-competitive environment comes the Clean Air Action Plan, version 3.0. According to the ports, the CAAP will require the expenditure of more than $14 billion dollars to reduce port emissions to zero by 2030. For terminal operators, the cost alone is estimated to be approximately $4 billion to replace cargo handling equipment to zero emission. The ports admit that the cost estimates are speculative because the zero emissions technology to achieve these reductions which form the backbone of the CAAP does not exist.
Some context and background.
In the past 10 years, diesel particulate matter from trucks and cargo handling equipment has been reduced by 96 percent. According to the ports own data, these reductions have been achieved at a cost of between $1-2 billion. Under the proposed CAAP, the final four percent reductions will cost over $14 billion.
Using 2015 emission inventory numbers from the two ports, emissions from cargo handling equipment is measured in fractions of one percent for all pollution categories in terms of their total contribution to the South Coast Air Quality Management District's emissions inventory. For example,
Source - NOx / PM10 / PM2.5 / DPM / SOx
- CHE - 1,149 / 19 / 17 / 16 / 3 (In tons)
- CHE - 0.716% / 0.0333% / 0.0736% / 0.541% / 0.0516% (Emissions as percentage of SCAQMD total emissions)
As noted earlier, these are 2015 numbers. The ports recently announced their 2016 emission inventory noting continued progress in reducing emissions, so the latest emission numbers are smaller for 2016 than they were in 2015.
In spite of these significant air emission improvements, the industry's ultimate challenge is that the $14 billion cost cited in the CAAP is unprecedented and there is not enough funding in either the public or private sectors to pay for the as yet to be developed technology.
As a result, terminal operators and ports face the challenge of how to pay for this plan, while at the same time figuring out how to stay competitive. A difficult problem, yes?
But there is another factor that needs to be included - time.
From a greenhouse gas emission standpoint, unlike the State of California that has set a deadline to reduce greenhouse gas emissions by 80 percent below 1990 levels by the year 2050, the ports of Los Angeles and Long Beach have set a 100 percent zero emission requirement deadline by 2030 for cargo handling equipment.
The compressed deadline raises the question of why marine terminals are being forced to reduce emissions 20 years ahead of every other business and industrial sector in California. Is it because they produce a large volume of the emissions compared to the rest of the State? Well, using 2015 port emission inventory numbers and comparing them to the State of California total greenhouse gas emissions, cargo handling equipment for the ports of Los Angeles, Long Beach AND Oakland make up only 0.0747 percent of the State's GHG inventory. Is that enough to have an impact on global climate change? To be blunt, no. 0.0747 percent is not even a rounding error. Will these transformative policies be emulated and copied by competitive gateways throughout North America who have different air quality regulatory regimes, different port governance structures and different political philosophies? Only if it makes commercial and economic sense to do so.
Unfortunately, the CAAP directs and dictates an emissions strategy without any counterbalancing funding stream or commercial program to attract more cargo to mitigate its unprecedented costs. The only counterbalancing element of the CAAP that has been proposed as part of an effort to minimize its negative competitive impact is to lobby for limited state and federal funds to help mitigate the cost and to expand the CAAP requirements on a regional or national basis as part of an effort to minimize cargo diversion by spreading the pain to the competition at other California and U.S. ports.
Given the limited opportunities for state and federal funding, the competitive nature of our business and the political realities of our national politics, I would suggest that these specific CAAP proposals are not well thought out.
From a competitive standpoint, the CAAP at its core is simply layering additional costs without improving speed, velocity, density, reliability or risk to terminal operators, ocean carriers, trucking industry and cargo owners.
And unlike the ports, the international trade community does not view the CAAP in isolation. Southern California's supply chain is also facing the imposition of an Indirect Source Rule which will be an overlay on the CAAP and result in additional costs to port customers by regulating emissions of ports, warehouses, distribution centers and railyards through fines, limits on business activities and the like.
So marine terminal operators, who will be mandated to be zero emission by 2030, a full 20 years ahead of any other business in California or North America; who will have spent billions; who operate in a hyper-competitive environment, will now be responsible for the emissions that are drawn to their facilities by truck, rail or ship.
That said, we still have the problem of time.
On November 2, the commissions governing both the ports of Los Angeles and Long Beach will approve the CAAP. Press releases will be issued announcing a new era with congratulations all around for a job well done. Following a celebratory lap around the track, the question still remains: How will we remain competitive? Hopefully, that question will also be addressed in the November 2 press release.
But let's go back to the terminal operator, who, on the day after the CAAP is approved, has to begin the process of complying with it. Now what?
Well, nothing. Because the zero emissions technology to comply with the CAAP emission reduction goals haven't been developed yet. But the clock is ticking.
For terminal operators how do you begin the necessary and time consuming steps to modify your terminals if you don't know what type of equipment you'll be using. Developing plans, filing for permits, arranging for funding to purchase new equipment and to put in place the supporting infrastructure, modifying your operations, training people on new systems and developing contingency plans on how to operate your terminal while it is torn up to lay in the power infrastructure are all on hold until such time as a determination is made that zero emissions equipment, currently not in existence, is operationally and economically viable. The clock keeps ticking.
In a July 2015 document produced by the Port of Los Angeles that evaluated zero emission equipment, port staff stated, "…the Harbor Department supports the belief that thorough multiple unit demonstrations with rigorous in-use operation are needed to provide port operators with confidence in the technology and developers with data for performance claims and warranty provisions… A further challenge is simply the need for demonstrated long-term performance, reliability and durability. These vehicles must do more than just function; they must perform at the level of their conventional technology counterparts, which have well over a century of experience behind them. Zero emission vehicles at the port need to be able to execute the same tasks as their conventional combustion-based counterparts with a similar level of reliability, in the rigorous marine environment. As the maritime goods movement sources at the port continue to be the drivers of global trade for the nation, containers must move from ships to regional distribution centers quickly and efficiently every day, without fail. Introducing any new technology that has a limited track record of operation and reliability can jeopardize the flow of global trade and have repercussions across the economy."
I'm not sure what has changed since July 2015. But the port was right then. It needs to revisit and include these findings in the next iteration of the CAAP because while the rest of the State of California has the luxury of waiting until 2050, the clock is ticking for the ports of Los Angeles and Long Beach marine terminal operators. And more concerning from a competitiveness standpoint, no other North America gateway will be going through this process or multibillion dollar expense.
Emissions from port operations have declined dramatically over the past decade. As the CAAP states, these reductions are a function of cooperative efforts between the ports, their tenants and customers, local communities and regulators. No other industrial sector has reduced emissions in such amounts so quickly. It is cause for celebration.
But while the CAAP seeks zero emissions as its ultimate goal, and it is an admirable goal, it does so without regard to cost, competitiveness, impact to jobs and is carried out at an accelerated rate not required of any other industrial sector or the general motoring public, the largest source of mobile emissions in California. It is focused on small incremental emission reductions without regard to economic consequence or long-term competitiveness.
And it is a program based on faith - faith that the technology will be developed and that funding will appear in short order in order to meet an artificial deadline.
In July 2015, Governor Jerry Brown issued an Executive Order that set in place the development of a Sustainable Freight Strategy. In that order he stated "…California's complex freight transportation system is responsible for one-third of the State's economy and jobs, with freight-dependent industries accounting for over $700 billion in revenue and over 5 million jobs in 2013." He went on to state "…the policies and investments of state transportation and environmental agencies can influence California's freight system to become more efficient, competitive, and environmentally sustainable...and future investments to upgrade freight vehicles and infrastructure should utilize technologies, energy sources, and fuels that enable greater transportation efficiency while reducing community and environmental impacts."
The Governor wasn't advocating an "either-or" proposition with regard to reducing environmental impacts versus a vibrant and competitive freight industry. He was advocating for both. If we take the Governor's words to heart, sustainability applies not just to the environment but also to jobs and the economy. The two should go hand in hand.
There's been some suggestion that the ports of Los Angeles and Long Beach are "too big to fail" - that the volume of cargo running through the ports makes them so important that they are immune from long-term consequences.
Given that our ports have lost market share and experienced no growth, when compared to other North American ports between 2006-2016, that is a risky attitude to take.
Unfortunately, the current CAAP draft lacks balance and a vision for keeping the ports of Los Angeles and Long Beach competitive while at same time reducing emissions. Port tenants, customers, local residents and the one in nine jobs that are dependent on our ports deserve better.
John McLaurin has served as President of the Pacific Merchant Shipping Association (PMSA) since 1995. With offices in San Francisco, Long Beach and Seattle, PMSA is a west coast maritime trade association representing ocean carriers and marine terminal operators on a variety of local, state and federal issues. In addition to PMSA, McLaurin has also worked for the Marine Spill Response Corporation, American President Lines and the American Petroleum Institute. McLaurin has a Bachelors Degree in Political Science Public Service from the University of California at Davis and a law degree from Southwestern University School of Law. He has previously served on the Board of Regents of St. Mary's College in Moraga, Calif.; the California Oil Spill Technical Advisory Committee; Board of Directors of the San Francisco Marine Exchange; member of the Seamen's Church Institute Development Committee; San Ramon Valley Unified School District Special Education Task Force. He was a recipient of the 2013 Connie Award.